As filed with the Securities and Exchange Commission on July 12, 1996
Registration No. 333-4127
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
SAXON ASSET SECURITIES COMPANY
(Seller)
(Exact name of registrant as specified in its charter)
Virginia Applied For
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
4880 Cox Road
Glen Allen, Virginia 23060
(804) 967-7400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Andrew Sirkis
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
(804) 967-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Thomas F. Farrell, II, Esquire Robert L. Burrus, Jr., Esquire
Dominion Resources, Inc. McGuire, Woods, Battle & Boothe, L.L.P.
Riverfront Plaza, West Tower One James Center
901 East Byrd Street, 17th Floor 901 East Cary Street
Richmond, Virginia 23219 Richmond, Virginia 23219
(804) 775-5807 (804) 775-1000
Approximate date of commencement of proposed sale to the public: As soon
as practicable on or after the effective date of this registration statement.
If the only securities registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. ( )
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. (X)
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.( )
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.( )
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER CERTIFICATE* OFFERING PRICE* REGISTRATION FEE**
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Asset Backed Certificates $1,000,000 100% $1,000,000 $344.83
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* Estimated solely for the purpose of calculating the registration fee.
** Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED JULY 12, 1996
PROSPECTUS
SAXON ASSET SECURITIES COMPANY
(Seller)
ASSET BACKED CERTIFICATES
(Issuable in Series)
This Prospectus relates to Asset Backed Certificates (the
"Certificates") which may be sold from time to time in one or more Series (each,
a "Series") by Saxon Asset Securities Company (the "Seller") on terms determined
at the time of sale and described in this Prospectus and the related Prospectus
Supplement. The Certificates of each Series will evidence (i) beneficial
ownership interests in one or more segregated pools of mortgage-related assets
(the "Mortgage Assets") and certain other assets described herein assigned or
transferred by the Seller to one or more trusts (collectively, a "Trust") or
(ii) if specified in the related Prospectus Supplement, beneficial ownership
interests in a Trust that holds a beneficial ownership interest in another trust
to which the Mortgage Assets and such other assets have been assigned or
transferred.
The Mortgage Assets will consist of one or more of the following: (i)
one- to four-family mortgage loans secured by first, second or more junior liens
on residential and mixed use properties (or participation interests in such
loans) ("Single Family Loans"), (ii) loans secured by security interests in or
similar liens on shares in private, non-profit cooperative housing corporations
("Cooperatives") and on the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in the buildings
owned by the Cooperatives (or participation interests in such loans)
("Cooperative Loans"), (iii) multi-family mortgage loans secured by first,
second or more junior liens on residential and mixed use properties, including
buildings owned by Cooperatives (or participation interests in such loans)
("Multi-Family Loans"), (iv) home improvement mortgage loans secured by first,
second or more junior liens on various types of properties (or participation
interests in such loans) ("Conventional Home Improvement Loans"), (v) home
improvement mortgage loans originated under the Title I credit insurance program
created under the National Housing Act of 1934 by the Federal Housing
Administration ("FHA") (or participation interests in such loans) ("Title I
Loans" and, collectively with Single Family Loans, Cooperative Loans,
Multi-Family Loans and Conventional Home Improvement Loans, "Mortgage Loans"),
(vi) mortgage-backed securities issued or guaranteed by the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or another
government agency or government sponsored agency (collectively, "Agency
Securities"), (vii) privately-issued mortgage-backed securities ("Private
Mortgage-Backed Securities" and, collectively with Agency Securities, "Mortgage
Certificates") and (viii) home equity lines of credit ("HELOCs"). The Seller may
also assign or transfer to the Trust for a Series certain reserve accounts,
insurance policies, guaranties, surety bonds, letters of credit, guaranteed
investment contracts or other assets, including a Pre-Funding Account (as
defined herein) to be used to purchase additional Mortgage Assets for such Trust
from time to time during a specified funding period, in each case as described
herein and in the related Prospectus Supplement. The Mortgage Assets and other
assets included in each Trust will be held for the benefit of the holders of the
Certificates of the related Series pursuant to an Agreement as more fully
described herein. If specified in the Prospectus Supplement for a Series, a
master servicer (the "Master Servicer"), which may include an affiliate of the
Seller, will perform, directly or indirectly through one or more sub-servicers,
certain administrative and supervisory functions with respect to the Mortgage
Assets included in the related Trust.
Each Series of Certificates will be issued in one or more classes
(each, a "Class"). Each Class of Certificates will evidence a
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beneficial ownership interest in a specified percentage or portion of future
principal payments and a specified percentage or portion of future interest
payments on the Mortgage Assets in the related Trust. One or more Classes of
Certificates of a Series may be subordinated in right to receive distributions
on the Mortgage Assets and be subject to allocation of losses on the Mortgage
Assets in favor of one or more other Classes of Certificates of the same Series
as specified in the related Prospectus Supplement.
Each Series of Certificates will receive distributions at the intervals
and on the dates specified in the related Prospectus Supplement from the
Mortgage Assets and any other assets included in the related Trust. The Seller
or an affiliate of the Seller may make or obtain for the benefit of any Series
of Certificates limited representations and warranties with respect to the
Mortgage Assets assigned to the related Trust. Neither the Seller nor any
affiliate of the Seller will have any other obligation with respect to any
Series of Certificates.
The yield on each Series of Certificates will be affected by, among
other things, the rate and timing of payments of principal (including
prepayments) of the Mortgage Assets included in the related Trust. Each Series
of Certificates will be subject to early termination under the circumstances
described herein and in the related Prospectus Supplement.
If specified in the Prospectus Supplement for a Series, one or more
elections may be made to treat certain Trusts or specified portions thereof as
real estate mortgage investment conduits (each, a "REMIC") for federal income
tax purposes. See "Certain Federal Income Tax Consequences." A Series of
Certificates for which a REMIC election has been made will include one or more
Classes of regular interests in each REMIC ("REMIC Regular Certificates") and
will include one Class of residual interest in each REMIC ("REMIC Residual
Certificates").
Certain risk factors should be considered by prospective purchasers of
the Certificates offered hereby. See "Risk Factors" herein at page 16 and in the
related Prospectus Supplement.
See "ERISA Considerations" herein and in the related Prospectus
Supplement for a discussion of restrictions on the acquisition of Certificates
by "plan fiduciaries."
Prospective purchasers of the Certificates offered hereby should
carefully review the information in the related Prospectus Supplement concerning
the risks associated with different types and Classes of Certificates.
THE CERTIFICATES OF EACH SERIES WILL BE ENTITLED TO PAYMENT ONLY FROM
THE ASSETS OF THE RELATED TRUST. THE CERTIFICATES DO NOT REPRESENT AN INTEREST
IN OR OBLIGATION OF THE SELLER, ANY SERVICER, ANY MASTER SERVICER, ANY TRUSTEE
OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
ASSETS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE SELLER, ANY SERVICER, ANY MASTER SERVICER, ANY TRUSTEE
OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS
SUPPLEMENT.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
------------------------------
Offers of the Certificates of any Series may be made through one or more
different methods, including offerings through underwriters as more fully
described herein and in the related Prospectus Supplement. See "Plan of
Distribution" herein and in the related Prospectus Supplement.
There can be no assurance that a secondary market will develop for the
Certificates of any Series or, if such a market does develop, that it will
provide the holders of such Certificates with liquidity of investment or that it
will continue for the life of such Certificates.
This Prospectus may not be used to consummate sales of Certificates
unless accompanied by a Prospectus Supplement.
------------------------------
The date of this Prospectus is ____________, 1996.
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RED HERRING
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS SUPPLEMENT
AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Series of Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters of the Series of Certificates covered by
such Prospectus Supplement and with respect to their unsold allotments or
subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon as having been authorized. This
Prospectus and any Prospectus Supplement with respect hereto do not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the Certificates offered hereby and thereby nor an offer to sell or a
solicitation of an offer to buy the Certificates to any person in any state or
other jurisdiction in which such offer or solicitation would be unlawful.
Neither delivery of this Prospectus or any Prospectus Supplement with respect
hereto nor any sale made hereunder and thereunder shall, under any
circumstances, create any implication that the information herein or therein is
correct as of any time subsequent to the date of such information.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement for a Series will, among other things, set
forth with respect to the Certificates of such Series, if applicable: (i) the
respective allocations and order of application of principal and interest
distributions on the Mortgage Assets in the related Trust to each Class of such
Certificates, (ii) certain information as to the nature of the Mortgage Assets
and any other assets assigned or transferred to such Trust, (iii) the dates
periodic distributions will be made to the holders of such Certificates, (iv) if
applicable, the fixed date on which the final distribution of principal is
scheduled to be made to the holders of each Class of such Certificates (each, a
"Final Scheduled Distribution Date"), (v) the authorized denominations of such
Certificates, (vi) the circumstances, if any, under which such Trust is subject
to early termination, (vii) certain information regarding the subordination of
rights to distributions of any Class of such Certificates to the rights of any
other Class of such Certificates and the allocation of losses among each Class
of such Certificates, (viii) whether the Seller intends to elect to cause such
Trust or specified portions thereof to be treated as a REMIC and the designation
of the regular and residual interests therein, (ix) information regarding the
credit enhancement, if any, for each Class of such Certificates, specifying the
provider of such credit enhancement and (x) additional information with respect
to the plan of distribution of such Certificates.
AVAILABLE INFORMATION
The Seller will be subject to the informational requirements of the
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Securities Exchange Act of 1934, as amended, and, in accordance therewith, will
file reports and other information with the Securities and Exchange Commission
(the "Commission"). Reports and other information filed by the Seller with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at certain of 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, Suite 1300, New
York, New York 10048. Copies of such materials can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
This Prospectus does not contain all the information set forth in the
Registration Statement of which this Prospectus is a part, or in the exhibits
relating thereto, which the Seller has filed with the Commission in Washington,
D.C. Copies of the information and the exhibits are on file at the offices of
the Commission and may be obtained upon payment of the fee prescribed by the
Commission or may be examined without charge at the offices of the Commission.
Copies of the Agreement (as defined herein) for a Series will be provided to
each person to whom a Prospectus is delivered upon written or oral request,
provided that such request is made to Saxon Asset Securities Company, 4880 Cox
Road, Glen Allen, Virginia 23060 ((804) 967-7400).
The Seller and the Master Servicer are not obligated with respect to the
Certificates. Accordingly, the Seller has determined that financial statements
of the Seller and the Master Servicer are not material to the offering made
hereby. Any prospective purchaser who desires to review financial information
concerning the Seller, however, will be provided with a copy of the most recent
financial statements of the Seller upon request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, after the date of
this Prospectus and prior to the termination of the offering of the Certificates
hereunder shall be deemed to be incorporated into and made a part of this
Prospectus from the date of filing of such documents. Any statement contained 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 statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus. The Seller will provide a copy of any and all information
that has been incorporated by reference into this Prospectus (not including
exhibits to the information so incorporated by reference unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates) upon written or oral request of any person, without
charge to such person, provided that such request is made to Saxon Asset
Securities Company, 4880 Cox Road, Glen Allen, Virginia 23060 ((804) 967-7400).
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REPORTS TO CERTIFICATEHOLDERS
The Seller will cause to be provided to the Certificateholders of each
Series periodic and annual reports concerning the Certificates of such Series
and the related Trust as described herein and in the related Prospectus
Supplement. See "The Agreement -- Reports to Certificateholders."
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TABLE OF CONTENTS
<TABLE>
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PROSPECTUS SUMMARY.............................................................................. 7
RISK FACTORS................................................................................... 16
DESCRIPTION OF THE CERTIFICATES................................................................ 20
General................................................................................ 20
Classes of Certificates................................................................ 20
Book-Entry Procedures.................................................................. 21
Allocation of Distributions from
Mortgage Assets........................................................................ 22
Allocation of Losses and Shortfalls.................................................... 23
Valuation of Mortgage Assets........................................................... 23
Optional Redemption.................................................................... 24
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS.................................................. 24
THE TRUSTS..................................................................................... 26
Assignment of Mortgage Assets.......................................................... 26
The Mortgage Loans -- General.......................................................... 27
Single Family Loans.................................................................... 29
Cooperative Loans...................................................................... 29
Multi-Family Loans..................................................................... 29
Junior Mortgage Loans................................................................. 29
Conventional Home Improvement Loans.................................................... 30
Title I Loans.......................................................................... 30
Repurchase of Converted Mortgage Loans................................................. 31
Repurchase of Delinquent Mortgage Loans................................................ 31
Substitution of Mortgage Loans ........................................................ 31
Agency Securities -- General........................................................... 32
Government National Mortgage Association; GNMA Certificates............................ 32
Federal National Mortgage Association; FNMA Certificates............................... 33
Federal Home Loan Mortgage Corporation; FHLMC Certificates............................. 34
Stripped Mortgage-Backed Certificates;
Other Agency Securities................................................................ 34
Private Mortgage-Backed Securities..................................................... 35
Home Equity Lines of Credit............................................................ 36
Pre-Funding Account.................................................................... 37
Asset Proceeds Account................................................................. 37
CREDIT ENHANCEMENT............................................................................. 37
General................................................................................ 37
Subordination.......................................................................... 38
Certificate Guaranty Insurance Policies................................................ 38
Overcollateralization.................................................................. 39
Mortgage Pool Insurance Policies....................................................... 39
Special Hazard Insurance Policies...................................................... 40
Bankruptcy Bonds....................................................................... 41
Cross-Support.......................................................................... 41
Reserve Funds.......................................................................... 41
Other Credit Enhancement............................................................... 42
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ORIGINATION OF MORTGAGE LOANS.................................................................. 42
SERVICING OF MORTGAGE LOANS.................................................................... 44
General................................................................................ 44
Payments on Mortgage Loans............................................................. 45
Advances............................................................................... 45
Collection and Other Servicing Procedures.............................................. 46
Primary Mortgage Insurance Policies.................................................... 46
Standard Hazard Insurance Policies..................................................... 47
Maintenance of Insurance Policies; Claims Thereunder and Other Realization
Upon Defaulted Mortgage Loans....................................................... 48
Modification of Mortgage Loans......................................................... 48
Evidence as to Servicing Compliance.................................................... 49
Events of Default and Remedies......................................................... 49
Master Servicer Duties................................................................. 49
Special Servicing Agreement............................................................ 50
THE AGREEMENT.................................................................................. 50
The Trustee............................................................................ 50
Administration of Accounts............................................................. 51
Reports to Certificateholders.......................................................... 51
Events of Default...................................................................... 52
Amendment.............................................................................. 52
Termination............................................................................ 53
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS........................................................ 53
General................................................................................ 53
The Mortgage Loans..................................................................... 53
Foreclosure............................................................................ 54
Junior Mortgage Loans; Rights of Senior
Mortgagees............................................................................. 56
Right of Redemption.................................................................... 57
Anti-Deficiency Legislation and Other Limitations on Lenders........................... 58
Soldiers' and Sailors' Civil Relief Act of 1940........................................ 58
Environmental Considerations........................................................... 59
"Due-on-Sale" Clauses.................................................................. 60
Enforceability of Certain Provisions................................................... 60
THE SELLER..................................................................................... 61
USE OF PROCEEDS................................................................................ 61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................................ 61
General................................................................................ 61
REMIC Certificates..................................................................... 62
Non-REMIC Certificates................................................................. 81
STATE TAX CONSIDERATIONS....................................................................... 85
ERISA CONSIDERATIONS........................................................................... 85
LEGAL INVESTMENT MATTERS....................................................................... 87
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PLAN OF DISTRIBUTION........................................................................... 88
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PROSPECTUS SUMMARY
The following summary 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 and in the Agreement with respect to such Series.
A form of the Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Seller..................... Saxon Asset Securities Company (the "Seller"), a
wholly owned, limited-purpose financing subsidiary
of Dominion Mortgage Services, Inc., a Virginia
corporation ("Dominion Mortgage"). Dominion
Mortgage is a wholly owned subsidiary of Dominion
Capital, Inc., a Virginia corporation ("Dominion
Capital"). None of Dominion Capital, Dominion
Mortgage or the Seller has guaranteed, or is
otherwise obligated with respect to, the
Certificates of any Series. The principal
executive offices of the Seller are located at
4880 Cox Road, Glen Allen, Virginia 23060, and the
telephone number of the Seller is (804) 967-7400.
See "The Seller."
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Certificates Offered...... Asset Backed Certificates (the "Certificates"),
issuable in one or more Series (each, a "Series"),
all as more fully described in the related
Prospectus Supplement. The Certificates of each
Series will evidence (i) beneficial ownership
interests in one or more segregated pools of
Mortgage Assets and certain other assets assigned
or transferred by the Seller to one or more trusts
(collectively, a "Trust") or (ii) if specified in
the related Prospectus Supplement, beneficial
ownership interests in a Trust that holds a
beneficial ownership interest in another trust to
which the Mortgage Assets and such other assets
have been assigned or transferred. Each Series of
Certificates will be issued in one or more classes
(each, a "Class") as specified in the related
Prospectus Supplement. The Certificates of each
Series will be entitled to payment only from the
assets of the related Trust.
The Certificates of any Class of any Series (i)
may be entitled to receive distributions allocable
only to principal, only to interest or to any
combination of principal and interest, (ii) may be
entitled to receive distributions allocable to
prepayments of principal throughout the life of
such Certificates or only during specified
periods, (iii) may be subordinated in right to
receive distributions on the Mortgage Assets and
be subject to allocation of losses on the Mortgage
Assets in favor of one or more other Classes of
Certificates of such Series, (iv) may be entitled
to receive distributions on the Mortgage Assets
only after the occurrence of specified events, (v)
may be entitled to receive distributions on the
Mortgage Assets in accordance with a specified
schedule or formula or on the basis of
distributions on specified portions of the
Mortgage Assets, (vi) in the case of Certificates
entitled to receive distributions allocable to
interest, may be entitled to receive interest at a
specified rate (a "Pass-Through Rate"), which may
be fixed, variable or adjustable and may differ
from the rate at which other Classes of
Certificates of such Series are entitled to
receive interest and (vii) in the case of
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Certificates entitled to receive distributions
allocable to interest, may be entitled to receive
such distributions only after the occurrence of
specified events and may accrue interest until such
events occur, in each case as specified in the
related Prospectus Supplement.
The Certificates of each Series will be issued as
fully registered certificates in certificated or
book-entry form in the authorized denominations
specified in the related Prospectus Supplement.
Neither the Certificates nor the underlying
Mortgage Assets will be guaranteed or insured by
any governmental agency or instrumentality or by
the Seller, any Servicer, any Master Servicer, any
Trustee or any of their affiliates, except as set
forth in the related Prospectus Supplement. The
Seller may retain or hold for sale from time to
time one or more Classes of Certificates. See
"Description of the Certificates."
Agreement.................. Each Series of Certificates will be issued
pursuant to one or more trust agreements or
pooling and servicing agreements (each, an
"Agreement") among the Seller, the Master Servicer
and the trustee identified in the related
Prospectus Supplement (the "Trustee"). Pursuant
to an Agreement, the Seller will assign and
transfer the Mortgage Assets and other assets to
be included in the related Trust to the Trustee in
exchange for a Series of Certificates. The
Mortgage Assets will be registered in the name of
such Trustee or its custodian following the
closing for such Series. See "The Trusts --
Assignment of Mortgage Assets."
Distributions on
the Certificates......... The Prospectus Supplement for each Series of
Certificates will specify (i) whether
distributions of principal and/or interest on
such Certificates will be made monthly,
quarterly, semi-annually or at other intervals,
(ii) the date for each such distribution (each, a
"Distribution Date"), (iii) the amount of each
such distribution allocable to principal and
interest and (iv) whether all distributions will
be made pro rata to Certificateholders of the
Class entitled thereto or on some other basis.
The amount available to be distributed on each
Distribution Date with respect to each Series of
Certificates (the "Available Distribution") will
be determined as set forth in the related
Agreement and will be described in the related
Prospectus Supplement. See "Description of the
Certificates -- Allocation of Distributions from
Mortgage Assets."
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The aggregate original principal balance of the
Certificates of each Series will equal the
aggregate distributions allocable to principal
that such Certificates will be entitled to
receive. The Mortgage Assets and any other assets
included in the Trust for each Series of
Certificates (including amounts held in any
Pre-Funding Account for such Series) will have an
initial aggregate value ("Asset Value") determined
as set forth in the related Agreement and
described in the related Prospectus Supplement.
The Asset Value of the Mortgage Assets and any
other assets included in the Trust for a Series
will equal or exceed the aggregate original
principal balance of the Certificates of such
Series. See "Description of the Certificates --
Valuation of Mortgage Assets."
Mortgage Assets. . ........ The Mortgage Assets assigned or transferred to the
Trust for a Series may consist of one or more of
the following, each of which will be specified in
the related Prospectus Supplement: (i) one- to
four-family mortgage loans secured by first, second
or more junior liens on residential and mixed use
properties (or participation interests in such
loans) ("Single Family Loans"), (ii) loans secured
by security interests in or similar liens on shares
in private, non-profit cooperative housing
corporations ("Cooperatives") and on the related
proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units
in the buildings owned by the Cooperatives (or
participation interests in such loans)
("Cooperative Loans"), (iii) multi-family mortgage
loans secured by first, second or more junior liens
on residential and mixed use properties, including
buildings owned by Cooperatives (or participation
interests in such loans) ("Multi-Family Loans"),
(iv) home improvement mortgage loans secured by
first, second or more junior liens on residential
various types of properties (or participation
interests in such loans) ("Conventional Home
Improvement Loans"), (v) home improvement mortgage
loans originated under the Title I credit insurance
program created under the National Housing Act of
1934 by the Federal Housing Administration ("FHA")
(or participation interests in such loans) ("Title
I Loans" and, collectively with Single Family
Loans, Cooperative Loans, Multi-Family Loans and
Conventional Home Improvement Loans, "Mortgage
Loans"), (vi) mortgage-backed securities issued or
guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") or another
government agency or government sponsored agency
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(collectively, "Agency Securities"), (vii)
privately-issued mortgage-backed securities
("Private Mortgage-Backed Securities" and,
collectively with Agency Securities, "Mortgage
Certificates") and (viii) home equity lines of
credit ("HELOCs").
A. Mortgage Loans......... Unless otherwise specified in the Prospectus
Supplement for a Series, the Mortgage Loans
included in the related Trust will be evidenced by
promissory notes (each, a "Mortgage Note") and will
be secured by first, second or more junior liens on
(i) the related real property or leasehold
interest, together with improvements thereon, or
(ii) with respect to Cooperative Loans, the shares
issued by the related Cooperative (the "Mortgaged
Premises"). Unless specified in the Prospectus
Supplement for a Series, the Mortgage Loans
included in the related Trust will not be insured
or guaranteed by any government agency
("Conventional Mortgage Loans"). The payment terms
of the Mortgage Loans to be included in the Trust
for any Series will be described in the related
Prospectus Supplement.
The Mortgaged Premises (and, with respect to
Cooperative Loans, the buildings owned by
Cooperatives) may be located in any state,
territory or possession of the United States
(including the District of Columbia or Puerto
Rico). The Mortgaged Premises generally will be
covered by standard hazard insurance policies
("Standard Hazard Insurance Policies") insuring
against losses due to fire and various other
causes. The Mortgage Loans will be covered by
primary mortgage insurance policies ("Primary
Mortgage Insurance Policies") insuring, subject to
their provisions and certain limitations, against
all or a portion of any loss sustained by reason
of nonpayments by borrowers to the extent
specified in the related Prospectus Supplement.
Unless otherwise specified in the Prospectus
Supplement for a Series, the Mortgage Loans will
be purchased by the Seller from Saxon Mortgage,
Inc., a Virginia corporation and an affiliate of
the Seller ("Saxon Mortgage"). Unless otherwise
specified in the Prospectus Supplement for a
Series, the Mortgage Loans will be originated by
Saxon Mortgage or purchased by Saxon Mortgage in
the open market or in privately negotiated
transactions from savings and loan associations,
savings banks, commercial banks, credit unions,
insurance companies or similar institutions that
are supervised and examined by a federal or state
authority (each, including Saxon Mortgage in its
capacity as an originator of Mortgage Loans, an
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"Originator"). Each Mortgage Loan included in the
Trust for any Series of Certificates that
constitute "mortgage-related securities" under the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") will be originated by an institution
approved by the United States Department of Housing
and Urban Development ("HUD"). See "The Trusts --
The Mortgage Loans -- General" and "Origination of
Mortgage Loans."
Certain of the Mortgage Loans may be partially
insured by the FHA, an agency of HUD, pursuant to
the Title I credit insurance program (the "Title I
Loan Program") created under the National Housing
Act of 1934. Under the Title I Loan Program, the
FHA is authorized and empowered to insure qualified
lending institutions against losses on eligible
loans. The Title I Loan Program operates as a
coinsurance program in which the FHA insures up to
90% of certain losses incurred on an individual
insured loan, including the unpaid principal
balance of the loan, but only to the extent of the
insurance coverage available in the lender's FHA
insurance coverage reserve account. The owner of
the loan bears the uninsured loss on each loan. FHA
insurance is accorded the full faith and credit of
the United States. See "The Trusts
--Title I Loans."
B. Agency Securities...... The Agency Securities may include (i) fully
modified pass-through mortgage-backed
certificates guaranteed as to timely payment of
principal and interest by the Government
National Mortgage Association ("GNMA
Certificates"), (ii) guaranteed mortgage
pass-through certificates issued and guaranteed
as to timely payment of principal and interest
by the Federal National Mortgage Association
("FNMA Certificates"), (iii) mortgage
participation certificates issued and
guaranteed as to timely payment of interest
and, unless otherwise specified in the related
Prospectus Supplement, ultimate payment of
principal by the Federal Home Loan Mortgage
Corporation ("FHLMC Certificates"), (iv)
stripped mortgage-backed securities
representing an undivided interest in all or a
part of either the principal distributions (but
not the interest distributions) or the interest
distributions (but not the principal
distributions) or in some specified portion of
the principal and interest distributions (but
not all of such distributions) on certain GNMA
Certificates, FNMA Certificates, FHLMC
Certificates or other government agency or
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government-sponsored agency certificates and,
unless otherwise specified in the related
Prospectus Supplement, guaranteed to the same
extent as the underlying securities, (v) another
type of guaranteed pass-through certificate issued
or guaranteed by GNMA, FNMA, FHLMC or another
government agency or government-sponsored agency
and described in the related Prospectus Supplement
or (vi) a combination of the Agency Securities
described in clauses (i) through (v) above. The
GNMA Certificates will be backed by the full faith
and credit of the United States. The FNMA
Certificates and FHLMC Certificate will not be
backed, directly or indirectly, by the full faith
and credit of the United States. See "The Trusts --
Agency Securities -- General."
C. Private Mortgage-Backed
Securities........... The Private Mortgage-Backed Securities may include
(i) mortgage participation or pass-through
certificates representing beneficial interests in
certain mortgage loans or Agency Securities or
(ii) collateralized mortgage obligations secured
by certain mortgage loans. The Private
Mortgage-Backed Securities will not be insured or
guaranteed by the United States or any agency or
instrumentality thereof. Unless otherwise
specified in the Prospectus Supplement relating to
a Series, payments on the Private Mortgage-Backed
Securities will be distributed directly to the
Trustee as registered owner of such Private
Mortgage-Backed Securities. See "The Trusts
--Private Mortgage-Backed Securities."
D. Home Equity Lines
of Credit ........... Unless otherwise specified in the Prospectus
Supplement for a Series, HELOCs will consist of
home equity lines of credit or certain balances
thereof secured by mortgages on one- to
four-family residential properties, including
condominium units and cooperative dwellings, or
mixed-use properties. The HELOCs may be
subordinated to other mortgages on such
properties. See "The Trusts -- Home Equity Lines
of Credit."
Pre-Funding Account........ If so specified in the related Prospectus
Supplement, a Trust may enter into an agreement
(each, a "Pre-Funding Agreement") with the Seller
under which the Seller will agree to transfer
additional Mortgage Assets to such Trust
following the date on which such Trust is
established and the related Certificates are
issued. Any Pre-Funding Agreement will require
that any Mortgage Loans so transferred conform to
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the requirements specified in such Pre-Funding
Agreement. If a Pre-Funding Agreement is used, the
related Trustee will be required to deposit in a
segregated account (each, a "Pre-Funding Account")
upon receipt all or a portion of the proceeds
received by the Trustee in connection with the sale
of one or more classes of Certificates of the
related Series. The additional Mortgage Assets will
thereafter be transferred to the related Trust in
exchange for money released to the Seller from the
related Pre-Funding Account. Each Pre-Funding
Agreement will specify a period during which any
such transfer must occur. If all moneys originally
deposited in such Pre-Funding Account are not used
by the end of such specified period, then any
remaining moneys will be applied as a mandatory
prepayment of one or more Classes of Certificates
as specified in the related Prospectus Supplement.
The specified period for the acquisition by a Trust
of additional Mortgage Loans will not exceed three
months from the date such Trust is established. See
"The Trusts -- Pre-Funding Account."
Servicer................... One or more servicers (each, a "Servicer"), which
may include an affiliate of the Seller, will
perform certain customary servicing functions with
respect to the Mortgage Loans included in the
Trust for any Series of Certificates.
See "Servicing of Mortgage Loans."
Master Servicer............ If specified in the Prospectus Supplement for a
Series, a master servicer (the "Master Servicer"),
which may include an affiliate of the Seller, will
perform, directly or indirectly through one or
more sub-servicers, certain administrative and
supervisory functions with respect to the Mortgage
Assets included in the related Trust. See
"Servicing of Mortgage Loans."
Special Servicer........... If specified in the Prospectus Supplement for a
Series, a special servicer (a "Special Servicer")
may be appointed to service, make certain
decisions with respect to and take various actions
with respect to delinquent or defaulted Mortgage
Loans or Mortgage Loans that are secured by
Mortgaged Premises acquired by foreclosure or by
deed-in-lieu of foreclosure (collectively, "REO
Properties").
Assets Proceeds Account.... All payments and collections received or
advanced on the Mortgage Assets assigned or
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transferred to the Trust for the Certificates of a
Series will be remitted to one or more accounts
(collectively, the "Asset Proceeds Account")
established and maintained in trust on behalf of
the holders of such Certificates. In general,
reinvestment income, if any, on amounts in the
Asset Proceeds Account will not accrue for the
benefit of the holders of the Certificates of a
Series but will be remitted periodically to the
Master Servicer or the Servicers as additional
master servicing or servicing compensation. See
"The Trusts -- Asset Proceeds Account."
Advances................... Unless otherwise specified in the Prospectus
Supplement for a Series, the Servicers of the
Mortgage Loans included in the related Trust and,
to the limited extent described herein, the Master
Servicer are, and the Trustee may be, obligated to
advance funds to such Trust to cover (i)
delinquent payments of principal or interest on
such Mortgage Loans, (ii) delinquent payments of
taxes, insurance premiums or other escrowed items
and (iii) foreclosure costs, including reasonable
attorney's fees ("Advances"). Any such advance
obligation may be limited to amounts deemed to be
recoverable from late payments or liquidation
proceeds, to amounts due holders of
specified Classes of Certificates of the related
Series, to specified periods of time, to certain
dollar amounts or to any combination of the
foregoing, in each case as specified in the
related Prospectus Supplement. Any such Advance
will be recoverable as specified in the related
Prospectus Supplement. See "Servicing of Mortgage
Loans -- General" and " -- Advances."
Credit Enhancement......... If so specified in the related Prospectus
Supplement, the Mortgage Assets in a Trust or one
or more Classes of Certificates will have the
benefit of one or more types of credit
enhancement. The protection against losses
afforded by any such credit enhancement may be
limited. See "Risk Factors -- Credit Enhancement
(if Available) May Be Limited" and
"Credit Enhancement."
A. Subordination . . . . .. If so specified in the related Prospectus
Supplement, a Series will include one or
more Classes of Certificates
("Subordinated Certificates") that are
subordinated in right to receive
distributions on the Mortgage Assets
included in the related Trust or subject
to the allocation of losses on such
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Mortgage Assets in favor of one or more other
Classes of Certificates of such Series ("Senior
Certificates"). If so specified in the related
Prospectus Supplement, the same Class of
Certificates may constitute Senior Certificates
with respect to certain types of distributions or
losses and Subordinated Certificates with respect
to other types of distributions or losses. If so
specified in the related Prospectus Supplement,
subordination may apply only in the event of
certain types of losses not covered by other forms
of credit support, such as hazard losses not
covered by Standard Hazard Insurance Policies or
losses due to the bankruptcy of a borrower not
covered by a Bankruptcy Bond.
If so specified in the related Prospectus
Supplement, all or any portion of the
distributions otherwise payable to the holders of
Subordinated Certificates on any Distribution Date
will instead be deposited into one or more reserve
accounts for a specified period of time or until a
specified level is reached. The related
Prospectus Supplement will set forth information
concerning the amount of subordination of each
Class of Subordinated Certificates in a Series,
the circumstances in which such subordination will
be applicable, the manner, if any, in which the
amount of subordination will decrease over time,
the manner of funding any such reserve account and
the conditions under which amounts in any such
reserve account will be used to make distributions
to the holders of Senior Certificates or released
to the holders of Subordinated Certificates. See
"Credit Enhancement -- Subordination."
B. Certificate Guaranty
Insurance Policies... If so specified in the related Prospectus
Supplement, one or more certificate guaranty
insurance policies (each, a "Certificate
Guaranty Insurance Policy") will be obtained
and maintained for one or more Classes or
Series of Certificates. In general,
Certificate Guaranty Insurance Policies
unconditionally and irrevocably guarantee
that the full amount of the distributions of
principal and interest to which the holders
of the related Certificates are entitled
under the related Agreement, as well as any
other amounts specified in the related
Prospectus Supplement, will be received by
an agent of the Trustee for distribution by
the Trustee to such holders. Certificate
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Guaranty Insurance Policies may have certain
limitations set forth in the related Prospectus
Supplement, including, but not limited to,
limitations on the insurer's obligation to
guarantee the Master Servicer's obligation to
repurchase or substitute for any Mortgage Loans, to
guarantee any specified rate of prepayments or to
provide funds to redeem Certificates on any
specified date. See "Credit Enhancement --
Certificate Guaranty Insurance Policies."
C. Overcollateralization.. If so specified in the related Prospectus
Supplement, the aggregate principal balance
of the Mortgage Assets included in a Trust
may exceed the original principal balance
of the related Certificates. In addition,
if so specified in the related Prospectus
Supplement, certain Classes of Certificates
may be entitled to receive limited
acceleration of principal relative to the
amortization of the related Mortgage
Assets. The accelerated amortization will
be achieved by applying certain excess
interest collected on the Mortgage Assets
to the payment of principal on such Classes
of Certificates. This acceleration feature
is intended to create a level of
overcollateralization generally equal to
the excess of the aggregate principal
balances of the applicable Mortgage Assets
over the aggregate principal balances of
the applicable Classes of Certificates.
The acceleration feature may continue for
the life of the applicable Classes of
Certificates or may be limited. In the
case of limited acceleration, once the
required level of overcollateralization is
reached, and subject to certain provisions
specified in the related Prospectus
Supplement, the acceleration feature will
cease unless necessary to maintain the
required overcollateralization level. See
"Credit Enhancement --
Overcollateralization."
D. Mortgage Pool
Insurance
Policies............. If so specified in the related Prospectus
Supplement, one or more mortgage pool insurance
policies (each, a "Mortgage Pool Insurance
Policy") insuring, subject to their provisions and
certain limitations, against defaults on the
related Mortgage Loans will be obtained and
maintained for the related Series in an amount
specified in such Prospectus Supplement. See
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"Credit Enhancement -- Mortgage Pool Insurance
Policies."
E. Special Hazard
Insurance
Policies............. If so specified in the related Prospectus
Supplement, one or more special hazard insurance
policies (each, a "Special Hazard Insurance
Policy") insuring, subject to their provisions and
certain limitations, against certain losses not
covered by Standard Hazard Insurance Policies will
be obtained and maintained for the related Series
in an amount specified in such Prospectus
Supplement. See "Credit Enhancement -- Special
Hazard Insurance Policies."
F. Bankruptcy
Bonds................ If so specified in the related Prospectus
Supplement, one or more mortgagor bankruptcy bonds
(each, a "Bankruptcy Bond") covering certain
losses resulting from a reduction by a bankruptcy
court of scheduled payments of principal or
interest on a Mortgage Loan or a reduction by such
court of the principal amount of a Mortgage Loan
and certain unpaid interest on the amount of such
a principal reduction will be obtained and
maintained for the related Series in an amount
specified in such Prospectus Supplement. See
"Credit Enhancement -- Bankruptcy Bonds."
G. Cross
Support............... If so specified in the related Prospectus
Supplement, the coverage provided by one or more
forms of credit enhancement may apply concurrently
to two or more separate Trusts, without priority
among such Trusts, until the credit enhancement is
exhausted. If applicable, such Prospectus
Supplement will identify the Trusts or asset groups
to which such credit enhancement relates and the
manner of determining the amount of the coverage
provided thereby and of the application of such
coverage to the identified Trusts or asset groups.
See "Credit Enhancement -- Cross-Support."
H. Reserve Funds........... If so specified in the related Prospectus
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Supplement, cash or certain instruments will be
deposited by the Seller in one or more accounts
(each, a "Reserve Fund") established and maintained
with the Trustee. Such cash and the principal and
interest payments on such instruments will be used
to enhance the likelihood of timely payment of
principal of, and interest on, or, if so specified
in such Prospectus Supplement, to provide
additional protection against losses in respect of,
the assets in the related Trust, to pay the
expenses of such Trust or for such other purposes
as may be specified in such Prospectus Supplement.
See "Credit Enhancement -- Reserve Funds."
I. Other Credit
Enhancement.......... If so specified in the related Prospectus
Supplement, other credit enhancement arrangements,
including, but not limited to,
insurance policies, guaranties, surety bonds,
letters of credit, guaranteed investment contracts
or similar arrangements, may be used to provide
coverage for certain defaults or losses. These
arrangements may be in addition to or in
substitution for any forms of credit support
described in this Prospectus. Any such
arrangement must be acceptable to each Rating
Agency that provides, at the request of the
Seller, a rating for the Certificates of the
related Series. In addition, to the extent a
significant portion of the Mortgage Loans
underlying a Series of Certificates consists of
Title I Loans, the related Prospectus Supplement
will describe the features of any related credit
enhancement, including, but not limited to, any
credit enhancement provided by the FHA. See
"Credit Enhancement -- Reserve Funds; -- Other
Credit Enhancement."
Optional Redemption........ To the extent and under the circumstances
specified in the Prospectus Supplement for a
Series, the Certificates of such Series may be
redeemed by the party specified therein. See
"Description of the Certificates -- Optional
Redemption."
Certain Federal Income
Tax Consequences........... The federal income tax consequences to the holders
of the Certificates of any Series will depend on,
among other factors, whether an election is made
to treat the related Trust or specified portions
thereof as "real estate mortgage investment
conduits" (each, a "REMIC") under the
provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). See "Certain Federal
Income Tax Consequences."
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REMIC. If an election is made to treat the Trust
or specified portions thereof for a Series of
Certificates as a REMIC for federal income tax
purposes, the related Prospectus Supplement will
specify each Class of Certificates of such Series
to be designated as regular interests in such
REMIC (the "REMIC Regular Certificates") and the
Class of Certificates of such Series to be
designated as the residual interest in such REMIC
(the "REMIC Residual Certificates"). To the
extent provided herein and in the related
Prospectus Supplement, Certificates representing
an interest in the REMIC generally will be
considered "qualifying real property loans" within
the meaning of Section 593(d) of the Code, "real
estate assets" for purposes of Section
856(c)(5)(A) and assets described in Section
7701(a)(19)(C).
In the opinion of special tax counsel to the
Seller ("Special Tax Counsel"), for federal income
tax purposes, REMIC Regular Certificates generally
will be treated as debt obligations of the Trust
with payment terms equivalent to the terms of such
Certificates. Each REMIC Regular
Certificateholder will be required to report
income with respect to its Certificate under an
accrual method, regardless of its normal tax
accounting method. Original issue discount, if
any, on REMIC Regular Certificates will be
includable in the income of the Certificateholders
as it accrues, in advance of receipt of the cash
attributable thereto, which rate of accrual will
be based on a reasonable assumed prepayment rate.
The REMIC Residual Certificates generally will not
be treated as evidences of indebtedness for
federal income tax purposes but instead will be
treated as representing rights to the taxable
income or net loss of the REMIC.
Each REMIC Residual Certificateholder will be
required to take into account separately its pro
rata share of the REMIC's taxable income or loss.
Certain income of a REMIC (referred to as "excess
inclusions") generally may not be offset by net
operating loss carryovers or other deductions, and
in the case of a tax-exempt REMIC Residual
Certificateholders, will be treated as "unrelated
business taxable income." In certain situations,
particularly in the early years of a REMIC, REMIC
Residual Certificateholders may have taxable
income, and possibly tax liabilities with respect
to such income, in excess of cash distributed to
them. Certain "disqualified organizations" are
prohibited from acquiring or holding any
REMIC Residual Certificates or beneficial interest
therein.
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Grantor Trust. If no election is made to treat the
Trust or specified portions thereof for a Series of
Certificates as a REMIC, the Trust will be
classified as a grantor trust for federal income
tax purposes and not as an association taxable as a
corporation. In the opinion of Special Tax Counsel,
Certificateholders of any such Series ("Non-REMIC
Certificates") will be treated for federal income
tax purposes, subject to the possible application
of the stripped bond rules, as owners of undivided
interests in the related Mortgage Assets and
generally will be required to report as income
their pro rata share of the entire gross income
(including amounts paid as reasonable servicing
compensation) from such Mortgage Assets and will be
entitled, subject to certain limitations, to deduct
their pro rata share of expenses of the related
Trust.
To the extent provided herein and in the related
Prospectus Supplement, Non-REMIC Certificates will
represent interests in "qualifying real property
loans" within the meaning of Section 593(d) of the
Code, "real estate assets" for the purposes of
Section 856(c)(5)(A) and assets described in
Section 7701(a)(19)(C).
Investors are urged to consult their tax advisors
concerning the application of federal income tax
laws to their particular situations and to review
"Certain Federal Income Tax Consequences" herein
and, if applicable, in the related Prospectus
Supplement.
Legal Investment Matters... Unless otherwise specified in the related
Prospectus Supplement, the Certificates of
each Series offered by this Prospectus and
such Prospectus Supplement will constitute
"mortgage-related securities" under
SMMEA and, as such, will be
"legal investments" for certain types of
institutional investors to the extent
provided in SMMEA, subject, in each case, to
state laws overriding SMMEA and to any other
regulations which may govern investments by
such institutional investors. If so
specified in the related Prospectus
Supplement, all or certain Classes of
Certificates may not constitute
"mortgage-related securities" under SMMEA.
Securities that do not constitute
"mortgage-related securities" under SMMEA
will require registration, qualification or
an exemption under applicable state
securities laws and may not be "legal
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investments" to the same extent as
"mortgage-related securities." See "Legal
Investment Matters."
ERISA Considerations....... Fiduciaries of employee benefit plans or other
retirement plans or arrangements, including
individual retirement accounts, certain Keogh
plans, and collective investment funds, separate
accounts and insurance company general accounts
in which such plans, accounts or arrangements
are invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code, should carefully
review with their legal advisors whether an
investment in Certificates will cause the assets
of the related Trust to be considered plan
assets under the Department of Labor ("DOL")
regulations set forth in 29 C.F.R. Section
2510.3-101 (the "Plan Asset Regulations"),
thereby subjecting the Trustee and the Master
Servicer to the fiduciary responsibility
standards of ERISA, and whether the purchase,
holding or transfer of Certificates gives rise
to a transaction that is prohibited under ERISA
or subject to the excise tax provisions of
Section 4975 of the Code. Certain Classes of
Certificates may not be offered for sale or
transferable to Plans (as defined herein). See
"ERISA Considerations " herein and in the
related Prospectus Supplement.
Ratings.................... Each Class of Certificates offered hereby and by
the related Prospectus Supplement will be rated in
one of the four highest rating categories by one or
more nationally recognized statistical rating
organizations (each, a "Rating Agency").
Risk Factors............... An investment in the Certificates will be subject
to one or more risk factors, including declines in
the value of Mortgaged Premises, prepayment of
Mortgage Loans, limitations on credit enhancement,
consumer credit laws affecting the Mortgage Assets,
the risk of higher losses with respect to
particular types of Mortgage Loans and various
other factors. See "Risk Factors" herein and in the
related Prospectus Supplement.
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RISK FACTORS
Prospective investors should consider, among other things, the following
risk factors and the risk factors identified in the related Prospectus
Supplement in connection with a purchase of the Certificates of any Series. See
"Risk Factors" in the related Prospectus Supplement.
Certificateholders Must Look Solely to Limited Trust Assets for
Certificate Payments
Each Trust is expected to have no significant assets other than the
Mortgage Assets and any other assets assigned to the Trust by the Seller.
Prospective purchasers of the Certificates of a Series must rely primarily upon
payments of principal and interest on the related Mortgage Assets, the security
therefor and the sources of credit enhancement, if any, identified in the
related Prospectus Supplement. Neither the Certificates nor the underlying
Mortgage Assets will be guaranteed or insured by any governmental agency or
instrumentality or by the Seller, any Servicer, any Master Servicer, any Trustee
or any of their affiliates, except as set forth in the related Prospectus
Supplement.
Credit Enhancement (if Available) May Be Limited
The credit enhancement, if any, for any Series of Certificates may be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. In addition, such credit enhancement may
provide only very limited coverage as to certain types of losses and may provide
no coverage as to certain other types of losses. The Trustee may be permitted to
reduce, terminate or substitute all or a portion of the credit enhancement for
any Series of Certificates to the extent specified in the related Prospectus
Supplement. See "Credit Enhancement."
Economic Developments May Adversely Affect Mortgage Asset
Performance
If the residential real estate market in general or a regional or local
area where the Mortgage Loans constituting or underlying the Mortgage Assets for
a Trust are concentrated should experience an overall decline in property values
or a significant downturn in economic conditions, rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. To the extent such losses are not covered by
credit enhancement, holders of the Certificates of the related Series will have
to look primarily to the value of the Mortgaged Premises for recovery of the
outstanding principal and unpaid interest of the defaulted Mortgage Loans.
Bankruptcy Recharacterization
of Mortgage Asset Transfers May Delay or Reduce Certificate Payments
Saxon Mortgage and the Seller intend that the transfers of the Mortgage
Assets to the Seller and, in turn, to the related Trust will constitute sales
rather than pledges to secure indebtedness for insolvency purposes. If Saxon
Mortgage were to
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become a debtor under the federal Bankruptcy Code, however, a creditor,
trustee-in-bankruptcy or receiver of Saxon Mortgage might argue that such a
transfer was a pledge rather than a sale. This position, if argued or accepted
by a court, could result in a delay in or reduction of distributions on the
Certificates of the related Series.
Various Laws May Delay or Reduce Certificate Payments
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. The Internal Revenue Code
of 1986, as amended, provides priority to certain tax liens over the lien of a
mortgage or deed of trust. Other federal and state laws provide priority to
certain tax and other liens over the lien of a mortgage or deed of trust.
Numerous federal and some state consumer protection laws impose substantive
requirements upon mortgage lenders in connection with the origination, servicing
and enforcement of mortgage loans. These laws include the federal Truth in
Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity
Act, Fair Credit Billing Act, Fair Credit Reporting Act, and related statutes
and regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans. See "Certain Legal Aspects of Mortgage Loans --
Anti-Deficiency Legislation and Other Limitations on Lenders."
Modification of Mortgage Loans May Delay or Reduce Certificate
Payments
With respect to a Mortgage Loan on which a material default has occurred
or a payment default is imminent, the related Servicer, with the consent of the
Master Servicer, may enter into a forbearance or modification agreement with the
borrower. The terms of any such forbearance or modification agreement may affect
the amount and timing of principal and interest payments on the Mortgage Loan
and, consequently, the amount and timing of payments on one or more Classes of
the related Series of Certificates. For example, a modification agreement that
results in a lower Mortgage Interest Rate would lower the Pass-Through Rate of
any related Class of Certificates that accrues interest at a rate based on the
weighted average Net Rate of the Mortgage Loans. See "Servicing of Mortgage
Loans -- Modification of Mortgage Loans."
Mortgage Loan Prepayments May Affect Final Certificate Payment Date or
Certificate Yield
The prepayment experience on the Mortgage Assets underlying a particular
Series of Certificates will affect (i) the average life of each Class of such
Certificates, (ii) the extent to which the final distribution on each
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Class of such Certificates occurs prior to its Final Scheduled Distribution Date
and (iii) the effective yield on each Class of such Certificates. Because
prepayments will be passed through to the holders of Certificates of each Series
as distributions of principal on such Certificates, it is likely that, in the
event of such prepayments, the final distribution on each Class of Certificates
of a Series will occur prior to the Final Scheduled Distribution Date for such
Class. The timing and amount of principal payments (including prepayments) on
mortgage loans are influenced by a variety of economic, geographic, legal,
social and other factors, including changes in interest rate levels. In general,
if mortgage interest rates fall, the rate of prepayment would be expected to
increase. Conversely, if mortgage interest rates rise, the rate of prepayment
would be expected to decrease. Prepayments may also result from foreclosure,
condemnation and other dispositions of the Mortgaged Premises (including amounts
paid by insurers under applicable insurance policies), from the repurchase of
any Mortgage Loan as to which there has been a material breach of warranty or
defect in documentation (or from the deposit of certain amounts in respect of
the delivery of a substitute Mortgage Loan), from the repurchase of Mortgage
Loans modified in lieu of refinancing, from the repurchase of any liquidated
Mortgage Loan or delinquent Mortgage Loan, if applicable, or from the repurchase
by the Seller of all of the Certificates of a Series or all of the Mortgage
Loans or Mortgage Certificates in certain circumstances. The yields realized by
the holders of certain Certificates of a Series with disproportionate
allocations of principal or interest will be extremely sensitive to levels of
prepayments on the Mortgage Assets of the related Trust. See "Maturity,
Prepayment and Yield Considerations."
Secondary Market for Certificates May Not Develop or Continue
There can be no assurance that a secondary market will develop for the
Certificates of any Series or, if such a market does develop, that it will
provide the holders of such Certificates with liquidity of investment or that it
will continue for the life of such Certificates.
Certain Classes of Certificates may not constitute "mortgage related
securities" under SMMEA, and certain investors may be subject to legal
restrictions that preclude their purchase of any such non-SMMEA Certificates. In
addition, if so specified in the related Prospectus Supplement, certain Classes
of Certificates may be restricted as to transferability to certain entities. Any
restrictions on the purchase or transferability of the Certificates of a Series
may have a negative effect on the development of a secondary market for such
Certificates.
See "Legal Investment Matters."
Holders of Book-Entry Certificates May Experience Liquidity Problems or
Payment Delays
If so specified in the related Prospectus Supplement, certain
Certificates of a Series may initially be registered in book-entry form
("Book-Entry Certificates"). Issuance of the Certificates in book-entry form may
reduce the liquidity of such Certificates in the secondary market since
investors may be unwilling to purchase Certificates for which they cannot obtain
physical certificates. In addition, since transfers of Book-Entry Certificates
will, in most
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cases, be able to be effected only through persons or entities that participate
in the DTC system, the ability of a Certificateholder to pledge a Book-Entry
Certificate to persons or entities that do not participate in the DTC system, or
otherwise to take actions with respect to a Book-Entry Certificate, may be
impaired since physical certificates representing the Certificates will
generally not be available. Certificateholders may experience some delay in
their receipt of distributions of interest on and principal of the Book-Entry
Certificates since distributions may be required to be forwarded by the Trustee
to DTC, in which case DTC will be required to credit such distributions to the
accounts of its participants which thereafter will be required to credit them to
the accounts of the applicable Certificates, whether directly or indirectly
through Financial Intermediaries. See "Description of the Certificates --
Book-Entry Procedures."
Certificate Ratings May Be Affected by Credit Enhancer Ratings
The rating of Certificates credit enhanced through external credit
enhancement such as a letter of credit, financial guaranty insurance policy or
mortgage pool insurance policy will depend primarily on the creditworthiness of
the issuer of such external credit enhancement (the "Credit Enhancer"). Any
lowering of the rating assigned to the claims-paying ability of a Credit
Enhancer below the rating initially given to the Certificates of the related
Series would likely result in a lowering of the rating assigned to such
Certificates. Any such rating is not a recommendation to buy, sell or hold
Certificates and is subject to revision or withdrawal at any time by the Rating
Agency issuing such rating. The Seller will not be obligated to obtain
additional credit enhancement if necessary to maintain the rating initially
assigned to the Certificates of any Series.
Holders of Original Issue Discount Certificates Are Subject to Special
Tax Rules
Compound Interest Certificates and certain other Classes of Certificates
that are entitled only to interest distributions will be, and certain other
Classes of Certificates may be, issued with original issue discount for federal
income tax purposes. The holder of a Certificate issued with original discount
will be required to include original issue discount in ordinary gross income for
federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income. Accrued but unpaid interest on such Certificates
generally will be treated as original issue discount for this purpose. See
"Certain Federal Income Tax Consequences."
Balloon Loans May Experience Relatively Higher Losses
A portion of the aggregate principal balance of the Mortgage Loans at
any time may be "balloon loans" that provide for the payment of the unamortized
principal balance of such Mortgage Loans in a single payment at maturity
("Balloon Loans"). Balloon Loans provide for equal monthly payments, consisting
of principal and interest, generally based on a 30-year amortization schedule,
and a single payment of the remaining balance of the Balloon Loan, generally
five,
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seven, ten or 15 years after origination. Amortization of a Balloon Loan based
on a scheduled period that is longer than the term of the loan results in a
remaining principal balance at maturity that is substantially larger than the
regular scheduled payments. The Seller does not have any information regarding
the default history or prepayment history of payments on Balloon Loans. Because
borrowers of Balloon Loans are required to make substantial single payments at
maturity, it is possible that the default risk associated with Balloon Loans is
greater than that associated with fully-amortizing Mortgage Loans.
Junior Mortgage Loans May Experience Relatively Higher Losses
If specified in the Prospectus Supplement for a Series, the Mortgage
Loans assigned and transferred to the related Trust may include Mortgage Loans
secured by second or more junior liens on residential properties. Because the
rights of a holder of a second or more junior lien are subordinate to the rights
of a senior lienholder, the position of such Trust and the holders of the
Certificates of such Series could be more adversely affected by a reduction in
the value of the Mortgaged Premises than would the position of the senior
lienholder. In the event of a default by the related borrower, liquidation or
other proceeds may be insufficient to satisfy a second or more junior lien after
satisfaction of the senior lien and the payment of any liquidation expenses. See
"The Trusts -- Junior Mortgage Loans."
Mortgage Loans Secured by Non-Owner Occupied Properties May Experience
Relatively Higher Losses
Certain of the Mortgage Premises relating to the Mortgage Loans may not
be owner occupied. It is possible that the rate of delinquencies, foreclosures
and losses on Mortgage Loans secured by non-owner occupied properties could be
higher than for Mortgage Loans secured by primary residences.
Mortgage Loans Underwritten as Non-Conforming Credits May Experience
Relatively Higher Losses
If specified in the Prospectus Supplement for a Series, the Mortgage
Loans assigned and transferred to the related Trust may include Mortgage Loans
underwritten in accordance with the underwriting standards for "non-conforming
credits," which include borrowers whose creditworthiness and repayment ability
do not satisfy FNMA or FHLMC underwriting guidelines. A mortgage loan made to a
"non-conforming credit" means a mortgage loan that is ineligible for purchase by
FNMA or FHLMC due to borrower credit characteristics, property characteristics,
loan documentation guidelines or other characteristics that do not meet FNMA or
FHLMC underwriting guidelines, including a loan made to a borrower whose
creditworthiness and repayment ability do not satisfy such FNMA or FHLMC
underwriting guidelines and a borrower who may have a record of major derogatory
credit items such as default on a prior mortgage loan, credit write-offs,
outstanding judgments or prior bankruptcies. Because the borrowers on such
Mortgage Loans are less creditworthy than borrowers who meet FNMA or FHLMC
underwriting guidelines, delinquencies and
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foreclosures can be expected to be more prevalent with respect to such Mortgage
Loans than with respect to mortgage loans originated in accordance with FNMA or
FHLMC underwriting guidelines. As a result, changes in the values of the
Mortgaged Premises may have a greater effect on the loss experience of such
Mortgage Loans than on mortgage loans originated in accordance with FNMA or
FHLMC underwriting guidelines. If the values of the Mortgaged Premises decline
after the dates of origination of such Mortgage Loans, the rate of losses on
such Mortgage Loans may increase and such increase may be substantial.
See "Origination of Mortgage Loans."
Mortgage Assets May Include Delinquent and Non-Performing Mortgage
Loans
If specified in the Prospectus Supplement for a Series, the Mortgage
Assets in the related Trust may include Mortgage Loans that are secured by
Mortgaged Premises acquired by foreclosure or by deed-in-lieu of foreclosure
(collectively, "REO Properties") or Mortgage Loans that are delinquent or
non-performing. Credit enhancement provided with respect to a particular Series
of Certificates may not cover all losses related to such REO Properties or to
such delinquent or non-performing Mortgage Loans. Prospective investors should
consider the risk that the inclusion of such REO Properties or such Mortgage
Loans in the Trust for a Series may cause the rate of defaults and prepayments
on the Mortgage Loans to increase and, in turn, may cause losses to exceed the
available credit enhancement for such Series and affect the yield on the
Certificates of such Series. See "The Trusts -- The Mortgage Loans -- General."
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DESCRIPTION OF THE CERTIFICATES
General
The Asset Backed Certificates described herein and in the related
Prospectus Supplement (the "Certificates") will be issued from time to time in
Series pursuant to one or more trust agreements or pooling and servicing
agreements (each, an "Agreement"), a form of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The provisions
of each Agreement will vary depending upon the nature of the Certificates to be
issued thereunder and the nature of the related Trust. The following summaries
describe the material provisions common to each Series of Certificates.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the Prospectus Supplement and the
Agreement with respect to a particular Series.
The Certificates of a Series will be entitled to payment only from the
assets of the related Trust. The Certificates do not represent an interest in or
obligation of the Seller, any Servicer, any Master Servicer, any Trustee or any
of their affiliates, except as set forth herein and in the related Prospectus
Supplement. Neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality or by the
Seller, any Servicer, any Master Servicer, any Trustee or any of their
affiliates, except as set forth in the related Prospectus Supplement. To the
extent that delinquent payments on or losses in respect of
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defaulted Mortgage Loans are not advanced by the Servicer or any other entity or
paid from any applicable credit enhancement, such delinquencies may result in
delays in the distribution of payments to the holders of one or more Classes of
Certificates and such losses may be allocated to the holders of one or more
Classes of Certificates.
The Certificates of each Series will be issued as fully registered
certificates in certificated or book-entry form in the authorized denominations
for each Class specified in the related Prospectus Supplement. The Certificates
of each Series in certificated form may be transferred (subject to the
limitations on transfer, if any, specified in the related Agreement) or
exchanged at the corporate trust office of the Trustee without the payment of
any service charge, other than any tax or other governmental charge payable in
connection therewith. Unless otherwise specified in the Prospectus Supplement
for a Series, distributions of principal and interest on each Certificate in
certificated form will be made on each Distribution Date by or on behalf of the
Trustee (i) by check mailed to each holder of such a Certificate at the address
of such holder appearing on the books and records of the Trust or (ii) by wire
transfer of immediately available funds upon timely request to the Trustee in
writing by any holder of such a Certificate having an initial principal amount
of at least $1,000,000 or such other amount as may be specified in the related
Prospectus Supplement; provided, however, that the final distribution in
retirement of a Certificate of a Series in certificated form will be made only
upon presentation and surrender of such Certificates at the corporate trust
office of the Trustee. Distributions of principal and interest on each Class of
Certificates in book-entry form will be made as set forth below.
Classes of Certificates
Each Series of Certificates will be issued in one or more classes (each,
a "Class") as specified in the related Prospectus Supplement. The Certificates
of any Class of any Series (i) may be entitled to receive distributions
allocable only to principal, only to interest or to any combination of principal
and interest, (ii) may be entitled to receive distributions allocable to
prepayments of principal throughout the life of such Certificates or only during
specified periods, (iii) may be subordinated in right to receive distributions
on the Mortgage Assets and may be subject to allocation of losses on the
Mortgage Assets in favor of one or more other Classes of Certificates of such
Series, (iv) may be entitled to receive distributions on the Mortgage Assets
only after the occurrence of specified events, (v) may be entitled to receive
distributions on the Mortgage Assets in accordance with a specified schedule or
formula or on the basis of distributions on specified portions of the Mortgage
Assets, (vi) in the case of Certificates entitled to receive distributions
allocable to interest, may be entitled to receive interest at a specified rate
(a "Pass-Through Rate"), which may be fixed, variable or adjustable and may
differ from the rate at which other Classes of Certificates of such Series are
entitled to receive interest and (vii) in the case of Certificates entitled to
receive distributions allocable to interest, may be entitled to receive such
distributions only after the
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occurrence of specified events and may accrue interest until such events occur,
in each case as specified in the related Prospectus Supplement.
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Book-Entry Procedures
The Prospectus Supplement for a Series may specify that certain Classes
of Certificates will initially be issued in book-entry form ("Book-Entry
Certificates") in the authorized denominations specified therein. Each such
Class will be represented by a single certificate registered in the name of the
nominee of the depository, which is expected to be The Depository Trust Company
("DTC" and, together with any successor or other depository selected by the
Seller, the "Depository"). The Depository or its nominee will be registered as
the record holder of each Class of Book-Entry Certificates in the certificate
register maintained by the Trustee for the related Trust. No person acquiring a
Book-Entry Certificate (each, a "Beneficial Owner") will be entitled to receive
a physical certificate representing such Certificate.
A Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded by appropriate entries on the books and records of the brokerage firm,
bank, thrift institution or other financial intermediary (each, a "Financial
Intermediary") that maintains such Beneficial Owner's account for such purpose.
In turn, the Financial Intermediary's ownership of such Book-Entry Certificate
will be recorded on the records of the Depository (or of a participating firm
that acts as agent for the Financial Intermediary whose interest in turn will be
recorded on the records of the Depository, if the Beneficial Owner's Financial
Intermediary is not a Depository participant). Therefore, the Beneficial Owner
must rely on the foregoing procedures to evidence its beneficial ownership of a
Book-Entry Certificate, and beneficial ownership of a Book-Entry Certificate may
only be transferred by compliance with the procedures of such Financial
Intermediaries and Depository participants.
DTC, which is a New York-chartered limited-purpose trust company,
performs services for its participants, some of whom (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing the Depository and
Depository participants as in effect from time to time.
Unless otherwise specified in the Prospectus Supplement for a Series,
distributions of principal and interest on the Book-Entry Certificates of such
Series will be made on each Distribution Date by or on behalf of the Trustee to
the Depository. The Depository will be responsible for crediting the amount of
such distributions to the accounts of the applicable Depository participants in
accordance with the Depository's normal procedures. Each Depository participant
will be responsible for disbursing such payments to the Beneficial Owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for
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disbursing funds to the Beneficial Owners of the Book-Entry Certificates that it
represents. As a result of the foregoing procedures, the Beneficial Owners of
the Book-Entry Certificates may experience some delay in their receipt of
payments.
Because transactions in Book-Entry Certificates can be effected only
through the Depository, participating organizations, indirect participants and
certain banks, the ability of the Beneficial Owner of a Book-Entry Certificate
to pledge such Certificate to persons or entities that do not participate in the
Depository, or otherwise to take actions in respect of such Certificate, may be
limited due to the lack of a physical certificate representing such Certificate.
Issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary trading market because investors
may be unwilling to purchase Book-Entry Certificates for which they cannot
obtain physical certificates.
The Book-Entry Certificates will be issued in fully registered,
certificated form to Beneficial Owners of Book-Entry Certificates or their
nominees, rather than to the Depository or its nominee, only if (i) the Seller
advises the Trustee in writing that the Depository is no longer willing or able
to discharge properly its responsibilities as depository with respect to the
Book-Entry Certificates and the Seller is unable to locate a qualified successor
within 30 days or (ii) the Seller, at its option, elects to terminate the
book-entry system through the Depository. Upon the occurrence of either event
described in the preceding sentence, the Trustee is required to notify the
Depository, which in turn will notify all Beneficial Owners of Book-Entry
Certificates through Depository participants, of the availability of
certificated Certificates. Upon surrender by the Depository of the certificates
representing the Book-Entry Certificates and receipt of instructions for
re-registration, the Trustee will reissue the Book-Entry Certificates as
certificated Certificates to the Beneficial Owners of the Book-Entry
Certificates.
Neither the Seller, the Master Servicer nor the Trustee will have any
liability for any aspect of the records relating to or payment made on account
of beneficial ownership interests of the Book-Entry Certificates held by the
Depository or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Allocation of Distributions from Mortgage Assets
The Prospectus Supplement for each Series of Certificates will specify
(i) whether distributions of principal and/or interest on such Certificates will
be made monthly, quarterly, semi-annually or at other intervals, (ii) the date
for each such distribution (each, a "Distribution Date"), (iii) the amount of
each such distribution allocable to principal and interest and (iv) whether all
distributions will be made pro rata to Certificateholders of the Class entitled
thereto or on some other basis. All distributions with respect to each
Certificate of a Series will be made to the person in whose name such
Certificate is registered (the "Certificateholder") as of the close of business
on the record date specified in the related Prospectus Supplement.
The amount available to be distributed on each Distribution Date
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with respect to each Series of Certificates (the "Available Distribution") will
be determined as set forth in the related Agreement and will be described in the
related Prospectus Supplement. In general, the Available Distribution for a
Distribution Date will be equal to the amount of principal and interest actually
collected, advanced or received during the related Due Period or Prepayment
Period, net of applicable servicing fees, master servicing fees, special
servicing fees, administrative and guarantee fees, insurance premiums, amounts
required to reimburse any unreimbursed Advances and any other amounts specified
in the related Prospectus Supplement. The Available Distribution will be
allocated among the Classes of Certificates in the proportion and order of
application set forth in the related Agreement and described in the related
Prospectus Supplement.
"Due Period" means, with respect to any Distribution Date, the period
commencing on the second day of the calendar month preceding the calendar month
in which such Distribution Date occurs and continuing through the first day of
the calendar month in which such Distribution Date occurs, or such other period
as may be specified in the related Prospectus Supplement.
"Prepayment Period" means, with respect to any Distribution Date, the
time period specified in the Prospectus Supplement for a Series used to identify
prepayments or other unscheduled payments of principal or interest received with
respect to Mortgage Assets that will be used to pay Certificateholders of such
Series on such Distribution Date.
The Prospectus Supplement for each Series of Certificates will specify
the Pass-Through Rate, or the method for determining the Pass-Through Rate, for
each applicable Class of Certificates. REMIC Residual Certificates may or may
not have a Pass-Through Rate. REMIC Residual Certificates of a Series will
generally be entitled to receive amounts remaining after allocation of scheduled
distributions to all other outstanding Classes of Certificates of such Series
entitled to such distributions. One or more Classes of Certificates may be
represented by a notional principal amount. The notional principal amount is
used solely for purposes of determining interest distributions and certain other
rights and obligations of the holders of such Certificates and does not
represent a beneficial interest in principal payments on the Mortgage Assets in
the related Trust. One or more Classes of Certificates may provide for interest
that accrues but is not currently payable ("Compound Interest Certificates").
Any interest that has accrued but is not paid with respect to a Compound
Interest Certificate on any Distribution Date will be added to the principal
balance of such Compound Interest Certificate on such Distribution Date.
The Prospectus Supplement for each Series of Certificates will specify
the method by which the amount of principal to be distributed on each
Distribution Date will be calculated and the manner in which such amount will be
allocated among the Classes of Certificates of such Series entitled to
distributions of principal. The aggregate original principal balance of the
Certificates of each Series will equal the aggregate distributions allocable to
principal that such Certificates will be entitled to receive. One or more
Classes of
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Certificates may be entitled to payments of principal in specified amounts on
specified Distribution Dates, to the extent of the Available Distribution on
such Distribution Dates, or may be entitled to payments of principal from the
amount by which such Available Distribution exceeds such specified amounts. One
or more Classes of Certificates may be subordinated in right to receive
distributions on the Mortgage Assets and may be subject to allocation of losses
on the Mortgage Assets in favor of one or more other Classes of Certificates of
the same Series as specified in the related Prospectus Supplement.
Allocation of Losses and Shortfalls
The Prospectus Supplement for each Series of Certificates will specify
the method by which realized losses or interest shortfalls with respect to the
Mortgage Loans included in the related Trust will be allocated. A loss may be
realized with respect to a Mortgage Loan (a "Realized Loss") as a result of (i)
the final liquidation of such Mortgage Loan through foreclosure sale,
disposition of the related Mortgaged Premises if acquired by deed-in-lieu of
foreclosure, or otherwise, (ii) the reduction of the unpaid principal balance of
such Mortgage Loan or the modification of the payment terms of such Mortgage
Loan in connection with a proceeding under the federal Bankruptcy Code or
otherwise, (iii) certain physical damage to the related Mortgaged Premises of a
type not covered by Standard Hazard Insurance Policies or (iv) fraud, dishonesty
or misrepresentation in the origination of such Mortgage Loan. An interest
shortfall may occur with respect to a Mortgage Loan as a result of a failure on
the part of any Servicer, the Master Servicer or the Trustee to advance funds to
cover delinquent payments of principal or interest on such Mortgage Loan, the
application of the Soldiers' and Sailors' Civil Relief Act of 1940 or the
prepayment in full of such Mortgage Loan and the failure of the Servicer or, in
certain cases, the Master Servicer to pay interest to month-end.
If so specified in the related Prospectus Supplement, the Senior
Certificates of a Series will not bear any realized losses on the related
Mortgage Loans until the Subordinated Certificates of such Series have borne
realized losses up to a specified amount or loss limit or until the principal
amount of the Subordinated Certificates has been reduced to zero, either through
the allocation of realized losses, the priority of distributions or both. If so
specified in the related Prospectus Supplement, interest shortfalls may result
in a reallocation to the Senior Certificates of a Series of amounts otherwise
distributable to the Subordinated Certificates of such Series.
Valuation of Mortgage Assets
The Mortgage Assets and any other assets included in the Trust for each
Series of Certificates will have an initial aggregate value ("Asset Value")
determined as set forth in the related Agreement and described in the related
Prospectus Supplement. The Asset Value of the Mortgage Assets and any other
assets included in the Trust for a Series (including amounts held in any
Pre-Funding Account for such Series) will equal or exceed the aggregate original
principal balance of the Certificates of such Series. Unless otherwise specified
in the related Prospectus Supplement, the Asset Value of any Mortgage Loan
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included in the Trust for a Series will generally equal, on any date of
determination, (i) the Scheduled Principal Balance of such Mortgage Loan or (ii)
the Scheduled Principal Balance of such Mortgage Loan multiplied by a fraction,
as specified in the related Prospectus Supplement, which is based on the Net
Rate of such Mortgage Loan. In each case, Asset Value will be determined after
the subtraction of applicable servicing fees, master servicing fees, special
servicing fees, administrative and guarantee fees and insurance premiums and, if
specified in the related Prospectus Supplement, the addition of any related
reinvestment income. The Asset Value of a Mortgage Loan that is finally
liquidated through foreclosure or deed-in-lieu of foreclosure, or otherwise, or
a Mortgage Loan purchased from the Trust pursuant to the related Agreement shall
be zero.
"Scheduled Principal Balance" means, with respect to any Mortgage Loan
as of any date of determination, the scheduled principal balance of such
Mortgage Loan as of the Cut-Off Date, increased by the amount of negative
amortization, if any, with respect thereto and reduced by (i) the principal
portion of all scheduled monthly payments due on or before such date of
determination, whether or not received, (ii) all amounts allocable to
unscheduled principal payments received on or before the last day of the
preceding Prepayment Period, and (iii) without duplication, the amount of any
Realized Loss that has occurred with respect to such Mortgage Loan on or before
such date of determination.
"Cut-Off Date" means, with respect to any Series, the date specified in
the related Prospectus Supplement after which payments on the Mortgage Assets
included in the related Trust are for the account of the Certificateholders of
such Series.
"Net Rate" means, with respect to any Mortgage Loan, the Mortgage
Interest Rate of such Mortgage Loan adjusted to deduct applicable servicing
fees, master servicing fees, special servicing fees, administrative and
guarantee fees and insurance premiums and, if specified in the related
Prospectus Supplement, to add any related reinvestment income (expressed, in
each case, as a percentage).
Optional Redemption
To the extent and under the circumstances specified in the Prospectus
Supplement for a Series, the Certificates of such Series may be redeemed prior
to their Final Scheduled Distribution Date at the option of the Seller or such
other party as may be specified in the related Prospectus Supplement. Upon
redemption of the Certificates, at the option of the redeeming party, (i) the
related REMIC or trust, as applicable, may be terminated, thereby causing the
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sale of the remaining Mortgage Assets, or (ii) such Certificates may be held or
resold by the redeeming party. Unless otherwise specified in the Prospectus
Supplement for a Series, the right to redeem the Certificates of such Series
will be conditioned upon the passage of a certain date specified in such
Prospectus Supplement and/or the Asset Value or Scheduled Principal Balance of
the Mortgage Assets in the Trust or the outstanding principal balance of a
specified Class of Certificates at the time of purchase aggregating less than a
percentage, specified in such Prospectus Supplement, of the Asset Value or
Scheduled Principal Balance of the Mortgage Assets in the Trust or the
outstanding principal balance of a specified Class of Certificates at the time
of the issuance of such Series of Certificates. In the event the option to
redeem the Certificates is exercised, the purchase price distributed with
respect to each Certificate offered hereby and by the related Prospectus
Supplement will generally equal 100% of its then outstanding principal amount
plus accrued and unpaid interest thereon at the applicable Pass-Through Rate,
net of any unreimbursed Advances and unrealized principal losses and interest
shortfalls allocable to such Certificate. Notice of the redemption of the
Certificates will be given to Certificateholders as provided in the related
Agreement.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The prepayment experience on the Mortgage Assets will affect (i) the
average life of each Class of Certificates issued by the related Trust, (ii) the
extent to which the final distribution for each Class of such Certificates
occurs prior to its Final Scheduled Distribution Date and (iii) the effective
yield on each Class of such Certificates.
Because prepayments will be passed through to the holders of Certificates of
each Series as distributions of principal on such Certificates, it is likely
that, in the event of such prepayments, the final distribution on each Class of
Certificates of a Series will occur prior to the Final Scheduled Distribution
Date for such Class.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model, such as the Single Monthly Mortality ("SMM")
prepayment model, the Constant Prepayment Rate ("CPR") model or the prepayment
speed assumption ("PSA") model. The Prospectus Supplement for a Series may
contain a table setting forth percentages of the original principal amount of
each Class of Certificates of such Series anticipated to be outstanding after
each of the dates shown in the table. It is unlikely that the prepayment of the
Mortgage Assets of any Trust will conform to any of the percentages of the
prepayment assumption model described in any table set forth in the related
Prospectus Supplement.
A number of social, economic, tax, geographic, demographic, legal and
other factors may influence principal prepayments. If a Trust includes Mortgage
Loans, these factors may include the age of the Mortgage Loans, the geographic
distribution of the Mortgaged Premises, the payment terms of the Mortgage Loans,
the characteristics of the borrowers, homeowner mobility, economic conditions
generally and in the geographic area in which the Mortgaged Premises are
located, enforceability of "due-on-sale" clauses, servicing decisions,
prevailing mortgage market interest rates in relation to the interest rates on
the Mortgage Loans, the availability of mortgage funds, the
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use of second or home equity loans by borrowers, the availability of refinancing
opportunities, the use of the Mortgaged Premises as second or vacation homes,
the net equity of the borrowers in the Mortgaged Premises and, if the Mortgage
Loans are secured by investment properties, tax-related considerations and the
availability of other investments. The principal prepayment rate may also be
subject to seasonal variations. The Mortgage Certificates in the Trust for a
Series of Certificates may be backed by mortgage loans with different interest
rates. Accordingly, the prepayment experience of such Mortgage Certificates will
to some extent be a function of the mix of interest rates of the underlying
mortgage loans.
The principal prepayment rate on pools of conventional housing loans has
fluctuated significantly in recent years. In general, if prevailing interest
rates were to fall significantly below the interest rates on the Mortgage Loans,
the Mortgage Loans would be expected to prepay at higher rates than if
prevailing interest rates were to remain at or above the interest rates on the
Mortgage Loans. Conversely, if interest rates were to rise above the interest
rates on the Mortgage Loans, the Mortgage Loans would be expected to prepay at
lower rates than if prevailing interest rates were to remain at or below
interest rates on the Mortgage Loans. In general, Junior Mortgage Loans have
smaller average principal balances than senior or first Mortgage Loans and are
not viewed by borrowers as permanent financing. Accordingly, Junior Mortgage
Loans may experience a higher rate of prepayment than senior or first Mortgage
Loans. In addition, any future limitations on the right of borrowers to deduct
interest payments on Mortgage Loans for federal income tax purposes may result
in a higher rate of prepayment of the Mortgage Loans.
Distributions of interest on the Certificates of a Series on any
Distribution Date generally will include interest accrued through a date
specified in the related Prospectus Supplement (the "Accounting Date") that
precedes such Distribution Date. Because interest generally will not be
distributed to the Certificateholders of such Series until the Distribution Date
following the Accounting Date, the effective yield to such Certificateholders
will be lower than the yield otherwise produced by the applicable Pass-Through
Rate and purchase price for such Certificates.
The yield to maturity of any Certificate will be affected by the rate
and timing of payments of principal on the Mortgage Loans. If the purchaser of a
Certificate offered at a discount calculates the anticipated yield to maturity
of such Certificate based on an assumed rate of payment of principal that is
faster than that actually received on the Mortgage Loans (or on the mortgage
loans underlying the Mortgage Certificates), the actual yield to maturity will
be lower than that so calculated. Conversely, if the purchaser of a Certificate
offered at a premium calculates the anticipated yield to maturity of such
Certificate based on an assumed rate of payment of principal that is slower than
that actually received on the Mortgage Loans (or on the mortgage loans
underlying the Mortgage Certificates), the actual yield to maturity will be
lower than that so calculated.
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The timing of changes in the rate of prepayments on the Mortgage Loans
(or on the mortgage loans underlying the Mortgage Certificates) may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments experienced over time is consistent with such
investor's expectation. In general, the earlier a prepayment of principal on the
Mortgage Loans (or on the mortgage loans underlying the Mortgage Certificates),
the greater will be the effect on the investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates would not be fully offset
by a subsequent like reduction (or increase) in the rate of principal payments.
Because the rate of principal payments (including prepayments) on the Mortgage
Loans (or on the mortgage loans underlying the Mortgage Certificates) will
significantly affect the weighted average life and other characteristics of any
Class of Certificates, prospective investors are urged to consider their own
estimates as to the anticipated rate of future prepayments on the mortgage loans
and the suitability of the Certificates to their investment objectives.
Under certain circumstances, the Master Servicer, certain insurers, the
holders of REMIC Residual Certificates or certain other entities specified in
the related Prospectus Supplement may have the option to purchase the Mortgage
Assets and other assets of a Trust, thereby effecting earlier retirement of the
related Series of Certificates. See "The Trusts -- Repurchase of Converted
Mortgage Loans" and " -- Repurchase of Delinquent Mortgage Loans" and "The
Agreement -- Termination."
Factors other than those identified herein and in the related Prospectus
Supplement could significantly affect principal prepayments at any time and over
the lives of the Certificates. The relative contribution of the various factors
affecting prepayment may also vary from time to time. There can be no assurance
as to the rate of payment of principal of the Mortgage Loans or the Mortgage
Certificates at any time or over the lives of the Certificates.
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THE TRUSTS
Assignment of Mortgage Assets
Pursuant to the applicable Agreement, the Seller will cause the Mortgage
Assets and other assets to be included in the related Trust to be assigned and
transferred to the Trustee together with all principal and interest paid on such
Mortgage Assets from the date specified in the related Prospectus Supplement.
The Trustee will deliver to the order of the Seller, in exchange for the
Mortgage Assets so transferred, Certificates of the related Series in authorized
denominations registered in such names as the Seller may request representing
the beneficial ownership interest in such Mortgage Assets. Each Mortgage Loan
and Mortgage Certificate included in a Trust will be identified in a schedule
appearing as an exhibit to the
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related Agreement. Such schedule will include information as to the Scheduled
Principal Balance of each Mortgage Loan or Mortgage Certificate as of the date
of issuance of the Certificates of such Series and its interest rate, its
original principal balance and certain other information.
In addition, such steps will be taken by the Seller as are necessary to
have the Trustee become the registered owner of each Mortgage Certificate which
is included in a Trust and to provide for all payments on such Mortgage
Certificate to be made directly to the Trustee. The Seller will, as to each
Mortgage Loan, deliver or cause to be delivered to the Trustee the related
Mortgage Note endorsed to the order of the Trustee, evidence of recording of the
related mortgage or deed of trust (a "Security Instrument"), an assignment of
such Security Instrument in recordable form naming the Trustee as assignee and
certain other original documents evidencing or relating to such Mortgage Loan.
Within one year following the closing date for a Series, the Seller will cause
the assignments of the Mortgage Loans to be recorded in the appropriate public
office for real property records wherever necessary to protect the Trustee's
interest in the Mortgage Loans. In lieu of recording the assignments of Mortgage
Loans in a particular jurisdiction, the Seller may deliver or cause to be
delivered to the Trustee an opinion of local counsel to the effect that such
recording is not required to protect the right, title and interest of the
Trustee in such Mortgage Loans. The original mortgage documents are to be held
by the Trustee or a custodian acting on its behalf except to the extent released
to the Servicer or the Master Servicer from time to time in connection with
servicing the Mortgage Loans.
The Seller will make certain customary representations and warranties in
each Agreement with respect to each related Mortgage Asset, including a
representation that it either is the owner of such Mortgage Asset or has a
first, second, or more junior (as applicable) priority perfected security
interest in such Mortgage Asset. In addition, Saxon Mortgage , Inc., a
Virginia corporation and an affiliate of the Seller ("Saxon Mortgage"), may make
certain customary representations and warranties with respect to the Mortgage
Assets in the sales agreement pursuant to which the Mortgage Assets are assigned
and transferred to the Seller. Unless otherwise specified in the related
Prospectus Supplement, with respect to those Mortgage Assets which are Mortgage
Loans, each Originator that assigns and transfers Mortgage Loans to Saxon
Mortgage will make certain customary representations and warranties in the
agreement assigning and transferring such Mortgage Loans to Saxon Mortgage. See
"Origination of Mortgage Loans --Representations and Warranties." The right of
the Seller to enforce the representations and warranties of Saxon Mortgage will
be assigned to the Trustee under the related Agreement. To the extent that Saxon
Mortgage makes representations and warranties regarding the characteristics of
the Mortgage Assets, the Seller generally will not make such representations and
warranties. In the event that the representations and warranties of the Seller
or Saxon Mortgage are breached, and such breach adversely affects the interest
of the Certificateholders in the Mortgage Assets, the Seller or Saxon Mortgage
will be required, subject to the terms imposed under the related Agreement or
Sales Agreement, (i) to cure
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such breach, (ii) to substitute for the affected Mortgage Assets or (iii) to
repurchase the affected Mortgage Assets at a price generally equal to the unpaid
principal balance of such Mortgage Assets, together with accrued and unpaid
interest thereon at the related Mortgage Interest Rate. Neither the Seller nor
the Master Servicer will be obligated to substitute Mortgage Assets or to
repurchase Mortgage Assets if Saxon Mortgage defaults upon its obligation to do
so, and no assurance can be given that Saxon Mortgage will perform such
obligations with respect to Mortgage Assets.
The following is a brief description of the Mortgage Assets expected to
be included in the Trusts. If specific information respecting the Mortgage
Assets is not known at the time the related Series of Certificates is initially
offered, more general information of the nature described below will be provided
in the Prospectus Supplement and specific information will be set forth in a
report on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Certificates (the "Detailed Description"). A copy of
the Agreement with respect to each Series of Certificates will be attached to
the Form 8-K and will be available for inspection at the corporate trust office
of the Trustee specified in the related Prospectus Supplement.
The Mortgage Loans -- General
Unless otherwise specified in the Prospectus Supplement for a Series,
the Mortgage Loans included in the related Trust will be evidenced by promissory
notes (each, a "Mortgage Note") and will be secured by first, second or more
junior liens on (i) the related real property or leasehold interest, together
with improvements thereon, or (ii) with respect to Cooperative Loans, the shares
issued by the related Cooperative (the "Mortgaged Premises"). Unless specified
in the Prospectus Supplement for a Series, the Mortgage Loans included in the
related Trust will not be insured or guaranteed by any government agency
("Conventional Mortgage Loans"). If specific information respecting the Mortgage
Loans is not known at the time the related Series of Certificates is initially
offered, more general information of the nature described below will be provided
in the Prospectus Supplement and specific information will be set forth in the
Detailed Description.
The payment terms of the Mortgage Loans to be included in the Trust for
any Series will be described in the related Prospectus Supplement and may
include any of the following features or combinations thereof or any other
features described in such Prospectus Supplement:
(a) Interest may be payable at a fixed rate (a "Fixed Rate") or may be
payable at a rate that is adjustable from time to time on specified
adjustment dates (each, an "Interest Adjustment Date") by adding a
specified fixed percentage (the "Gross Margin") to a specified index
(the "Index") (which sum may be rounded), that otherwise varies from
time to time, that is fixed for a period of time or under certain
circumstances and is followed by a rate that is adjustable from time to
time as described above or that otherwise varies from time to time or
that is convertible from an
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adjustable rate to a fixed rate (each, an "Adjustable Rate"). Changes to
an Adjustable Rate may be subject to periodic limitations (a "Periodic
Rate Cap"), maximum rates, minimum rates or a combination of such
limitations. Accrued interest may be deferred and added to the principal
of a Mortgage Loan for such periods and under such circumstances as may
be specified in the related Prospectus Supplement. Mortgage Loans may
permit the payment of interest at a rate lower than the interest rate on
the related Mortgage Note (the "Mortgage Interest Rate") for a period of
time or for the life of the Mortgage Loan, and the amount of any
difference may be contributed from funds supplied by the seller of the
related Mortgaged Premises or another source or may be treated as
accrued interest and added to the principal balance of the Mortgage
Loan.
(b) Principal may be payable on a level basis to fully amortize the
Mortgage Loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term of the Mortgage Loan or on an interest rate that is
different from the related Mortgage Interest Rate or may not be
amortized during all or a portion of such original term. Payment of all
or a substantial portion of the principal may be due at maturity.
Principal may include interest that has been deferred and added to the
principal balance of the Mortgage Loan.
(c) Payments of principal and interest may be fixed for the life of the
Mortgage Loan, may increase over a specified period of time or may
change from period to period. Mortgage Loans may include limits on
periodic increases or decreases in the amount of monthly payments and
may include maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the Mortgage Loan or may adjust or decline
over time, and may be prohibited for the life of the Mortgage Loan or
for certain periods ("Lockout Periods"). Certain Mortgage Loans may
permit prepayments after expiration of the applicable Lockout Period and
may require the payment of a prepayment fee in connection with any such
subsequent prepayment. Other Mortgage Loans may permit prepayments
without payment of a prepayment fee unless the prepayment occurs during
specified time periods. The Mortgage Loans may include due-on-sale
clauses which permit the mortgagee to demand payment of the entire
Mortgage Loan in connection with the sale or certain other transfers of
the related Mortgaged Premises. Other Mortgage Loans may be assumable by
persons meeting the then applicable underwriting standards of the
Originator.
The Mortgaged Premises (and, with respect to Cooperative Loans, the
buildings owned by Cooperatives) may be located in any state, territory or
possession of the United States (including the District of Columbia or Puerto
Rico). The Mortgaged Premises generally will be covered by standard hazard
insurance policies ("Standard Hazard Insurance Policies") insuring against
losses due to fire and various other causes. The Mortgage Loans will be covered
by primary mortgage insurance policies ("Primary Mortgage Insurance Policies")
insuring against all or a portion of any loss sustained by reason of
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nonpayments by borrowers to the extent specified in the related Prospectus
Supplement. Unless otherwise specified in the Prospectus Supplement for a
Series, the Mortgage Loans will be purchased by the Seller from Saxon Mortgage .
Unless otherwise specified in the Prospectus Supplement for a Series, the
Mortgage Loans will be originated by Saxon Mortgage or purchased by Saxon
Mortgage in the open market or in privately negotiated transactions from savings
and loan associations, savings banks, commercial banks, credit unions, insurance
companies or similar institutions that are supervised and examined by a federal
or state authority (each, including Saxon Mortgage in its capacity as an
originator of Mortgage Loans, an "Originator"). Each Mortgage Loan included in
the Trust for any Series of Certificates that constitute "mortgage-related
securities" under SMMEA will be originated by an institution approved by HUD.
The Prospectus Supplement for each Series of Certificates will contain
information with respect to the Mortgage Loans expected to be included in the
related Trust, including, but not limited to, (i) the expected aggregate
outstanding principal balance and the expected average outstanding principal
balance of the Mortgage Loans as of the date set forth in the Prospectus
Supplement, (ii) the largest expected principal balance and the smallest
expected principal balance of any of the Mortgage Loans, (iii) the types of
Mortgaged Premises and/or other assets securing the Mortgage Loans, (iv) the
original terms to maturity of the Mortgage Loans, (v) the expected weighted
average term to maturity of the Mortgage Loans as of the date set forth in the
Prospectus Supplement and the expected range of the terms to maturity, (vi) the
earliest origination date and latest maturity date of any of the Mortgage Loans,
(vii) the expected aggregate outstanding principal balance of Mortgage Loans
having loan-to-value ratios at origination exceeding 80%, (viii) the expected
Mortgage Interest Rates and the range of Mortgage Interest Rates, (ix) in the
case of ARM Loans, the expected weighted average of the related Adjustable
Rates, (x) the expected aggregate outstanding principal balance, if any, of
Buy-Down Loans as of the date set forth in the Prospectus Supplement, (xi) the
expected aggregate outstanding principal balance, if any, of GPM Loans as of the
date set forth in the Prospectus Supplement, (xii) the amount of any Mortgage
Pool Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bond to be
maintained with respect to the related Trust, (xiii) to the extent different
from the amounts described herein, the amount of any Standard Hazard Insurance
Policy required to be maintained with respect to each Mortgage Loan, (xiv) the
amount, if any, and terms of any other credit enhancement to be provided with
respect to all or a material portion of the Mortgage Loans and (xv) the expected
geographic location of the Mortgaged Premises (or, in the case of a Cooperative
Loan, the building owned by the related Cooperative). If specific information
respecting the Mortgage Loans is not known to the Seller at the time the related
Certificates are initially offered, more general information of the nature
described above will be provided in the Prospectus Supplement and specific
information will be set forth in the Detailed Description.
"ARM Loans" means Mortgage Loans providing for periodic adjustments to
the related Mortgage Interest Rate to equal the sum (which may be
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rounded) of a Gross Margin and an Index.
"Buy-Down Loans" means Mortgage Loans as to which funds have been
provided (and deposited into an escrow account) to reduce the monthly payments
of the borrowers during the early years of such Mortgage Loans.
"GPM Loans" means Mortgage Loans providing for monthly payments during
the early years of such Mortgage Loans which are or may be less than the amount
of interest due on such Mortgage Loans and as to which unpaid interest is added
to the principal balance of such Mortgage Loans (resulting in negative
amortization) and paid, together with interest thereon, in later years.
No assurance can be given that values of the Mortgaged Premises have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the real estate market should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans (plus any additional financing by other lenders on the same
Mortgaged Premises) in the related Trust become equal to or greater than the
value of such Mortgaged Premises, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. An overall decline in the market value of real
estate, the general condition of the Mortgaged Premises or other factors could
adversely affect the values of the Mortgaged Premises such that the outstanding
balances of the Mortgage Loans, together with any additional liens on the
Mortgaged Premises, equal or exceed the value of the Mortgaged Premises. Under
such circumstances, the actual rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry.
If specified in the Prospectus Supplement for a Series, the Mortgage
Assets in the related Trust may include Mortgage Loans that are secured by
Mortgaged Premises acquired by foreclosure or by deed-in-lieu of foreclosure
(collectively, "REO Properties") or Mortgage Loans that are delinquent or
non-performing. The inclusion of such REO Properties or such Mortgage Loans in
the Trust for a Series may cause the rate of defaults and prepayments on the
Mortgage Loans to increase and, in turn, may cause losses to exceed the
available credit enhancement for such Series and affect the yield on the
Certificates of such Series.
Single Family Loans
Single Family Loans will consist of mortgage loans secured by first,
second or more junior liens on one- to four-family residential and mixed use
properties. If so specified in the related Prospectus Supplement, the Single
Family Loans may include loans or participations therein secured by mortgages or
deeds of trust on condominium units in low-rise condominium buildings together
with such condominium units' appurtenant interests in the common elements of the
condominium buildings.
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The Mortgaged Premises which secure Single Family Loans will consist of
detached or semi-detached one-to four-family dwelling units, townhouses, row
houses, individual condominium units in low-rise condominium buildings,
individual units in planned unit developments, and certain mixed use and other
dwelling units. Such Mortgaged Premises may include vacation and second homes or
investment properties. A portion of a dwelling unit may contain a commercial
enterprise.
Cooperative Loans
Cooperative Loans generally will be secured by security interests in or similar
liens on stock, shares or membership certificates issued by Cooperatives and in
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific dwelling units in the buildings owned by such Cooperatives. A
Cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary leases
or occupancy agreements which confer exclusive rights to occupy specific
apartments or units. In general, a tenant-stockholder of a Cooperative must make
a monthly payment to the Cooperative representing such tenant-stockholder's pro
rata share of the Cooperative's payments for its mortgage loans, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the
tenant-stockholder must make on any loans to the tenant-stockholder secured by
its shares in the Cooperative. The Cooperative is directly responsible for
project management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multi-Family Loan, as well as all other operating expenses,
will be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
Multi-Family Loans
Multi-Family Loans will consist of mortgage loans secured by first,
second or more junior liens on rental apartment buildings, mixed-use properties
or projects containing five or more residential units. The Mortgaged Premises
which secure Multi-Family Loans may include high-rise, mid-rise and garden
apartments or apartment buildings owned by Cooperatives.
Junior Mortgage Loans
If specified in the Prospectus Supplement for a Series, the
Mortgage Loans assigned and transferred to the related Trust may
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include Mortgage Loans secured by second or more junior liens on residential
properties (" Junior Mortgage Loans"). Because the rights of a holder of a
second or more junior lien are subordinate to the rights of a senior lienholder,
the position of such Trust and the holders of the Certificates of such Series
could be more adversely affected by a reduction in the value of the Mortgaged
Premises than would the position of the senior lienholder. In the event of a
default by the related borrower, liquidation or other proceeds would be applied
first to the payment of court costs and fees in connection with the foreclosure,
second to unpaid real estate taxes, third in satisfaction of all principal,
interest, prepayment or acceleration penalties, if any, and fourth to any other
sums due and owing to the senior lienholder. The claims of the senior lienholder
would be satisfied in full out of the proceeds of the liquidation of the
Mortgaged Premises, if such proceeds are sufficient, before the Trust would
receive any payments. In the event that the proceeds from a foreclosure or
similar sale of Mortgaged Premises on which the Trust holds a second or more
junior lien are insufficient to satisfy the senior mortgage loans in the
aggregate, the Trust, as the holder of the second or more junior lien, and the
holders of the Certificates of the related Series 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. In
addition, deficiency judgments may not be available in certain jurisdictions.
Even if a Mortgaged Premises provides adequate security for the related
Junior Mortgage Loan, substantial delays could be encountered in connection with
the liquidation of such Junior Mortgage Loan, and corresponding delays in the
receipt of related proceeds by the holders of the Certificates of the related
Series could occur. An action to foreclose on a Mortgaged Premises 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. In addition, in some
states, an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a Mortgaged Premises. In the event of a default by a
borrower, these restrictions, among other things, may impede the ability of the
Servicer to foreclose on or sell the Mortgaged Premises or to obtain liquidation
proceeds sufficient to repay all amounts due on the related Mortgage Loan. In
addition, the Servicer generally will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted Mortgage Loans and not yet repaid, including payments
to senior lienholders, legal fees and costs of legal action, real estate taxes
and maintenance and preservation expenses.
Conventional Home Improvement Loans
The Conventional Home Improvement Loans will consist of secured
conventional loans, the proceeds of which generally will be used for purposes
similar to those described under the heading " -- Title I Loans." To the extent
set forth in the related Prospectus Supplement, the Conventional Home
Improvement Loans will be fully amortizing and will bear interest at a fixed or
variable annual percentage rate. To the extent a material portion of the
Mortgage Assets included in a Trust consists of Conventional Home Improvement
Loans, the related
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Prospectus Supplement will describe the material provisions of such Mortgage
Loans and the programs under which they were originated.
Title I Loans
Certain of the Mortgage Loans may be partially insured by the FHA, an
agency of the United States Department of Housing and Urban Development ("HUD"),
pursuant to the Title I credit insurance program (the "Title I Loan Program")
created under the National Housing Act of 1934. Under the Title I Loan Program,
the FHA is authorized and empowered to insure qualified lending institutions
against losses on eligible loans. The Title I Loan Program operates as a
coinsurance program in which the FHA insures up to 90% of certain losses
incurred on an individual insured loan, including the unpaid principal balance
of the loan, but only to the extent of the insurance coverage available in the
lender's FHA insurance coverage reserve account. The owner of the loan bears the
uninsured loss on each loan.
The types of loans which are eligible for insurance by the FHA under the
Title I Loan Program include property improvement loans made to finance actions
or items that substantially protect or improve the basic livability or utility
of a property , including: (i) single family, multi-family and nonresidential
property improvement loans; (ii) manufactured home improvement loans, where the
home is classified as personalty; (iii) historic preservation loans; and (iv)
fire safety equipment loans in existing health care facilities. The Title I
Loans, if any, included in the related Trust will be property improvement loans.
Each insured lender is required to use prudent lending standards in
underwriting individual Title I Loans and to satisfy the applicable loan
underwriting requirements under the Title I Loan Program prior to its approval
of the loan and disbursement of loan proceeds. In general, the lender must
exercise prudence and diligence to determine whether the borrower and any
co-maker are solvent and acceptable credit risks, with a reasonable ability to
make payments on the loan obligation. The lender's credit application and review
must determine whether the borrower's income will be adequate to meet the
periodic payments required by the loan, as well as the borrower's other housing
and recurring expenses, which determination must be made in accordance with the
expense-to-income ratios published by the Secretary of HUD.
Under the Title I Loan Program, the FHA establishes an insurance
coverage reserve account for each lender which has been granted a Title I
insurance contract. The amount of insurance coverage in this account is 10% of
the amount disbursed, advanced or expended by the lender in originating or
purchasing eligible loans registered with the FHA for Title I insurance, with
certain adjustments. The balance in the insurance coverage reserve account is
the maximum amount of insurance claims the FHA is required to pay. Loans to be
insured
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under the Title I Loan Program will be registered for insurance by the FHA and
the insurance coverage attributable to such loans will be included in the
insurance coverage reserve account for the originating or purchasing lender
following the receipt and acknowledgment by the FHA of a loan report on the
prescribed form pursuant to the Title I regulations. The FHA charges a fee of
0.50% per annum of the net proceeds (the original balance) of any eligible loan
so reported and acknowledged for insurance by the originating lender.
To the extent a material portion of the Mortgage Assets included in a
Trust consists of Title I Loans, the related Prospectus Supplement will describe
the material provisions of such Mortgage Loans and the programs under which they
were originated.
Repurchase of Converted Mortgage Loans
If so specified in the Prospectus Supplement for a Series, the Trust for
such Series may include Mortgage Loans with respect to which the related
Mortgage Interest Rate is convertible from an Adjustable Rate to a Fixed Rate at
the option of the borrower upon the fulfillment of certain conditions. Unless
otherwise specified in such Prospectus Supplement, the applicable Servicer (or
other party specified in such Prospectus Supplement) will be obligated to
repurchase from the Trust any Mortgage Loan with respect to which the related
Mortgage Interest Rate has been converted from an Adjustable Rate to a Fixed
Rate (a "Converted Mortgage Loan") at a purchase price equal to the unpaid
principal balance of such Converted Mortgage Loan plus 30 days of interest
thereon at the applicable Mortgage Interest Rate. If the applicable Servicer
(other than a successor servicer) is not obligated to purchase Converted
Mortgage Loans, the Master Servicer will be obligated to purchase such Converted
Mortgage Loans to the extent provided in such Prospectus Supplement. Any such
purchase price will be treated as a prepayment of the related Mortgage Loan.
Repurchase of Delinquent Mortgage Loans
Unless otherwise specified in the Prospectus Supplement for a Series,
the Seller may, but will not be obligated to, repurchase from the Trust any
Mortgage Loan as to which the borrower is delinquent in payments by 90 days or
more (a "Delinquent Mortgage Loan") at a purchase price equal to the greater of
the unpaid principal balance of such Delinquent Mortgage Loan plus interest
thereon at the applicable Mortgage Interest Rate from the date on which interest
was last paid to the last day of the month in which such purchase price is to be
distributed for the fair market value of the Delinquent Mortgage Loan at the
time of its purchase. Any such purchase price will be treated as a prepayment of
the related Mortgage Loan.
Substitution of Mortgage Loans
If so specified in the Prospectus Supplement for a Series, the Seller
may, within three months of the closing date for such Series, deliver to the
Trustee other Mortgage
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Loans in substitution for any one or more Mortgage Loans initially included in
the Trust for such Series. In general, except as otherwise specified in the
related Prospectus Supplement, any substitute Mortgage Loan must, on the date of
such substitution, (i) have an unpaid principal balance not greater than (and
not more than $10,000 less than) the unpaid principal balance of the deleted
Mortgage Loan, (ii) have a Mortgage Interest Rate not less than (and not more
than one percentage point in excess of) the Mortgage Interest Rate of the
deleted Mortgage Loan, (iii) have a Net Rate that is equal to the Net Rate of
the deleted Mortgage Loan, (iv) have a remaining term to maturity not greater
than (and not more than one year less than) that of the deleted Mortgage Loan
and (v) comply with each representation and warranty relating to the Mortgage
Loans. In addition, Mortgage Loans may not be substituted for Mortgage
Certificates. If Mortgage Loans are being substituted, the substitute Mortgage
Loan must have a loan-to-value ratio as of the first day of the month in which
the substitution occurs equal to or less than the loan-to-value ratio of the
deleted Mortgage Loan as of such date (in each case, using the value at
origination and after taking into account the payment due on such date). In
addition, except as otherwise specified in the related Prospectus Supplement, no
ARM Loan may be substituted unless the deleted Mortgage Loan is an ARM Loan, in
which case the substituted Mortgage Loan must also (i) have a minimum lifetime
Mortgage Interest Rate that is not less than the minimum lifetime Mortgage
Interest Rate on the deleted Mortgage Loan, (ii) have a maximum lifetime
Mortgage Interest Rate that is not less than the maximum lifetime Mortgage
Interest Rate on the deleted Mortgage Loan, (iii) provide for a lowest possible
Net Rate that is not lower than the lowest possible Net Rate for the deleted
Mortgage Loan and a highest possible Net Rate that is not lower than the highest
possible Net Rate for the deleted Mortgage Loan, (iv) have a Gross Margin that
is not less than the Gross Margin of the deleted Mortgage Loan, (v) have a
Periodic Rate Cap equal to the Periodic Rate Cap on the deleted Mortgage Loan,
(vi) have a next Interest Adjustment Date that is the same as the next Interest
Adjustment Date for the deleted Mortgage Loan or occurs not more than two months
prior to the next Interest Adjustment Date for the deleted Mortgage Loan and
(vii) not be a Mortgage Loan with respect to which the Mortgage Interest Rate
may be converted from an Adjustable Rate to a Fixed Rate unless the Mortgage
Interest Rate on the deleted Mortgage Loan may be so converted. In the event
that more than one Mortgage Loan is substituted for a deleted Mortgage Asset,
one or more of the foregoing characteristics may be applied on a weighted
average basis as described in the Agreement.
Agency Securities -- General
The Agency Securities may include (i) fully modified pass-through
mortgage-backed certificates guaranteed as to timely payment of principal and
interest by the Government National Mortgage Association ("GNMA Certificates"),
(ii) guaranteed mortgage pass-through certificates issued and guaranteed as to
timely payment of principal and interest by the Federal National Mortgage
Association ("FNMA Certificates"), (iii) mortgage participation certificates
issued and guaranteed as to timely payment of interest and, unless otherwise
specified in the related Prospectus Supplement, ultimate payment of principal by
the Federal Home Loan Mortgage Corporation ("FHLMC
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Certificates"), (iv) stripped mortgage-backed securities representing an
undivided interest in all or a part of either the principal distributions (but
not the interest distributions) or the interest distributions (but not the
principal distributions) or in some specified portion of the principal and
interest distributions (but not all of such distributions) on certain GNMA
Certificates, FNMA Certificates, FHLMC Certificates or other government agency
or government-sponsored agency certificates and, unless otherwise specified in
the related Prospectus Supplement, guaranteed to the same extent as the
underlying securities, (v) another type of guaranteed pass-through certificate
issued or guaranteed by GNMA, FNMA, FHLMC or another government agency or
government-sponsored agency and described in the related Prospectus Supplement
or (vi) a combination of the Agency Securities described in clauses (i) through
(v) above.
The GNMA Certificates will be backed by the full faith and credit of the
United States. The FNMA Certificates and FHLMC Certificates will not be backed,
directly or indirectly, by the full faith and credit of the United States. To
the extent a material portion of the Mortgage Assets included in a Trust
consists of Agency Securities, the related Prospectus Supplement will describe
the program under which such Agency Securities were issued and the payment
characteristics of the mortgage loans underlying such Agency Securities.
Government National Mortgage Association; GNMA Certificates
GNMA is a wholly-owned corporate instrumentality of the United States
within the United States Department of Housing and Urban Development. Section
306(g) of Title II of the National Housing Act of 1934, as amended (the "Housing
Act"), authorizes GNMA to guarantee the timely payment of the principal of and
interest on certificates that represent an interest in a pool of mortgage loans
insured by the FHA under the Housing Act or Title V of the Housing Act of 1949
("FHA Loans"), or partially guaranteed by the United States Veterans
Administration under the Servicemen's Readjustment Act of 1944, as amended, or
Chapter 37 of Title 38, United States Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guaranty under this subsection." In order to
meet its obligations under any such guaranty, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury in an unlimited amount
which is at any time sufficient to enable GNMA to perform its obligations under
its guarantee.
Each GNMA Certificate held in the Trust for a Series will be a "fully
modified pass-through" mortgage-backed certificate issued and serviced by a
mortgage banking company or other financial concern ("GNMA Issuer") approved by
GNMA or by FNMA as a seller-servicer of FHA Loans and/or VA Loans. The mortgage
loans underlying the GNMA Certificates will consist of FHA Loans and/or VA
Loans. GNMA will approve the issuance of each such GNMA Certificate in
accordance with a guaranty agreement (a "Guaranty Agreement") between GNMA and
the GNMA Issuer. Pursuant to its Guaranty Agreement, a GNMA Issuer will be
required to advance its own funds in order to make timely payments of all
amounts due on each such GNMA Certificate even if the payments
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received by the GNMA Issuer on the FHA Loans or VA Loans underlying each such
GNMA Certificate are less than the amounts due on each such GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
or backed by a pool of FHA Loans or VA Loans secured by one-to four-family
residential properties and will provide for the payment by or on behalf of the
GNMA Issuer to the registered holder of such GNMA Certificate of scheduled
monthly payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payment on each FHA Loan or VA Loan underlying such GNMA Certificate,
less the applicable servicing and guaranty fee, which together equal the
difference between the interest on the FHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans or VA Loans underlying such GNMA Certificate and liquidation proceeds in
the event of a foreclosure or other disposition of any such FHA Loans or VA
Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate as
it becomes due, it must promptly notify GNMA and request GNMA to make such
payment. Upon notification and request, GNMA will make such payments directly to
the registered holder of such GNMA Certificate. In the event no payment is made
by a GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make
such payment, the holder of such GNMA Certificate will have recourse only
against GNMA to obtain such payment. The Trustee or its nominee, as registered
holder of the GNMA Certificates held in the Trust for a Series, will have the
right to proceed directly against GNMA under the terms of the Guaranty
Agreements relating to such GNMA Certificates for any amounts that are not paid
when due.
Federal National Mortgage Association; FNMA Certificates
FNMA is a federally-chartered and privately-owned corporation organized
and existing under the Federal National Mortgage Association Charter Act, as
amended (the "Charter Act"). FNMA was originally established in 1938 as a United
States government agency to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder-owned and privately-managed
corporation by legislation enacted in 1968. FNMA provides funds to the mortgage
market primarily by purchasing mortgage loans from lenders, thereby replenishing
their funds for additional lending. FNMA acquires funds to purchase mortgage
loans from many capital market investors that may not ordinarily invest in
mortgages, thereby expanding the total amount of funds available for housing.
Operating nationwide, FNMA helps to redistribute mortgage funds from
capital-surplus to capital-short areas.
FNMA Certificates are guaranteed mortgage pass-through certificates
representing fractional undivided interests in a pool of mortgage
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loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guaranties are obligations solely of FNMA and are not backed by, nor
entitled to, the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's operations or to assist
FNMA in any other manner. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
Federal Home Loan Mortgage Corporation; FHLMC Certificates
FHLMC is a publicly-held government-sponsored enterprise created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended (the
"FHLMC Act"). FHLMC was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of urgently needed housing. It
seeks to provide an enhanced degree of liquidity for residential mortgage
investments primarily by assisting in the development of secondary markets for
conventional mortgages. The principal activity of FHLMC currently consists of
the purchase of first lien conventional mortgage loans or participation
interests in such mortgage loans and the sale of the mortgage loans or
participations so purchased in the form of mortgage securities, primarily FHLMC
Certificates. FHLMC is confined to purchasing, so far as practicable, mortgage
loans that it deems to be of such quality, type and class as to meet generally
the purchase standards imposed by private institutional mortgage investors.
Each FHLMC Certificate represents an undivided interest in a pool of
mortgage loans that may consist of first lien conventional loans, FHA Loans or
VA Loans (a "FHLMC Certificate Group"). FHLMC guarantees to each registered
holder of a FHLMC Certificate the timely payment of interest on the underlying
mortgage loans to the extent of the applicable certificate interest rate on the
registered holder's pro rata share of the unpaid principal balance outstanding
on the underlying mortgage loans in the FHLMC Certificate Group represented by
such FHLMC Certificate, whether or not received. FHLMC also guarantees to each
registered holder of a FHLMC Certificate collection by such holder of all
principal on the underlying mortgage loans, without any offset or deduction, to
the extent of such holder's pro rata share thereof, but does not, unless and to
the extent specified in the Prospectus Supplement for a Series, guarantee the
timely
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payment of scheduled principal. Pursuant to its guaranties, FHLMC indemnifies
holders of FHLMC Certificates against any diminution in principal by reason of
charges for property repairs, maintenance and foreclosure. FHLMC may remit the
amount due on account of its guaranty of collection of principal at any time
after default on an underlying mortgage loan, but not later than (i) 30 days
following foreclosure sale, (ii) 30 days following payment of the claim by any
mortgage insurer or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the borrower for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans that it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each borrower, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States and do not
constitute debts or obligations of the United States or any instrumentality of
the United States other than FHLMC. The obligations of FHLMC under its guaranty
are obligations solely of FHLMC and are not backed by, nor entitled to, the full
faith and credit of the United States. If FHLMC were unable to satisfy such
obligations, distributions to holders of FHLMC Certificates would consist solely
of payments and other recoveries on the underlying mortgage loans and,
accordingly, monthly distributions to holders of FHLMC Certificates would be
affected by delinquent payments and defaults on such mortgage loans.
FHLMC also issues mortgage participation certificates representing an
undivided interest in a group of multi-family residential mortgage loans or
participations in multi-family residential mortgage loans purchased by FHLMC
("FHLMC Project Certificates"). To the extent a material portion of the Mortgage
Assets included in a Trust consist of FHLMC Project Certificates, the related
Prospectus Supplement will set forth additional information regarding
multi-family residential mortgage loans that qualify for purchase by FHLMC.
Stripped Mortgage-Backed Certificates; Other Agency Securities
Agency Securities may consist of one or more stripped mortgage-backed
securities, each as described herein and in the related Prospectus Supplement.
Each such Agency Security will represent an undivided interest in all or part of
either the principal distributions (but not the interest distributions) or the
interest distributions (but not the principal distributions) or in some
specified portion of the principal and interest distributions (but not all of
such distributions) on certain GNMA Certificates, FNMA Certificates or FHLMC
Certificates. The underlying securities will be held under a trust agreement by
GNMA, FNMA or FHLMC, each as trustee, or by another trustee named in the related
Prospectus Supplement. GNMA, FNMA or FHLMC will guarantee each stripped Agency
Security to the same extent as such entity guarantees the underlying securities
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backing such stripped Agency Security, unless otherwise specified in the related
Prospectus Supplement.
If a material portion of the Mortgage Assets included in a Trust
consists of other mortgage pass-through certificates issued or guaranteed by
GNMA, FNMA or FHLMC, the related Prospectus Supplement will describe the
characteristics of such mortgage pass-through certificates. If so specified in
the Prospectus Supplement for a Series, a combination of different types of
Agency Securities may be included in the related Trust.
Private Mortgage-Backed Securities
The Private Mortgage-Backed Securities may include (i) mortgage
participation or pass-through certificates representing beneficial interests in
certain mortgage loans or Agency Securities or (ii) collateralized mortgage
obligations secured by certain mortgage loans.
Private Mortgage-Backed Securities will have been issued pursuant to a PMBS
Agreement (the "PMBS Agreement"). The seller/servicer of the underlying mortgage
loans will have entered into the PMBS Agreement with the trustee under such PMBS
Agreement (the "PMBS Trustee"). The PMBS Trustee or its agent, or a custodian,
will possess the mortgage loans underlying such Private Mortgage-Backed
Security. Mortgage loans underlying a Private Mortgage-Backed Security will be
serviced by a servicer (the "PMBS Servicer") directly or by one or more
sub-servicers who may be subject to the supervision of the PMBS Servicer. The
PMBS Servicer will be approved by FNMA or FHLMC as a servicer and, if FHA Loans
underlie the Private Mortgage-Backed Securities, by HUD as an FHA mortgagee.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending or the acquisition of mortgage loans, a public
agency or instrumentality of a state, local or federal government, or a limited
purpose or other corporation organized for the purpose of, among other things,
establishing trusts and acquiring and selling housing loans to such trusts and
selling beneficial interests in such trusts. If so specified in the Prospectus
Supplement, the PMBS Issuer may be an affiliate of the Seller. The obligations
of the PMBS Issuer will generally be limited to certain representations and
warranties with respect to the assets conveyed by it to the related Trust.
Unless otherwise specified in the related Prospectus Supplement for a Series,
the PMBS Issuer will not have guaranteed any of the assets conveyed to the
related Trust or any of the Private Mortgage-Backed Securities issued under the
PMBS Agreement. In addition, although the mortgage loans underlying the Private
Mortgage-Backed Securities may be guaranteed by an agency or instrumentality of
the United States, the Private Mortgage-Backed Securities themselves will not be
so guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer
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may have the right to repurchase assets underlying the Private Mortgage-Backed
Securities after a certain date or under other circumstances specified in the
related Prospectus Supplement.
The mortgage loans underlying the Private Mortgage-Backed Securities may
consist of fixed rate, level payment, fully amortizing loans or GPM Loans,
Buy-Down Loans, ARM Loans, Balloon Loans or Mortgage Loans having other special
payment features. Such mortgage loans may be secured by single family property
or multi-family property or by an assignment of the proprietary lease or
occupancy agreement relating to a specific dwelling within a cooperative and the
related shares issued by such cooperative. Credit support in the form of
subordination of other private mortgage certificates issued under the PMBS
Agreement, reserve funds, insurance policies, letters of credit, financial
guaranty insurance policies, guarantees or other types of credit support may be
provided with respect to the mortgage loans underlying the Private
Mortgage-Backed Securities or with respect to the Private Mortgage-Backed
Securities themselves.
If a material portion of the Mortgage Assets included in a Trust
consists of Private Mortgage-Backed Securities, the related Prospectus
Supplement will specify (i) the approximate aggregate principal amount and type
of any Private Mortgage-Backed Securities to be included in the Trust, (ii)
certain characteristics of the mortgage loans underlying the Private
Mortgage-Backed Securities including (A) the payment features of such mortgage
loans, (B) the approximate aggregate principal balance, if known, of underlying
mortgage loans insured or guaranteed by a governmental entity, (C) the servicing
fee or range of servicing fees with respect to the underlying mortgage loans and
(D) the minimum and maximum stated maturities of the underlying mortgage loans
at origination, (iii) the maximum original term-to-stated maturity of the
Private Mortgage-Backed Securities, (iv) the weighted average term-to-stated
maturity of the Private Mortgage-Backed Securities, (v) the pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vi) the weighted
average pass-through or certificate rate of the Private Mortgage-Backed
Securities, (vii) the PMBS Issuer, the PMBS Servicer (if other than the PMBS
Issuer) and the PMBS Trustee, (viii) certain characteristics of credit support,
if any, such as reserve funds, insurance policies, surety bonds, letters of
credit or guaranties, relating to the mortgage loans underlying the Private
Mortgage-Backed Securities or to such Private Mortgage-Backed Securities
themselves, (ix) the terms on which the underlying mortgage loans for such
Private Mortgage-Backed Securities may, or are required to, be repurchased prior
to their stated maturity or the stated maturity of the Private Mortgage-Backed
Securities and (x) the terms on which other mortgage loans may be substituted
for those originally underlying the Private Mortgage-Backed Securities.
Home Equity Lines of Credit
Unless otherwise specified in the related Prospectus Supplement, HELOCs
will consist of home equity lines of credit or certain balances thereof secured
by mortgages on one- to four-family residential properties, including
condominium units and cooperative dwellings, or mixed-use properties. The HELOCs
may be subordinated to other mortgages on such properties.
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As more fully described in the related Prospectus Supplement, interest
on each HELOC, excluding introductory rates offered from time to time during
promotional periods, may be computed and payable monthly on the average daily
outstanding principal balance of such loan. Principal amounts on the HELOCs may
be drawn down (up to a maximum amount as set forth in the related Prospectus
Supplement) or repaid under each HELOC from time to time. If specified in the
related Prospectus Supplement, new draws by borrowers under HELOCs automatically
will become part of the Trust for a Series. As a result, the aggregate balance
of the HELOCs will fluctuate from day to day as new draws by borrowers are added
to the Trust and principal payments are applied to such balances, and such
amounts usually will differ each day, as more specifically described in the
Prospectus Supplement. Under certain circumstances more fully described in the
related Prospectus Supplement, a borrower under a HELOC may choose an interest
only payment option and is obligated to pay only the amount of interest which
accrues on such loan during the billing cycle. An interest only payment option
may be available for a specified period before the borrower may begin paying at
least the minimum monthly payment or a specified percentage of the average
outstanding balance of the loan.
The Mortgaged Premises relating to HELOCs will include one- to
four-family residential properties, including condominium units and Cooperative
dwellings, and mixed-use properties. Mixed-use properties will consist of one-
to four-family residential dwelling units and space used for retail,
professional or other commercial uses. The Mortgaged Premises may consist of
detached individual dwellings, individual condominiums, townhouses, duplexes,
row houses, individual units in planned unit developments and other attached
dwelling units. Each one- to four-family dwelling unit will be located on land
owned in fee simple by the borrower or on land leased by the borrower for the
term of at least ten years (unless otherwise specified in the related Prospectus
Supplement) greater than the term of the related HELOC. Attached dwellings may
include owner-occupied structures where each borrower owns the land upon which
the unit is built, with the remaining adjacent land owned in common, or dwelling
units subject to a proprietary lease or occupancy agreement in a
cooperatively-owned apartment building.
The aggregate principal balance of HELOCs secured by Mortgaged Premises
that are owner-occupied will be disclosed in the related Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement, the sole basis for a
representation that a given percentage of the HELOCs are secured by one- to
four-family dwelling units that are owner-occupied will be either (i) the making
of a representation by the borrower at origination of the HELOC either that the
underlying Mortgaged Premises will be used by the borrower for a period of at
least six months every year or that the borrower intends to use the Mortgaged
Premises as a primary residence or (ii) a finding that the address of the
underlying Mortgaged Premises is the borrower's mailing address as reflected in
the Master Servicer's records. To the extent specified in the related Prospectus
Supplement, the Mortgaged Premises may include non-owner occupied investment
properties and vacation and second homes.
Pre-Funding Account
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If so specified in the related Prospectus Supplement, a Trust may enter
into an agreement (each, a "Pre-Funding Agreement") with the Seller under which
the Seller will agree to transfer additional Mortgage Assets to such Trust
following the date on which such Trust is established and the related
Certificates are issued. Any Pre-Funding Agreement will require that any
Mortgage Loans so transferred conform to the requirements specified in such
Pre-Funding Agreement. If a Pre-Funding Agreement is used, the related Trustee
will be required to deposit in a segregated account (each, a "Pre-Funding
Account") upon receipt all or a portion of the proceeds received by the Trustee
in connection with the sale of one or more classes of Certificates of the
related Series. The additional Mortgage Assets will thereafter be transferred to
the related Trust in exchange for money released to the Seller from the related
Pre-Funding Account. Each Pre-Funding Agreement will specify a period during
which any such transfer must occur. If all moneys originally deposited in such
Pre-Funding Account are not used by the end of such specified period, then any
remaining moneys will be applied as a mandatory prepayment of one or more
Classes of Certificates as specified in the related Prospectus Supplement. The
specified period for the acquisition by a Trust of additional Mortgage Loans
will not exceed three months from the date such Trust is established.
Asset Proceeds Account
All payments and collections received or advanced on the Mortgage Assets
assigned or transferred to the Trust for the Certificates of a Series will be
remitted to one or more accounts (collectively, the "Asset Proceeds Account")
established and maintained in trust on behalf of the holders of such
Certificates. Unless otherwise specified in the Prospectus Supplement for a
Series, reinvestment income, if any, on amounts in the Asset Proceeds Account
will not accrue for the benefit of the holders of the Certificates of a Series
but will be remitted periodically to the Master Servicer or the Servicers as
additional master servicing or servicing compensation.
Unless otherwise specified in the Prospectus Supplement for a Series,
payments on the Mortgage Loans included in the related Trust will be remitted to
the Servicer Custodial Account or the Master Servicer Custodial Account and then
to the Asset Proceeds Account for such Series, net of amounts required to pay
servicing fees and any amounts that are to be included in any Reserve Fund or
other fund or account for such Series. All payments received on Mortgage
Certificates included in the Trust for a Series will be remitted to the Asset
Proceeds Account. All or a portion of the amounts in such Asset Proceeds
Account, together with reinvestment income thereon if payable to the
Certificateholders, will be available, to the extent specified in the related
Prospectus Supplement, for the payment of Trustee fees and any other fees to be
paid directly by the Trustee and for the payment of principal and interest on
each Class of Certificates of such Series in accordance with the respective
allocations set forth in the related Prospectus Supplement.
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CREDIT ENHANCEMENT
General
The Mortgage Assets in a Trust or one or more Classes of Certificates
may have the benefit of one or more types of credit enhancement. Credit
enhancement may be provided through the subordination of one or more Classes of
Certificates, overcollateralization, Certificate Guarantee Insurance Policies,
Mortgage Pool Insurance Policies, Special Hazard Insurance Policies, Bankruptcy
Bonds, Reserve Funds, letters of credit, financial guaranty insurance policies,
third party guarantees, other methods of credit enhancement described in the
related Prospectus Supplement or any combination of the foregoing. Credit
enhancement will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the Certificates and
interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by credit enhancement, holders of one or
more Classes of Certificates will bear their allocable share of deficiencies. If
a form of credit enhancement applies to several Classes of Certificates, and if
principal payments equal to the aggregate principal balances of certain Classes
of Certificates will be distributed prior to such distributions to other Classes
of Certificates, the Classes of Certificates which receive such distributions at
a later time are more likely to bear any losses which exceed the amount covered
by credit enhancement. Coverage under any credit enhancement may be canceled or
reduced by the Master Servicer or the Seller if such cancellation or reduction
would not adversely affect the rating of the related Certificates. The Trustee
of the related Trust will have the right to sue providers of credit enhancement
if a default is made on a required payment.
Subordination
If so specified in the related Prospectus Supplement, distributions in
respect of scheduled principal, principal prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
Classes of Subordinated Certificates of a Series will instead be payable to one
or more Classes of Senior Certificates of such Series under the circumstances
and to the extent specified in such Prospectus Supplement. If so specified in
the Prospectus Supplement, delays in receipt of scheduled payments on the
Mortgage Loans and losses on defaulted Mortgage Loans will be borne first by
Classes of Subordinated Certificates and thereafter by one or more Classes of
Senior Certificates, under the circumstances and subject to the limitations
specified in such Prospectus Supplement. The aggregate distributions in respect
of delinquent payments on the Mortgage Loans over the lives of the Certificates
or at any time, 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 payable to the Subordinated
Certificates that will be payable to the Senior Certificates on any Distribution
Date may be limited as specified in the Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Mortgage Loans or
aggregate losses in respect of such Mortgage Loans were to exceed the total
amounts payable and available for distribution to holders of Subordinated
Certificates or, if applicable, were to exceed a specified maximum amount,
holders of Senior Certificates could experience losses on the Certificates.
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If so specified in the related Prospectus Supplement, all or any portion
of distributions otherwise payable to the holders of Subordinated Certificates
on any Distribution Date may instead be deposited into one or more reserve
accounts established by the Trustee. If so specified in the Prospectus
Supplement, such deposits may be made on each Distribution Date, on each
Distribution Date for specified periods or until the balance in any such reserve
account has reached a specified amount and, following payments from such reserve
account to the holders of Senior Certificates or otherwise, thereafter to the
extent necessary to restore the balance of such reserve account to required
levels, in each case as specified in the Prospectus Supplement. If so specified
in the Prospectus Supplement, amounts on deposit in any such reserve account may
be released to the Seller or the holders of any Class of Certificates at the
times and under the circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, one or more Classes of
Certificates may bear the risk of certain losses on defaulted Mortgage Loans not
covered by other forms of credit support prior to other Classes of Certificates.
Such subordination might be effected by reducing the principal balance of the
Subordinated Certificates on account of such losses, thereby decreasing the
proportionate share of distributions allocable to such Certificates, or by
another means specified in the Prospectus Supplement.
If so specified in the Prospectus Supplement, various classes of Senior
Certificates and Subordinated Certificates may themselves be subordinate in
their right to receive certain distributions to other Classes of Senior
Certificates and Subordinated Certificates, respectively, through a
cross-support mechanism or otherwise. If so specified in the Prospectus
Supplement, the same Class of Certificates may constitute Senior Certificates
with respect to certain types of payments or losses and Subordinated
Certificates with respect to other types of payments or losses.
Distributions may be allocated among Classes of Senior Certificates and
Classes of Subordinated Certificates (i) in the order of their scheduled final
distribution dates, (ii) in accordance with a schedule or formula, (iii) in
relation to the occurrence of events or (iv) otherwise, in each case as
specified in the Prospectus Supplement. As between Classes of Subordinated
Certificates, payments to holders of Senior Certificates on account of
delinquencies or losses and payments to any reserve account will be allocated as
specified in the Prospectus Supplement.
Certificate Guaranty Insurance Policies
If so specified in the related Prospectus Supplement, one or more
certificate guaranty insurance policies (each, a "Certificate Guaranty Insurance
Policy") will be obtained and maintained for one or more Classes or Series of
Certificates. The issuer of any such Certificate Guaranty Insurance Policy (the
"Certificate Guaranty Insurer") will be named in the related Prospectus
Supplement. In general, Certificate Guaranty Insurance Policies unconditionally
and irrevocably guarantee that the full amount of the distributions of principal
and interest to which the holders of the related Certificates are entitled under
the
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related Agreement, as well as any other amounts specified in the related
Prospectus Supplement, will be received by an agent of the Trustee for
distribution by the Trustee to such holders. A form of Certificate Guaranty
Insurance Policy has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
The specific terms of any Certificate Guaranty Insurance Policy will be
set forth in the related Prospectus Supplement. Certificate Guaranty Insurance
Policies may have limitations including, but not limited to, limitations on the
obligation of the Certificate Guaranty Insurer to guarantee the Master
Servicer's obligation to repurchase or substitute for any Mortgage Loans, to
guarantee any specified rate of prepayments or to provide funds to redeem
Certificates on any specified date. The Certificate Guaranty Insurer may be
subrogated to the rights of the holders of the related Certificates to receive
distributions of principal and interest to which they are entitled, as well as
certain other amounts specified in the related Prospectus Supplement, to the
extent of any payments made by such Certificate Guaranty Insurer under the
related Certificate Guaranty Insurance Policy.
Overcollateralization
If so specified in the related Prospectus Supplement, the aggregate
principal balance of the Mortgage Assets included in a Trust may exceed the
original principal balance of the related Certificates. In addition, if so
specified in the related Prospectus Supplement, certain Classes of Certificates
may be entitled to receive limited acceleration of principal relative to the
amortization of the related Mortgage Assets. The accelerated amortization will
be achieved by applying certain excess interest collected on the Mortgage Assets
to the payment of principal on such Classes of Certificates. This acceleration
feature is intended to create a level of overcollateralization generally equal
to the excess of the aggregate principal balances of the applicable Mortgage
Assets over the aggregate principal balances of the applicable Classes of
Certificates. The acceleration feature may continue for the life of the
applicable Classes of Certificates or may be limited. In the case of limited
acceleration, once the required level of overcollateralization is reached, and
subject to certain provisions specified in the related Prospectus Supplement,
the acceleration feature will cease unless necessary to maintain the required
overcollateralization level.
Mortgage Pool Insurance Policies
If so specified in the related Prospectus Supplement, one or more
mortgage pool insurance policies (each, a "Mortgage Pool Insurance Policy")
insuring, subject to their provisions and certain limitations, against defaults
on the related Mortgage Loans will be obtained and maintained for the related
Series in an amount specified in such Prospectus Supplement. The issuer of any
such Mortgage Pool Insurance Policy (the "Pool Insurer") will be named in the
related Prospectus Supplement. The terms of the Agreement with respect to a
Series will require the Master Servicer to maintain the Mortgage Pool Insurance
Policies, if any, for such Series in full force and effect throughout the term
of such Agreement, subject to certain conditions
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contained herein, and to present or cause the Servicers to present claims
thereunder on behalf of the Seller, the Trustee and the holders of the
Certificates of such Series. A Mortgage Pool Insurance Policy for a Series will
not be a blanket policy against loss because claims thereunder may only be made
for particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described in the related Prospectus Supplement. A Mortgage
Pool Insurance Policy generally will not cover losses due to a failure to pay or
denial of a claim under a Primary Mortgage Insurance Policy. A form of Mortgage
Pool Insurance Policy has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
A Mortgage Pool Insurance Policy will generally not insure (and many
Primary Mortgage Insurance Policies may not insure) against Special Hazard
Losses or losses sustained by reason of a default arising from, among other
things, (i) fraud or negligence in the origination or servicing of a Mortgage
Loan, including misrepresentation by the borrower, the Originator or persons
involved in the origination thereof, (ii) failure to construct Mortgaged
Premises in accordance with plans and specifications or (iii) a claim in respect
of a defaulted Mortgage Loan occurring when the Servicer of such Mortgage Loan,
at the time of default or thereafter, was not approved by the Pool Insurer. A
failure of coverage attributable to one of the foregoing events might result in
a breach of the representations and warranties of Saxon Mortgage or the Servicer
and, in such event, subject to certain limitations, might give rise to an
obligation on the part of Saxon Mortgage or the Servicer to purchase the
defaulted Mortgage Loan if the breach cannot be cured. See "Origination of
Mortgage Loans -- Representations and Warranties." In addition, if a terminated
Servicer has failed to comply with its obligation under the Servicing Agreement
to purchase a Mortgage Loan upon which coverage under a Mortgage Pool Insurance
Policy has been denied on the grounds of fraud, dishonesty or misrepresentation
(or if the Servicer has no such obligation), Saxon Mortgage may be obligated to
purchase the Mortgage Loan. See "Servicing of Mortgage Loans -- General" and "
- -- Maintenance of Insurance Policies; Claims Thereunder and Other Realization
Upon Defaulted Mortgage Loans."
The original amount of coverage under any Mortgage Pool Insurance Policy
assigned to the Trust for a Series will be reduced over the life of the
Certificates of such Series by the aggregate dollar amount of claims paid less
the aggregate of the net amounts realized by the Pool Insurer upon disposition
of all foreclosed Mortgaged Premises covered thereby. The amount of claims paid
includes certain expenses incurred by the Servicer or the Master Servicer of the
defaulted Mortgage Loan, as well as accrued interest on delinquent Mortgage
Loans to the date of payment of the claim. The net amounts realized by the Pool
Insurer will depend primarily on the market value of the Mortgaged Premises
securing the defaulted Mortgage Loan. The market value of the Mortgaged Premises
will be determined by a variety of economic, geographic, social, environmental
and other factors and may be affected by matters that were unknown and could not
reasonably have been anticipated at the time the original loan was made. If
aggregate net claims paid under a Mortgage Pool Insurance Policy reach the
original policy limit, coverage under the Mortgage Pool Insurance Policy will
lapse and any further losses may affect adversely distributions to holders of
the Certificates of such Series. The
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original amount of coverage under a Mortgage Pool Insurance Policy assigned to
the Trust for a Series may also be reduced or canceled to the extent each Rating
Agency that provides, at the request of the Seller, a rating for the
Certificates of such Series confirms that such reduction will not result in a
lowering or withdrawal of such rating.
Unless otherwise specified in the related Prospectus Supplement, a
Mortgage Pool Insurance Policy may insure against losses on the Mortgage Loans
assigned to Trusts for other Series of Certificates or the mortgage loans that
secure other mortgage-backed securities or collateralized mortgage obligations
issued by the Seller or one of its affiliates; provided, however, that the
extension of coverage (and the corresponding assignment of the Mortgage Pool
Insurance Policy) to any other Series or such other securities or obligations
does not, at the time of such extension, result in the downgrade or withdrawal
of any credit rating assigned, at the request of the Seller, to the outstanding
Certificates of such Series.
Special Hazard Insurance Policies
If so specified in the related Prospectus Supplement, one or more
special hazard insurance policies (each, a "Special Hazard Insurance Policy")
insuring, subject to their provisions and certain limitations, against certain
losses not covered by Standard Hazard Insurance Policies will be obtained and
maintained for the related Series in an amount specified in such Prospectus
Supplement. The issuer of any such Special Hazard Insurance Policy (the "Special
Hazard Insurer") will be named in the related Prospectus Supplement. A Special
Hazard Insurance Policy will, subject to the limitations described below,
protect the holders of the Certificates of such Series from (i) loss by reason
of damage to the Mortgaged Premises underlying defaulted Mortgage Loans included
in the Trust for such Series caused by certain hazards (including vandalism and
earthquakes and, except where the borrower is required to obtain flood
insurance, floods and mudflows) not covered by the Standard Hazard Insurance
Policies with respect to such Mortgage Loans and (ii) loss from partial damage
to such Mortgaged Premises caused by reason of the application of the
coinsurance clause contained in such Standard Hazard Insurance Policies. A
Special Hazard Insurance Policy for a Series will not, however, cover losses
occasioned by war, nuclear reaction, nuclear or atomic weapons, insurrection,
normal wear and tear or certain other risks. A form of Special Hazard Insurance
Policy has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Subject to the foregoing limitations, the Special Hazard Insurance
Policy with respect to a Series will provide that when there has been damage to
the Mortgaged Premises securing a defaulted Mortgage Loan and such damage is not
covered by the Standard Hazard Insurance Policy maintained by the borrower or
the Servicer or the Master Servicer with respect to such Mortgage Loan, the
Special Hazard Insurer will pay the lesser of (i) the cost of repair of such
Mortgaged Premises or (ii) upon transfer of such Mortgaged Premises to it, the
unpaid principal balance of such Mortgage Loan at the time of the acquisition of
such Mortgaged Premises, plus accrued interest to the date of claim
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settlement (excluding late charges and penalty interest), and certain expenses
incurred in respect of such Mortgaged Premises. No claim may be validly
presented under a Special Hazard Insurance Policy unless (i) hazard insurance on
the Mortgaged Premises securing the defaulted Mortgage Loan has been kept in
force and other reimbursable protection, preservation and foreclosure expenses
have been paid (all of which must be approved in advance as necessary by the
Special Hazard Insurer and (ii) the insured has acquired title to the Mortgaged
Premises as a result of default by the borrower. If the sum of the unpaid
principal amount plus accrued interest and certain expenses is paid by the
Special Hazard Insurer, the amount of further coverage under the Special Hazard
Insurance Policy will be reduced by such amount less any net proceeds from the
sale of the Mortgaged Premises. Any amount paid as the cost of repair of the
Mortgaged Premises will reduce coverage by such amount.
The terms of the Agreement with respect to a Series will require the
Master Servicer to maintain the Special Hazard Insurance Policies for such
Series in full force and effect throughout the term of such Agreement, subject
to certain conditions contained therein, present claims thereunder on behalf of
the Seller, the Trustee and the holders of the Certificates of such Series for
all losses not otherwise covered by the applicable Standard Hazard Insurance
Policies and take all reasonable steps necessary to permit recoveries on such
claims. See "Servicing of Mortgage Loans." To the extent specified in the
Prospectus Supplement for a Series, the Master Servicer may deposit cash, an
irrevocable letter of credit or any other instrument acceptable to each Rating
Agency that provides, at the request of the Seller, a rating for the
Certificates of such Series in the related Trust to provide protection in lieu
of or in addition to that provided by a Special Hazard Insurance Policy.
Unless otherwise specified in the Prospectus Supplement for a Series, a
Special Hazard Insurance Policy may insure against losses on Mortgage Loans
assigned to Trusts for other Series or Mortgage Loans that secure other
mortgage-backed securities or collateralized mortgage obligations issued by the
Seller or one of its affiliates; provided, however, that the extension of
coverage (and the corresponding assignment of the Special Hazard Insurance
Policy) to any other Series or such other securities or obligations does not, at
the time of such extension, result in the downgrade or withdrawal of the credit
rating assigned, at the request of the Seller, to the outstanding Certificates
of such Series.
Bankruptcy Bonds
If so specified in the related Prospectus Supplement, one or more
mortgagor bankruptcy bonds (each, a "Bankruptcy Bond") covering certain losses
resulting from proceedings under the federal Bankruptcy Code will be obtained
and maintained for the related Series in an amount specified in such Prospectus
Supplement. The issuer of any such Bankruptcy Bond will be named in the related
Prospectus Supplement. Each Bankruptcy Bond will cover certain losses resulting
from a reduction by a bankruptcy court of scheduled payments of principal and
interest on a Mortgage Loan or a reduction by such court of the principal amount
of a Mortgage Loan and will cover certain unpaid interest on the amount of such
a principal reduction from the
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date of the filing of a bankruptcy petition. To the extent specified in the
Prospectus Supplement for a Series, the Master Servicer may deposit cash, an
irrevocable letter of credit or any other instrument acceptable to each Rating
Agency that provides, at the request of the Seller, a rating for the
Certificates of such Series in the related Trust to provide protection in lieu
of or in addition to that provided by a Bankruptcy Bond. See "Certain Legal
Aspects of Mortgage Loans -- Anti-Deficiency Legislation and Other Limitations
on Lenders." A form of Bankruptcy Bond has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Cross-Support
If so specified in the related Prospectus Supplement, the ownership
interests of separate Trusts or separate groups of assets may be evidenced by
separate Classes of the related Series of Certificates. In such case, credit
enhancement may be provided by a cross-support feature which requires that
distributions be made with respect to certain Certificates evidencing interests
in one or more Trusts or asset groups prior to distributions to other
Certificates evidencing interests in other Trusts or asset groups. If so
specified in the related Prospectus Supplement, the coverage provided by one or
more forms of credit enhancement may apply concurrently to two or more separate
Trusts or asset groups, without priority among such Trusts or asset groups,
until the credit enhancement is exhausted. If applicable, such Prospectus
Supplement will identify the Trusts or asset groups to which such credit
enhancement relates and the manner of determining the amount of the coverage
provided thereby and of the application of such coverage to the identified
Trusts or asset groups.
Reserve Funds
If so specified in the related Prospectus Supplement, cash, U.S.
Treasury securities, instruments evidencing ownership of principal or interest
payments thereon, letters of credit, surety bonds, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in such
Prospectus Supplement will be deposited by the Seller in one or more accounts
(each, a "Reserve Fund") established and maintained with the Trustee. In
addition, if so specified in the related Prospectus Supplement, a Reserve Fund
may be funded with all or a portion of the interest payments on the related
Mortgage Assets not needed to make distributions to Certificateholders or any
other required distributions. Such cash and the principal and interest payments
on such other investments will be used to enhance the likelihood of timely
payment of principal of, and interest on, or, if so specified in such Prospectus
Supplement, to provide additional protection against losses in respect of, the
assets in the related Trust, to pay the expenses of such Trust or for such other
purposes as may be specified in such Prospectus Supplement. Any cash in any
Reserve Fund and the proceeds of any other instrument upon maturity will be
invested in Permitted Investments. If a letter of credit is deposited with the
Trustee, such letter of credit will be irrevocable. Any instrument deposited
therein will name the Trustee as a beneficiary and will be issued by an entity
acceptable to each Rating Agency that provides, at the request of the Seller, a
rating for the Certificates of such Series. Additional information with respect
to such instruments deposited in the Reserve Funds may be set
forth in the related Prospectus Supplement.
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Other Credit Enhancement
If so specified in the related Prospectus Supplement, other credit
enhancement arrangements, including, but not limited to, insurance policies,
guaranties, surety bonds, letters of credit, guaranteed investment contracts or
similar arrangements, will be obtained (i) for the purpose of maintaining timely
payments or providing additional protection against losses on the assets
included in such Trust, (ii) for the purpose of paying administrative expenses,
(iii) for the purpose of establishing a minimum reinvestment rate on the
payments made in respect of such assets or principal payment rates on such
assets, (iv) for the purpose of guaranteeing timely payment of principal and
interest under the Certificates or (v) for such other purposes as may be
specified in such Prospectus Supplement. These arrangements may be in addition
to or in substitution for any forms of credit enhancement described in this
Prospectus. Any such arrangement must be acceptable to each Rating Agency that
provides, at the request of the Seller, a rating for the Certificates of the
related Series. In addition, to the extent a significant portion of the Mortgage
Loans underlying a Series of Certificates consists of Title I Loans, the related
Prospectus Supplement will describe the features of any related credit
enhancement, including, but not limited to, any credit enhancement provided by
the FHA.
ORIGINATION OF MORTGAGE LOANS
General
As set forth in the related Prospectus Supplement, each Mortgage Loan
included in the Trust for a Series of Certificates will be originated by a
savings and loan association, savings bank, commercial bank, credit union,
insurance company or similar institution that is supervised and examined by a
federal or state authority. Each Mortgage Loan included in the Trust for any
Series of Certificates that constitute "mortgage-related securities" under SMMEA
will be originated by an institution approved by HUD. In originating a Mortgage
Loan, the Originator will follow either (i) its own credit approval process, to
the extent that such process conforms to underwriting standards generally
acceptable to FNMA or FHLMC, or (ii) Saxon Mortgage's various credit, appraisal
and underwriting standards and guidelines. The Prospectus Supplement will
disclose the percentage of Mortgage Loans in a Trust for a Series that are
originated using Saxon Mortgage's underwriting guidelines, and those originated
using an Originator's underwriting guidelines. The underwriting guidelines with
respect to some of Saxon Mortgage's loan programs may be less stringent than
those of FNMA or FHLMC, primarily in that they generally may permit the borrower
to have a higher debt-to-income ratio and a larger number of derogatory credit
items than do the guidelines of FNMA or FHLMC. These underwriting guidelines are
intended to provide for the origination of single family mortgage loans for
non-conforming credits. A mortgage loan made to a "non-conforming credit" means
a mortgage loan that is ineligible for
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purchase by FNMA or FHLMC due to borrower credit characteristics that do not
meet FNMA or FHLMC underwriting guidelines, including a loan made to a borrower
whose creditworthiness and repayment ability do not satisfy such FNMA or FHLMC
underwriting guidelines or a borrower who may have a record of major derogatory
credit items such as default on a prior mortgage loan, credit write-offs,
outstanding judgments and prior bankruptcies. Accordingly, Mortgage Loans
underwritten pursuant to these guidelines are likely to experience rates of
delinquency and foreclosure that are higher, and may be substantially higher,
than mortgage loans originated in accordance with FNMA or FHLMC underwriting
guidelines.
All of the underwriting standards are applied in a manner intended to
comply with applicable federal and state laws and regulations. The purpose of
applying these standards is to evaluate each prospective borrower's credit
standing and repayment ability and the value and adequacy of the related
Mortgaged Premises as collateral.
In general, a prospective borrower is required to complete a detailed
application designed to provide pertinent credit information.
The prospective borrower generally is required to provide a current list of
assets as well as an authorization for a credit report which summarizes the
borrower's credit history with merchants and lenders as well as any suits,
judgments or bankruptcies that are of public record. The borrower may also be
required to authorize verification of deposits at financial institutions where
the borrower has demand or savings accounts.
In determining the adequacy of the Mortgaged Premises as collateral, an
appraisal is made of each property considered for financing by a qualified
independent appraiser . Appraisers are approved and selected by the Originator,
provided such appraisers shall not have been excluded from delivering appraisals
by any of FNMA, FHLMC or Saxon Mortgage. The appraiser is required to inspect
the property and verify that it is in good repair and that construction, if new,
has been completed. The appraisal is based on the market value of comparable
homes and, if considered applicable by the appraiser, the estimated rental
income of the property and a replacement cost and analysis based on the current
cost of constructing a similar home. All appraisals generally are expected to
conform to FNMA or FHLMC appraisal standards then in effect.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (generally determined on the
basis of the monthly payments due in the year of origination) and other expenses
related to the Mortgaged Premises (such as property taxes and insurance
premiums), and (ii) to meet monthly housing expenses and other financial
obligations and monthly living expenses. The underwriting standards applied,
particularly with respect to the level of income and debt disclosure on the
application and verification, may be adjusted in appropriate cases where factors
such as low loan-to-value ratios or other favorable compensating factors exist.
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A prospective borrower applying for a loan pursuant to the full
documentation program is required to provide, in addition to the above, a
statement of income, expenses and liabilities (existing or prior). An employment
verification is obtained from an independent source (typically the prospective
borrower's employer), which verification generally reports the length of
employment with that organization, the prospective borrower's current salary and
whether it is expected that the prospective borrower will continue such
employment in the future. If a prospective borrower is self-employed, the
borrower may be required to submit copies of signed tax returns. For other than
self-employed borrowers, income verification may be accomplished by W-2 forms or
pay stubs that indicate year to date earnings.
Under the limited documentation program or stated income program,
greater emphasis is placed on the value and adequacy of the Mortgaged Premises
as collateral rather than on credit underwriting, and certain credit
underwriting documentation concerning income and employment verification is
therefore waived. Accordingly, the maximum permitted loan-to-value ratios for
loans originated under such program are generally lower than those permitted for
other similar loans originated pursuant to the full documentation program.
Representations and Warranties
The Seller generally will acquire the Mortgage Loans from Saxon
Mortgage. Saxon Mortgage will make certain customary representations and
warranties with respect to the Mortgage Loans in the agreement by which Saxon
Mortgage transfers its interest in the Mortgage Loans to the Seller. Except as
otherwise specified in the Prospectus Supplement for a Series, Saxon Mortgage
will represent and warrant, among other things, (i) that each Mortgage Loan has
been originated in compliance with all applicable laws, rules and regulations,
(ii) that each Primary Mortgage Insurance Policy is the valid and binding
obligation of the related mortgage insurer, (iii) that each Security Instrument
constitutes a good and valid first or, if applicable, second or more junior lien
on the related Mortgaged Premises and (iv) that the borrower holds good and
marketable title to such Mortgaged Premises. Except as otherwise specified in
the Prospectus Supplement for a Series, Saxon Mortgage is required to submit to
the Trustee with each Mortgage Loan a mortgagee title insurance policy, title
insurance binder, preliminary title report, or other satisfactory evidence of
title insurance. If a preliminary title report is delivered initially, Saxon
Mortgage is required to deliver a final title insurance policy or satisfactory
evidence of the existence of such a policy.
In the event Saxon Mortgage breaches a representation or warranty made
with respect to a Mortgage Loan or if any principal document executed by the
borrower relating to a Mortgage Loan is found to be defective in any material
respect and the breaching party cannot cure such breach or defect within the
number of days specified in the applicable agreement, the Trustee may require
such breaching party to purchase such Mortgage Loan from the related Trust upon
deposit with the Trustee of funds equal to the then unpaid principal balance of
such Mortgage Loan plus accrued interest thereon at the related
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Mortgage Interest Rate through the end of the month in which the purchase
occurs. In the event of a breach by Saxon Mortgage of a representation or
warranty with respect to a Mortgage Loan or the delivery by Saxon Mortgage to
the Trustee of a materially defective document with respect to a Mortgage Loan,
Saxon Mortgage may under certain circumstances, in lieu of repurchasing such
Mortgage Loan, substitute a Mortgage Loan having characteristics substantially
similar to those of the defective Mortgage Loan. Saxon Mortgage's obligation to
purchase a Mortgage Loan will not be guaranteed by the Seller or any other
party, unless otherwise specified in the related Prospectus Supplement.
SERVICING OF MORTGAGE LOANS
General
For each Trust that includes Mortgage Loans, one or more Servicers,
which may include an affiliate of the Seller , will perform certain customary
servicing functions with respect to such Mortgage Loans pursuant to one or more
servicing agreements (each, a "Servicing Agreement") which will be assigned to
the Trustee. If specified in the Prospectus Supplement for a Series, a master
servicer (the "Master Servicer"), which may include an affiliate of the Seller,
will perform, directly or indirectly through one or more sub-servicers, certain
administrative and supervisory functions with respect to such Mortgage Loans.
The Master Servicer is deemed to be a Servicer for purposes of the following
discussion to the extent the Master Servicer is directly servicing any of the
Mortgage Loans in a Trust. The Servicers will be entitled to withhold their
servicing fees and certain other fees and charges from remittances of payments
received on Mortgage Loans serviced by them. If specified in the Prospectus
Supplement for a Series, a special servicer (a "Special Servicer") may be
appointed to service, make certain decisions with respect to and take various
actions with respect to delinquent or defaulted Mortgage Loans or related REO
Properties. The related Prospectus Supplement will describe the duties and
obligations of the Special Servicer, if any. A Special Servicer will be entitled
to a special servicing fee.
Each Servicer of one- to four-family Mortgage Loans generally will be
approved or will utilize a sub-servicer that is approved by FNMA or FHLMC as a
servicer of mortgage loans and must be approved by the Master Servicer. In
determining whether to approve a Servicer, the Master Servicer will review the
credit of the Servicer and, if necessary for the approval of the Servicer, the
sub-servicer, including capitalization ratios, liquidity, profitability and
other similar items that indicate ability to perform financial obligations. In
addition, the Master Servicer's mortgage servicing personnel will review the
Servicer's and, if necessary, the sub-servicer's servicing record and will
evaluate the ability of the Servicer and, if necessary, the sub-servicer to
conform with required servicing procedures. Generally, the Master Servicer will
not approve a Servicer unless either the Servicer or the sub-servicer, if any,
(i) has serviced conventional mortgage loans for a minimum of two years, (ii)
maintains a loan servicing portfolio of at least $300,000,000, and (iii) has
tangible net worth (determined in accordance with
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generally accepted accounting principles) of at least $3,000,000. The Master
Servicer will continue to monitor on a regular basis the credit and servicing
performance of the Servicer and, to the extent the Servicer does not meet the
foregoing requirements, the sub-servicer, if any.
The duties to be performed by the Servicers with respect to the Mortgage
Loans included in the Trust for each Series will include the calculation,
collection and remittance of principal and interest payments on the Mortgage
Loans, the administration of mortgage escrow accounts, as applicable, the
collection of insurance claims, the administration of foreclosure procedures
and, if necessary, the advance of funds to the extent certain payments are not
made by the borrowers and are recoverable from late payments made by the
borrowers, under the applicable insurance policies with respect to such Series
or from proceeds of the liquidation of such Mortgage Loans. Each Servicer also
will provide such accounting and reporting services as are necessary to enable
the Master Servicer to provide required information to the Seller and the
Trustee with respect to such Mortgage Loans. Each Servicer is entitled to (i) a
periodic servicing fee equal to a specified percentage of the outstanding
principal balance of each Mortgage Loan serviced by such Servicer and (ii)
certain other fees, including, but not limited to, late payments, conversion or
modification fees and assumption fees. With the consent of the Master Servicer,
certain servicing obligations of a Servicer may be delegated to a sub-servicer
approved by the Master Servicer, provided, however, that the Servicer remains
fully responsible and liable for all of its obligations under the Servicing
Agreement. The rights of the Seller under each Servicing Agreement with respect
to a Series will be assigned to the Trust for such Series.
Payments on Mortgage Loans
Each Servicing Agreement with respect to a Series will require the
related Servicer to establish and maintain one or more separate, insured (to the
available limits) custodial accounts (collectively, the "Custodial Account")
into which the Servicer will be required to deposit on a daily basis payments of
principal and interest received with respect to Mortgage Loans serviced by such
Servicer included in the Trust for such Series. To the extent deposits in each
Custodial Account are required to be insured by the FDIC, if at any time the
sums in any Custodial Account exceed the limits of insurance on such account,
the Servicer will be required within one business day to withdraw such excess
funds from such account and remit such amounts (i) to a custodial account
maintained by the Trustee or at a separate institution designated by the Master
Servicer (the "Servicer Custodial Account") or (ii) to the Trustee or the Master
Servicer for deposit in either the Asset Proceeds Account for such Series or a
custodial account maintained by the Master Servicer (the "Master Servicer
Custodial Account"). The amount on deposit in any Servicer Custodial Account,
Asset Proceeds Account or Master Servicer Custodial Account
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will be invested in or collateralized by Permitted Investments as
described herein.
Each Servicing Agreement with respect to a Series will require the
related Servicer, not later than the day of the month specified in such
Servicing Agreement (each, a "Remittance Date"), to remit to the Master Servicer
Custodial Account (i) amounts representing scheduled installments of principal
and interest on the Mortgage Loans included in the Trust for such Series
received or advanced by the Servicer that were due during the related Due Period
and (ii) principal prepayments, insurance proceeds, guarantee proceeds and
liquidation proceeds (including amounts paid in connection with the withdrawal
from the related Trust of defective Mortgage Loans or the purchase from the
related Trust of Converted Mortgage Loans) received during the applicable
Prepayment Period, with interest to the date of prepayment or liquidation
(subject to certain limitations); provided, however, that each Servicer may
deduct from such remittance all applicable servicing fees, certain insurance
premiums, amounts required to reimburse any unreimbursed Advances and any other
amounts specified in the related Servicing Agreement. On or before each
Distribution Date, the Master Servicer will withdraw from the Master Servicer
Custodial Account and remit to the Asset Proceeds Account those amounts
allocable to the Available Distribution for such Distribution Date. In addition,
there will be deposited in the Asset Proceeds Account for such Series any
Advances of principal and interest made by the Master Servicer or the Trustee
pursuant to the Agreement to the extent such amounts were not deposited in the
Master Servicer Custodial Account or received and applied by the Servicer.
Prior to each Distribution Date for a Series, the Master Servicer will
furnish to the Trustee a statement setting forth certain information with
respect to the Mortgage Loans included in the Trust for such Series.
Advances
Unless otherwise specified in the Prospectus Supplement for a Series,
each Servicing Agreement with respect to such Series generally will provide that
the related Servicer will be obligated to advance funds (each, an "Advance") to
cover, to the extent that such amounts are deemed to be recoverable from any
subsequent payments on the Mortgage Loans, (i) delinquent payments of principal
or interest on such Mortgage Loans, (ii) delinquent payments of taxes, insurance
premiums or other escrowed items and (iii) foreclosure costs, including
reasonable attorney's fees. The failure of a Servicer to make any required
Advance under the related Servicing Agreement constitutes a default under such
Servicing Agreement for which the Servicer will be terminated. Upon a default by
the Servicer, the Master Servicer or the Trustee may, if so provided in the
Agreement, be required to make Advances to the extent necessary to make required
distributions on certain Certificates, provided that such party deems such
amounts to be recoverable.
As specified in the related Prospectus Supplement, the advance
obligation of the Trustee and the Master Servicer may be further limited to an
amount specified in the Agreement or the Servicing Agreement that has been
approved by each Rating Agency that provides,
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at the request of the Seller, a rating for the Certificates of such Series. Any
required Advances by a Servicer, the Master Servicer or the Trustee, as the case
may be, must be deposited into the applicable Custodial Account or Master
Servicer Custodial Account or into the Asset Proceeds Account and will be due
not later than the Distribution Date to which such delinquent payment relates.
Amounts so advanced by a Servicer, the Master Servicer or the Trustee, as the
case may be, will be reimbursable out of future payments on the Mortgage Loans,
insurance proceeds or liquidation proceeds of the Mortgage Loans for which such
amounts were advanced. If an Advance made by a Servicer, the Master Servicer or
the Trustee, as the case may be, later proves to be unrecoverable, such
Servicer, the Master Servicer or the Trustee, as the case may be, will be
entitled to reimbursement from funds in the Asset Proceeds Account prior to the
distribution of payments to the Certificateholders.
Any Advances made by a Servicer, the Master Servicer or the Trustee with
respect to Mortgage Loans included in the Trust for any Series are intended to
enable the Trustee to make timely payment of the scheduled distributions of
principal and interest on the Certificates of such Series and will be due not
later than the Distribution Date on which such payments are scheduled to be
made. However, neither the Master Servicer, the Trustee nor any Servicer will
insure or guarantee the Certificates of any Series or the Mortgage Loans
included in the Trust for any Series, and their obligations to advance for
delinquent payments will be limited to the extent that such Advances, in the
judgment of the Master Servicer or the Trustee, will be recoverable out of
future payments on the Mortgage Loans, insurance proceeds or liquidation
proceeds of the Mortgage Loans for which such amounts were advanced.
Collection and Other Servicing Procedures
Each Servicing Agreement with respect to a Series will require the
related Servicer to make reasonable efforts to collect all payments required
under the Mortgage Loans included in the related Trust and, consistent with such
Servicing Agreement and the applicable insurance policies with respect to each
Mortgage Loan, to follow such collection procedures as it normally would follow
with respect to mortgage loans serviced for FNMA.
The Mortgage Note or Security Instrument used in originating a
conventional Mortgage Loan may, at the lender's option, contain a "due-on-sale"
clause. See "Certain Legal Aspects of Mortgage Loans -- "Due-On-Sale" Clauses."
The Servicer will be required to use reasonable efforts to enforce "due-on-sale"
clauses with respect to any Mortgage Note or Security Instrument containing such
a clause, provided that the coverage of any applicable insurance policy will not
be adversely affected thereby. In any case in which Mortgaged Premises have been
or are about to be conveyed by the borrower and the "due-on-sale" clause has not
been enforced or the related Mortgage Note is by its terms assumable, the
Servicer will be authorized to take or enter into an assumption agreement from
or with the person to whom such Mortgaged Premises have been or are about to be
conveyed, if such person meets certain loan underwriting criteria, including the
criteria necessary to maintain the coverage provided by the applicable Primary
Mortgage Insurance Policies or if otherwise required by law.
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In the event that the Servicer enters into an assumption agreement in connection
with the conveyance of any such Mortgaged Premises, the Servicer will release
the original borrower from liability upon the Mortgage Loan and substitute the
new borrower as obligor thereon. In no event can an assumption agreement permit
a decrease in the Mortgage Interest Rate or an increase in the term of a
Mortgage Loan. Fees collected for entering into an assumption agreement will be
retained by the Servicer as additional servicing compensation.
Primary Mortgage Insurance Policies
The Mortgage Loans will be covered by primary mortgage insurance
policies ("Primary Mortgage Insurance Policies") insuring, subject to their
provisions and certain limitations, against all or a portion of any loss
sustained by reason of nonpayments by borrowers to the extent specified in the
related Prospectus Supplement. Each Conventional Mortgage Loan that has an
original loan-to-value ratio of greater than 80% will, to the extent specified
in the related Prospectus Supplement, be covered by a Primary Mortgage Insurance
Policy remaining in force until the principal balance of such Mortgage Loan is
reduced to 80% of the original fair market value of the related Mortgaged
Premises or, with the consent of the Master Servicer and the mortgage insurer,
after the related policy has been in effect for more than two years if the
loan-to-value ratio with respect to such Mortgage Loan has declined to 80% or
less based upon the current fair market value of such Mortgaged Premises.
Certain other Mortgage Loans may also be covered by Primary Mortgage Insurance
Policies to the extent specified in the related Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement for a Series,
the amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan included in the related Trust (the "Mortgage Insurance
Loss") will consist of the insured portion of the unpaid principal balance of
the covered Mortgage Loan plus accrued and unpaid interest on such unpaid
principal balance and reimbursement of certain expenses, less (i) all rents or
other payments collected or received by the insured (other than the proceeds of
hazard insurance) that are derived from or are in any way related to the related
Mortgaged Premises, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Premises and which have not been applied to
the payment of such Mortgage Loan, (iii) amounts expended but not approved by
the mortgage insurer, (iv) claim payments previously made by the mortgage
insurer and (v) unpaid premiums. Unless otherwise specified in the Prospectus
Supplement for a Series, the mortgage insurer will be required to pay to the
insured either (i) the Mortgage Insurance Loss or (ii) at its option under
certain of the Primary Mortgage Insurance Policies, the sum of the delinquent
scheduled payments plus any advances made by the insured, both to the date of
the claim payment, and, thereafter, scheduled payments in the amount that would
have become due under the Mortgage Loan if it had not been discharged plus any
advances made by the insured until the earlier of (A) the date the Mortgage Loan
would have been discharged in full if the default had not occurred and (B) the
date of an approved sale. Any rents or other payments collected or received by
the insured which are derived from or are in any way
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related to the Mortgaged Premises securing such Mortgage Loan will be deducted
from any claim payment.
Standard Hazard Insurance Policies
Each Servicing Agreement with respect to a Series will require the
related Servicer to cause to be maintained a Standard Hazard Insurance Policy
covering each Mortgaged Premises securing each Mortgage Loan covered by such
Servicing Agreement. Each Standard Hazard Insurance Policy will cover an amount
at least equal to the lesser of (i) the outstanding principal balance of the
related Mortgage Loan or (ii) 100% of the replacement value of the improvements
on the related Mortgaged Premises. All amounts collected by the Servicer or the
Master Servicer under any Standard Hazard Insurance Policy (less amounts to be
applied to the restoration or repair of the Mortgaged Premises and other amounts
necessary to reimburse the Servicer or the Master Servicer for previously
incurred advances or approved expenses, which may be retained by the Servicer or
the Master Servicer) will be deposited to the applicable Custodial Account
maintained with respect to such Mortgage Loan or the Asset Proceeds Account. See
" -- Payments on Mortgage Loans."
The Standard Hazard Insurance Policies will provide for coverage at
least equal to the applicable state standard form of fire insurance policy with
extended coverage. In general, the standard form of fire and extended coverage
policy will cover physical damage to, or destruction of, the improvements on the
Mortgaged Premises caused by fire, lightning, explosion, smoke, windstorm, hail,
riot, strike and civil commotion, subject to the conditions and exclusions
specified in each policy. Because the Standard Hazard Insurance Policies will be
underwritten by different insurers and will cover Mortgaged Premises located in
different states, such policies will not contain identical terms and conditions.
The basic terms thereof, however, generally will be determined by state law and
generally will be similar. Standard Hazard Insurance Policies typically will not
cover physical damage resulting from war, revolution, governmental actions,
floods and other water-related causes, earth movement (including earthquakes,
landslides and mudflows), nuclear reaction, wet or dry rot, vermin, rodents,
insects or domestic animals, theft or, in certain cases, vandalism. The
foregoing list is merely indicative of certain kinds of uninsured risks and is
not intended to be all-inclusive. If Mortgaged Premises are located in a flood
area identified by HUD pursuant to the National Flood Insurance Act of 1968, as
amended, the applicable Servicing Agreement will require that the Servicer or
the Master Servicer, as the case may be, cause to be maintained flood insurance
with respect to such Mortgaged Premises. The Seller may acquire one or more
Special Hazard Insurance Policies covering certain of the uninsured risks
described above. See "Credit Enhancement -- Special Hazard Insurance Policies."
The Standard Hazard Insurance Policies covering Mortgaged Premises
securing Mortgage Loans typically will contain a "coinsurance" clause which, in
effect, will require the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements
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on the Mortgaged Premises in order to recover the full amount of any partial
loss. If the insured's coverage falls below this specified percentage, such
clause will provide that the insurer's liability in the event of partial loss
will not exceed the greater of (i) the actual cash value (the replacement cost
less physical depreciation) of the dwellings, structures and other improvements
damaged or destroyed or (ii) such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such dwellings, structures and other
improvements.
A Servicer may satisfy its obligation to provide a Standard Hazard
Insurance Policy with respect to the Mortgage Loans it services by obtaining and
maintaining a blanket policy insuring against fire, flood and hazards of
extended coverage on all of such Mortgage Loans, to the extent that (i) such
policy names the Servicer as loss payee and (ii) such policy provides coverage
in an amount equal to the aggregate unpaid principal balance on the Mortgage
Loans without co-insurance. If the blanket policy contains a deductible clause
and there is a loss not covered by the blanket policy that would have been
covered by a Standard Hazard Insurance Policy covering the related Mortgage
Loan, then the Servicer will remit to the Master Servicer from the Servicer's
own funds the difference between the amount paid under the blanket policy and
the amount that would have been paid under a Standard Hazard Insurance Policy
covering such Mortgage Loan.
Any losses incurred with respect to Mortgage Loans included in the Trust
for a Series due to uninsured risks (including earthquakes, landslides, mudflows
and floods) or insufficient insurance proceeds may reduce the value of the
assets included in the Trust for such Series to the extent such losses are not
covered by a Special Hazard Insurance Policy for such Series and could affect
distributions to holders of the Certificates of such Series.
Maintenance of Insurance Policies; Claims Thereunder and Other
Realization Upon Defaulted Mortgage Loans
The Master Servicer may be required to maintain with respect to a Series
one or more Mortgage Pool Insurance Policies, Special Hazard Insurance Policies
or Bankruptcy Bonds in full force and effect throughout the term of the related
Trust, subject to payment of the applicable premiums by the Trustee. The terms
of any such policy or bond and any requirements in connection therewith
applicable to any Servicer or the Master Servicer will be described in the
related Prospectus Supplement. The Master Servicer will be required to notify
the Trustee to pay from amounts in the Trust the premiums for any such Mortgage
Pool Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bonds on a
timely basis. Any such premiums may be payable on a monthly basis in advance or
pursuant to any other payment schedule acceptable to the applicable insurer. In
the event that any such Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy or Bankruptcy Bond is canceled or terminated for any reason (other than
the exhaustion of total policy coverage), the Master Servicer will be obligated
to obtain from another insurer a comparable replacement policy with a total
coverage which is equal to the then existing coverage (or a lesser amount if the
Master Servicer confirms in writing with the Rating Agency that provides, at the
request of the Seller, a rating for the Certificates of such Series that such
lesser
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amount will not impair the rating on such Certificates) of such Mortgage Pool
Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bond. However,
if the cost of any such replacement policy or bond is greater than the cost of
the policy or bond which has been terminated, then the amount of the coverage
will be reduced to a level such that the applicable premium will not exceed the
cost of the premium for such terminated policy or bond or the Master Servicer
may secure such replacement policy or other credit enhancement at such increased
cost, so long as such increase in cost will not adversely affect amounts
available to make payments of principal or interest on the Certificates.
If any Mortgaged Premises securing a defaulted Mortgage Loan included in
the Trust for a Series is damaged and the proceeds, if any, from the related
Standard Hazard Insurance Policy or any Special Hazard Insurance Policy are
insufficient to restore the damaged Mortgaged Premises to the condition
necessary to permit recovery under the related Mortgage Pool Insurance Policy,
the Servicer will not be required to expend its own funds to restore the damaged
Mortgaged Premises unless it determines that such expenses will be recoverable
to it through insurance proceeds or liquidation proceeds. Each Servicing
Agreement and the Agreement with respect to a Series will require the Servicer
or the Master Servicer, as the case may be, to present claims to the insurer
under any insurance policy applicable to the Mortgage Loans included in the
related Trust and to take such reasonable steps as are necessary to permit
recovery under such insurance policies with respect to defaulted Mortgage Loans
or losses on the Mortgaged Premises securing the Mortgage Loans.
If recovery under any applicable insurance policy is not available, the
Servicer or the Master Servicer nevertheless will be obligated to follow
standard practices and procedures to realize upon such defaulted Mortgage Loan.
The Servicer or the Master Servicer will sell the Mortgaged Premises pursuant to
foreclosure, or a trustee's sale or, in the event a deficiency judgment is
available against the borrower or another person, proceed to seek recovery of
the deficiency against the appropriate person. To the extent that the proceeds
of any such liquidation proceeding are less than the unpaid principal balance or
Asset Value of the defaulted Mortgage Loan, there will be a reduction in the
value of the assets of the Trust for the related Series such that holders of the
Certificates of such Series may not receive distributions of principal and
interest on such Certificates in full. See "Certain Legal Aspects of Mortgage
Loans --Anti-Deficiency Legislation and Other Limitations on Lenders."
Modification of Mortgage Loans
With respect to a Mortgage Loan on which a material default has occurred
or a payment default is imminent, the related Servicer, with the consent of the
Master Servicer, may enter into a forbearance or modification agreement with the
borrower. The terms of any such forbearance or modification agreement may affect
the amount and timing of principal and interest payments on the Mortgage Loan
and, consequently, may affect the amount and timing of payments on one or more
Classes of the related Series of Certificates. For example, a modification
agreement that results in a lower Mortgage Interest Rate would lower the
Pass-Through Rate of any related Class of Certificates that accrues interest at
a rate based on the weighted average Net Rate of the Mortgage Loans.
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As a condition to any modification or forbearance related to any
Mortgage Loan or to the substitution of a Mortgage Loan, the Master Servicer is
required to determine, in its reasonable business judgment, that such
modification, forbearance or substitution will maximize the recovery on such
Mortgage Loan on a present value basis. In determining whether to grant a
forbearance or a modification, the Servicer and, if required, the Master
Servicer will take into account the willingness of the borrower to perform on
the Mortgage Loan, the general condition of the Mortgaged Premises and the
likely proceeds from the foreclosure and liquidation of the Mortgaged Premises.
The Servicers will not exercise any discretion with respect to changes
in any of the terms of any Mortgage Loan (including, but not limited to, the
Mortgage Interest Rate and whether the term of the Mortgage Loan is extended for
a further period and the specific provisions applicable to such extension) or
the disposition of REO Properties without the consent of the Master Servicer.
Evidence as to Servicing Compliance
Within 120 days after the end of each of its fiscal years, the Servicer
must provide the Master Servicer with a copy of its audited financial statements
for such year and a statement from the firm of independent public accountants
that prepared such financial statements to the effect that, in preparing such
statements, it reviewed the results of the Servicer's servicing operations in
accordance with the Uniform Single-Audit Procedures for mortgage banks developed
by the Mortgage Bankers Association. In addition, the Servicer will be required
to deliver an officer's certificate to the effect that it has fulfilled its
obligations under the Servicing Agreement during the preceding fiscal year or
identifying any ways in which it has failed to fulfill its obligations during
such fiscal year and the steps that have been taken to correct such failure. The
Master Servicer will be required promptly to make available to the Trustee any
compliance reporting that it receives from a Servicer.
The Master Servicer will review, on an annual basis, the performance of
each Servicer under the related Servicing Agreement and the status of any
fidelity bond and errors and omissions policy required to be maintained by such
Servicer under such Servicing Agreement.
Events of Default and Remedies
Unless otherwise specified in the Prospectus Supplement for a Series,
events of default under the Servicing Agreement in respect of a Series of
Certificates will consist of (i) any failure by the Servicer to remit to the
Master Servicer Custodial Account any payment required to be made by a Servicer
under the terms of the Servicing Agreement that is not remedied within at least
one business day; (ii) any failure on the part of a Servicer to observe or
perform in any material respect any of its other covenants or agreements
contained in the Servicing Agreement that continues unremedied for a specified
period after the giving of written notice of such failure to the Servicer by the
Master Servicer; (iii) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar
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proceedings regarding the Servicer; or (iv) certain actions by or on behalf of
the Servicer indicating its insolvency or inability to pay its obligations.
The Master Servicer will have the right pursuant to each Servicing
Agreement to terminate the related Servicer upon the occurrence of an event of
default under such Servicing Agreement. In the event of such termination, the
Master Servicer will appoint a substitute Servicer (which may be the Master
Servicer) acceptable to the Master Servicer and approved by the Trustee (which
shall be given upon receipt of written confirmation by each Rating Agency that
provides, at the request of the Seller, a rating for the Certificates of the
related Series that such appointment will not adversely effect the ratings then
in effect on the Certificates). Any successor servicer, including the Master
Servicer or the Trustee, will be entitled to compensation arrangements similar
to those provided to the Servicer.
Master Servicer Duties
Unless otherwise specified in the Prospectus Supplement for a Series,
the Master Servicer will (i) administer and supervise the performance by each
Servicer of its duties and responsibilities under the related Servicing
Agreement, (ii) maintain any insurance policies (other than property specific
insurance policies) providing coverage for losses on the Mortgage Loans for such
Series, (iii) calculate amounts payable to Certificateholders on each
Distribution Date, (iv) prepare periodic reports to the Trustee or the
Certificateholders with respect to the foregoing matters, (v) prepare federal
and state tax and information returns and (vi) prepare reports, if any, required
under the Securities Exchange Act of 1934, as amended. In addition, the Master
Servicer will receive, review and evaluate all reports, information and other
data provided by each Servicer to enforce the provisions of the related
Servicing Agreement, to monitor each Servicer's servicing activities, to
reconcile the results of such monitoring with information provided by the
Servicer and to make corrective adjustments to records of the Servicer and the
Master Servicer, as appropriate. The Master Servicer may engage various
independent contractors to perform certain of its responsibilities, provided,
however, that the Master Servicer remains fully responsible and liable for all
of its obligations under each Agreement (other than those specifically
undertaken by a Special Servicer).
The Master Servicer will be entitled to a monthly master servicing fee
applicable to each Mortgage Loan expressed as a fixed percentage of the
remaining Scheduled Principal Balance of such Mortgage Loan as of the first day
of the immediately preceding Due Period. The related Prospectus Supplement will
specify the amount of the master servicing fee.
The Master Servicer or the Trustee may terminate a Servicer who has
failed to comply with its covenants or breached one or more of its
representations and warranties contained in the related Servicing Agreement.
Upon termination of a Servicer by the Master Servicer or the Trustee, the Master
Servicer will assume certain servicing obligations of the terminated Servicer
or, at its option, may appoint a substitute Servicer acceptable to the Trustee
to assume the servicing obligations of the terminated Servicer. The Master
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Servicer's obligation to act as a Servicer following the termination of a
Servicer will not require the Master Servicer to (i) purchase Mortgage Loans
from a Trust due to a breach by the Servicer of a representation or warranty
under the related Servicing Agreement, (ii) purchase from the Trust any
Converted Mortgage Loan or (iii) advance payments of principal and interest on a
delinquent Mortgage Loan in excess of the Master Servicer's independent advance
obligation under the related Agreement. The Master Servicer for a Series may
resign from its obligations and duties under the Agreement with respect to such
Series, but no such resignation will become effective until the Trustee or a
successor master servicer has assumed the Master Servicer's obligations and
duties. If specified in the Prospectus Supplement for a Series, the Seller may
appoint a stand-by Master Servicer, which will assume the obligations of the
Master Servicer upon a default by the Master Servicer.
Special Servicing Agreement
The Master Servicer may appoint a Special Servicer to undertake certain
responsibilities of the Servicer with respect to certain defaulted Mortgage
Loans securing a Series. The Special Servicer may engage various independent
contractors to perform certain of its responsibilities, provided, however, that
the Special Servicer must remain fully responsible and liable for all of its
requirements under the special servicing agreement (the "Special Servicing
Agreement"). As may be further specified in the related Prospectus Supplement,
the Special Servicer, if any, may be entitled to various fees, including, but
not limited to, (i) a monthly engagement fee applicable to each Mortgage Loan or
related REO Properties as of the first day of the immediately preceding Due
Period, (ii) a special servicing fee expressed as a fixed percentage of the
remaining Scheduled Principal Balance of each specially serviced Mortgage Loan
or related REO Properties, or (iii) a performance fee applicable to each
liquidated Mortgage Loan based upon the related liquidation proceeds.
THE AGREEMENT
The following summaries describe the material provisions common to each
Series of Certificates. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the related
Prospectus Supplement and the Agreement with respect to such Series. When
particular provisions or terms used in the Agreement are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
The Trustee
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The Trustee must be a corporation or a national banking association
organized under the laws of the United States or any state thereof and
authorized under the laws of the jurisdiction in which it is organized to have
corporate trust powers.
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The Trustee must also have combined capital and surplus of at least $50,000,000
and be subject to regulation and examination by state or federal regulatory
authorities. Although the Trustee may not be an affiliate of the Seller or the
Master Servicer, either the Seller or the Master Servicer may maintain normal
banking relations with the Trustee if the Trustee is a depository institution.
The Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor Trustee. The Seller will also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. The Trustee may also be removed
at any time by the holders of outstanding Certificates of the related Series
entitled to at least 51% of the voting rights of such Series. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
Administration of Accounts
Funds deposited in or remitted to the Asset Proceeds Account, any
Reserve Fund or any other funds or accounts for a Series are to be invested by
the Trustee, as directed by the Seller, in certain eligible investments
("Permitted Investments"), which may include (i) obligations of the United
States or any agency thereof provided such obligations are backed by the full
faith and credit of the United States, (ii) within certain limitations,
securities bearing interest or sold at a discount issued by any corporation,
which securities are rated in the rating category required to support the then
applicable rating assigned to such Series, (iii) commercial paper which is then
rated in the commercial paper rating category required to support the then
applicable rating assigned to such Series, (iv) demand and time deposits,
certificates of deposit, bankers' acceptances and federal funds sold by any
depository institution or trust company incorporated under the laws of the
United States or of any state thereof, provided that either the senior debt
obligations or commercial paper of such depository institution or trust company
(or the senior debt obligations or commercial paper of the parent company of
such depository institution or trust company) are then rated in the rating
category required to support the then applicable rating assigned to such Series,
(v) demand and time deposits and certificates of deposit issued by any bank or
trust company or savings and loan association and fully insured by the Federal
Deposit Insurance Corporation (the "FDIC"), (vi) guaranteed reinvestment
agreements issued by any insurance company, corporation or other entity
acceptable to each Rating Agency that provides, at the request of the Seller, a
rating for the Certificates of such Series at the time of issuance of such
Series and (vii) certain repurchase agreements of United States government
securities.
Permitted Investments with respect to a Series will include only
obligations or securities that mature on or before the date on which the Asset
Proceeds Account, Reserve Fund and other funds or accounts for such Series are
required or may be anticipated to be required to be applied for the benefit of
the holders of the Certificates of such Series. Any income, gain or loss from
such investments for a Series will be credited or charged to the appropriate
fund or account for
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such Series. Reinvestment income from Permitted Investments may be payable to
the Servicers or the Master Servicer as additional servicing compensation and,
in that event, will not accrue for the benefit of the Certificate holders of
such Series. If a reinvestment agreement is obtained with respect to a Series,
the related Agreement will require the Trustee to invest funds deposited in the
Asset Proceeds Account and any Reserve Fund or other fund or account for such
Series pursuant to the terms of the reinvestment agreement.
Reports to Certificateholders
Concurrently with each distribution on the Certificates of any Series,
there will be mailed to the holders of such Certificates a statement generally
setting forth, to the extent applicable to such Series, among other things: (i)
the aggregate amount of such distribution allocable to principal, separately
identifying the amount allocable to each Class of Certificates; (ii) the
aggregate amount of such distribution allocable to interest, separately
identifying the amount allocable to each Class of Certificates; (iii) the
aggregate principal balance of each Class of Certificates after giving effect to
distributions on the related Distribution Date; (iv) if applicable, the amount
otherwise distributable to any Class of Certificates that was distributed to any
other Class of Certificates; (v) if any Class of Certificates has priority in
the right to receive principal prepayments, the amount of principal prepayments
in respect of the related Mortgage Assets; and information regarding the levels
of delinquencies and losses on the Mortgage Loans. Customary information deemed
necessary for Certificateholders to prepare their tax returns will be furnished
annually.
Events of Default and Remedies
Unless otherwise specified in the Prospectus Supplement for a Series,
events of default under the related Agreement will consist of (i) any default in
the performance or breach of any covenant or warranty of the Master Servicer
under such Agreement which continues unremedied for a specified period after the
giving of written notice of such failure to the Master Servicer by the Trustee
or by the holders of Certificates entitled to at least 25% of the aggregate
voting rights, (ii) any failure by the Master Servicer to make required Advances
with respect to delinquent Mortgage Loans in the related Trust, (iii) certain
events of insolvency, readjustment of debt, marshaling of assets and liabilities
or similar proceedings regarding the Master Servicer, if any, and (iv) certain
actions by or on behalf of the Master Servicer indicating its insolvency or
inability to pay its obligations.
So long as an event of default by the Master Servicer under an Agreement
remains unremedied, the Trustee may, and, at the direction of the holders of
outstanding Certificates of a Series entitled to at least 51% of the voting
rights, the Trustee will, terminate all of the rights and obligations of the
Master Servicer under the related Agreement, except that the holders of
Certificates may not direct the Trustee to terminate the Master Servicer for its
failure to make Advances. Upon termination, the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under
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such Agreement (except that if the Trustee is prohibited by law from obligating
itself to make Advances regarding delinquent Mortgage Loans, then the Trustee
will not be so obligated) and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling or unable to act as
successor Trustee, the Trustee may appoint or, if the holders of Certificates of
a Series entitled to at least 51% of the voting rights of such Series so request
in writing, the Trustee shall appoint, or petition a court of competent
jurisdiction for the appointment of, any established mortgage loan servicing
institution acceptable to the Rating Agencies and having a net worth of at least
$15,000,000 to act as successor to the Master Servicer under the Agreement . The
Trustee and such successor may agree upon the servicing compensation to be paid,
which in no event may be greater than the compensation to the Master Servicer
under the Agreement.
The Trustee will be under no obligation to exercise any of the trusts or
powers vested in it by the Agreement or to make any investigation of matters
arising thereunder or to institute, conduct or defend any litigation thereunder
or in relation thereto at the request, order or direction of any of the holders
of the Certificates of the related Series unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Amendment
The Agreement generally may be amended by the parties thereto with the
consent of the holders of outstanding Certificates of the related Series
entitled to at least 66% of the voting rights of such Series. However, no
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
payments received on the Mortgage Assets that are required to be distributed on
any Certificate without the consent of the Holder of such Certificate, (ii)
adversely affect in any material respect the interests of the Holders of any
Class of Certificates in a manner other than as described in (i) without the
consent of the Holders of Certificates of such Class evidencing 66% of the
voting rights of such class, or (iii) reduce the aforesaid percentage of
Certificateholders required to consent to any such amendment unless each holder
of a Certificate consents. The Agreement may also be amended by the parties
thereto without the consent of Certificateholders for the purpose of, among
other things, (i) curing any ambiguity, (ii) correcting or supplementing any
provisions thereof which may be inconsistent with any other provision thereof,
(iii) modifying, eliminating or adding to any of the provisions of the Agreement
to such extent as shall be necessary or appropriate to maintain the
qualification of the Trust (or certain assets thereof) either as a REMIC or as a
grantor trust under the Code at all times that any Certificates are outstanding
or (iv) making any other provision with respect to matters or questions
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arising under the Agreement or matters arising with respect to the Trust which
are not covered by the Agreement and which shall not be inconsistent with the
provisions of the Agreement, provided in each case that such action shall not
adversely affect in any material respect the interests of any Certificateholder.
Any such amendment or supplement shall be deemed not to adversely affect in any
material respect any Certificateholder if there is delivered to the Trustee
written notification from each Rating Agency that provides, at the request of
the Seller, a rating for the Certificates of the related Series to the effect
that such amendment or supplement will not cause such Rating Agency to lower or
withdraw the then current rating assigned to such Certificates.
Termination
Each Agreement and the respective obligations and responsibilities
created thereby shall terminate upon the distribution to Certificateholders of
all amounts required to be paid to them pursuant to such related Agreement
following (i) to the extent specified in the related Prospectus Supplement, the
purchase of all the Mortgage Assets in such related Trust and all Mortgaged
Premises acquired in respect thereof or (ii) the later of the final payment or
other liquidation of the last Mortgage Asset remaining in the Trust or the
disposition of all Mortgaged Premises acquired in respect thereof. See
"Description of the Certificates -- Optional Redemption." In no event, however,
will any Trust continue beyond the expiration of 21 years from the death of the
survivor of certain persons described in the related Agreement. Written notice
of termination of the Agreement will be given to each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates of the related Series at the corporate trust office of the Trustee
or its agent.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
General
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because such legal aspects are
governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the security
for the Mortgage Loans is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Mortgage Loans.
The Mortgage Loans
Single Family Loans, Multi-Family Loans, Conventional Home Improvement
Loans, Title I Loans and HELOCs. The Single Family Loans, Multi-Family Loans,
Conventional Home Improvement Loans, Title I Loans and HELOCs generally will be
secured by mortgages, deeds of trust, security deeds or deeds to secure debt,
depending upon the prevailing practice in the state in which the related
Mortgaged Premises is located. A mortgage creates a lien upon the real property
encumbered by the mortgage, which lien is generally not prior to liens for real
estate taxes and assessments. Priority between mortgages depends on
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their terms and generally on any order of recording with a state or county
office. There are two parties to a mortgage, the mortgagor, who is the borrower
and owner of the mortgaged premises, and the mortgagee, who is the lender. 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
trustor, who is the borrower and homeowner (similar to the mortgagor); the
beneficiary, who is the lender (similar to a mortgagee); and the trustee, who is
a third-party grantee. 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. A security deed and a deed to
secure debt are special types of deeds which indicate on their face that they
are granted to secure an underlying debt. By executing a security deed or deed
to secure debt, the grantor conveys title to, as opposed to merely creating a
lien upon, the subject property to the grantee until such time as the underlying
debt is repaid. The mortgagee's authority under a mortgage, the trustee's
authority under a deed of trust and the grantee's authority under a security
deed or deed to secure debt are governed by law and, with respect to some deeds
of trust, the directions of the beneficiary.
Condominiums. Certain of the Mortgage Loans may be loans secured by
condominium units. The condominium building may include one or more multi-unit
buildings, or a group of buildings whether or not attached to each other,
located on property subject to condominium ownership. Condominium ownership is a
form of ownership of real property wherein each owner is entitled to the
exclusive ownership and possession of his or her individual condominium unit and
also owns a proportionate undivided interest in all parts of the condominium
building (other than the individual condominium units) and all areas or
facilities, if any, for the common use of the condominium units. The condominium
unit owners appoint or elect the condominium association to govern the affairs
of the condominium.
Cooperative Loans. Certain of the Mortgage Loans may be Cooperative
Loans. The Cooperative (i) owns all the real property that comprises the
project, including the land and the apartment building comprised of separate
dwelling units and common areas or (ii) leases the land generally by a long-term
ground lease and owns the apartment building. The Cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the Cooperative in
connection with the construction or purchase of the Cooperative's apartment
building. The interest of the occupants under proprietary leases or occupancy
agreements to which the Cooperative is a party are generally subordinate to the
interest of the holder of the blanket mortgage in that building. If the
Cooperative is unable to meet the payment obligations arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being
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due in one lump sum at final maturity. The inability of the Cooperative to
refinance this mortgage or make such final payment could lead to foreclosure by
the mortgagee providing the financing. A foreclosure in either event by the
holder of the blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed the purchase by an
individual tenant-stockholder of Cooperative shares or, in the case of a Trust
including Cooperative Loans, the collateral securing the Cooperative Loans.
A Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
apartments or units. In general, a tenant-stockholder of a Cooperative must make
a monthly payment to the Cooperative representing such tenant-stockholder's pro
rata share of the Cooperative's payments for its mortgage loans, real property
taxes, maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying rights is financed through a
Cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
Cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement, and a financing
statement covering the proprietary lease or occupancy agreement and the
Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of the
Cooperative shares.
Foreclosure
Single Family Loans, Multi-Family Loans, Conventional Home Improvement
Loans, Title I Loans and HELOCs. Foreclosure of a mortgage is generally
accomplished by judicial action. A foreclosure action generally is initiated by
the service of legal pleadings upon the borrower and any party having a
subordinate interest in the real estate including any holder of a junior
encumbrance on the real estate. Delays in completion of the foreclosure
occasionally may result from difficulties in locating necessary parties
defendant. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. After the
completion of a judicial foreclosure proceeding, the court may issue a judgment
of foreclosure and appoint a receiver or other officer to conduct the sale of
the Mortgaged Premises. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage. Foreclosure
of a mortgage by advertisement is essentially similar to foreclosure of a deed
of trust by non-judicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of
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trust that authorizes the trustee to sell the Mortgaged Premises to a third
party upon any default by the borrower under the terms of the note or deed of
trust. In certain states, such foreclosure also may be accomplished by judicial
action in the manner provided for foreclosure of mortgages. In some states, the
trustee must record a notice of default and send a copy to the borrower 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 party having a subordinate interest in the real estate, including any
holder of a junior encumbrance on the real estate. If the deed of trust is not
reinstated within any applicable cure period, a notice of sale must be posted in
a public place and, in most states, published for a specified period of time in
one or more newspapers. In addition, some state laws require that a copy of the
notice of sale be posted on the property and sent to all parties having an
interest of record in the property. When the beneficiary's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In some states, the borrower, or any other person having a junior
encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. In general, state law controls the amount of foreclosure expenses
and costs, including attorney's fees, which may be recovered by a lender. After
the reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the
mortgage or deed of trust is not reinstated, a notice of sale must be posted in
a public place and, in most states, published for a specific period of time in
one or more newspapers. In addition, some state laws require that a copy of the
notice of sale be posted on the property and sent to all parties having an
interest in the real property. See " -- Junior Mortgage Loans; Rights of Senior
Mortgagees."
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the referee
confers absolute legal title to the real property to the purchaser, free of all
junior mortgages and free of all other liens and claims subordinate to the
mortgage or deed of trust under which the sale is made (with the exception of
certain governmental liens and any redemption rights that may be granted to
borrowers pursuant to applicable state law). The purchaser's title is, however,
subject to all senior liens, encumbrances and mortgages. Thus, if the mortgage
or deed of trust being foreclosed is a junior mortgage or deed of trust, the
referee or trustee will convey title to the property to the purchaser, subject
to the underlying first mortgage or deed of trust and any other prior liens or
claims. A foreclosure under a junior mortgage or deed of trust generally will
have no effect on any senior mortgage or deed of trust, except that it may
trigger the right of a senior mortgagee or beneficiary to accelerate its
indebtedness under a "due-on-sale" clause or "due on further encumbrance" clause
contained in the senior mortgage.
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In case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the Mortgaged Premises may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the Mortgaged Premises
at the foreclosure sale. Rather, it is common for the lender to purchase the
Mortgaged Premises from the receiver or trustee for an amount which may be as
great as the unpaid principal balance of the Mortgage Note, accrued and unpaid
interest thereon and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance and making such repairs at its own expense as are
necessary to render the Mortgaged Premises suitable for sale. The lender
commonly will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the Mortgaged Premises. Depending upon
market conditions, the ultimate proceeds of the sale of the Mortgaged Premises
may not equal the lender's investment therein. Any loss may be reduced by the
receipt of insurance proceeds. See "Servicing of Mortgage Loans -- Primary
Mortgage Insurance Policies," " -- Standard Hazard Insurance Policies" and
"Credit Enhancement -- Special Hazard Insurance Policies." Mortgaged Premises
that are acquired through foreclosure must be sold by the Trustee within two
years of the date on which it is acquired in order to satisfy certain federal
income tax requirements. See "Certain Federal Income Tax Consequences."
Foreclosure of a deed of trust is generally accomplished by a non-judicial sale
under a specific provision in the deed of trust which authorizes the trustee to
sell the property at public auction upon any default by the borrower under the
terms of the note or deed of trust. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor, to any person who has
recorded a request for a copy of any notice of default and notice of sale, to
any successor in interest to the borrower-trustor, to the beneficiary of any
junior deed of trust and to certain other persons. In some states, a notice of
sale must be posted in a public place and published during a specific period of
time in one or more newspapers, posted on the property and sent to parties
having an interest of record in the property before such non-judicial sale takes
place.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
Cooperative Loans. The Cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the Cooperative's
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charter documents, as well as the proprietary lease or occupancy agreement, and
may be canceled by the Cooperative for failure by the tenant-stockholder to pay
rent or other obligations or charges owed by such tenant-stockholder, including
mechanics' liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease.
In some states, foreclosure on the Cooperative shares is accomplished by
a sale in accordance with the provisions of Article 9 of the Uniform Commercial
Code (the "UCC") and the security agreement relating to those shares. Article 9
of the UCC requires that a sale be conducted in a "commercially reasonable"
manner. Whether a foreclosure sale has been conducted in a "commercially
reasonable" manner will depend on the facts in each case. In determining
commercial reasonableness, a court will look to the notice given the debtor and
the method, manner, time, place and terms of the foreclosure. Generally, a sale
conducted according to the usual practice of banks selling similar collateral
will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's rights to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or
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occupancy agreement. If there are proceeds remaining, the lender must
account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "-- Anti-Deficiency
Legislation and Other Limitations on Lenders."
Junior Mortgage Loans; Rights of Senior Mortgagees
Some of the Mortgage Loans included in a Trust may be secured by
mortgages or deeds of trust that are junior to other mortgages or deeds of trust
held by the Seller, other lenders or institutional investors. The rights of the
Trustee (and therefore the Certificateholders) as mortgagee under a junior
mortgage or beneficiary under a junior deed of trust are subordinate to those of
the mortgagee under the senior mortgage or beneficiary under the senior deed of
trust, including the prior rights of the senior mortgagee to receive hazard
insurance and condemnation proceeds and to cause the property securing the
Mortgage Loan to be sold upon default of the mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
junior mortgagee or junior beneficiary asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the defaulted senior
mortgage or deed of trust. As discussed more fully below, a junior mortgagee or
junior beneficiary may satisfy a defaulted senior loan in full and, in some
states, may cure such default and bring the senior loan current, in either event
adding the amounts expended to the balance due on the junior loan. In most
states, no notice of default is required to be given to a junior mortgagee or
junior beneficiary, and junior mortgagees or junior beneficiaries are seldom
given notice of defaults on senior mortgages. In order for a foreclosure action
in some states to be effective against a junior mortgagee or junior beneficiary,
the junior mortgagee or junior beneficiary must be named in any foreclosure
action, thus giving notice to junior lienors.
The standard form of the mortgage or deed of trust used by most
institutional lenders (including the Seller) confers on the mortgagee or
beneficiary the right under some circumstances both to receive all proceeds
collected under any Standard Hazard Insurance Policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under any underlying senior mortgage may have the proper right to
collect any insurance proceeds payable under a Standard Hazard Insurance Policy
and any award of damages in connection with the condemnation and to apply the
same to the indebtedness secured by the senior mortgages or deeds of trust.
Proceeds in excess of the amount of senior mortgage indebtedness, in most cases,
will be applied to the indebtedness of a junior mortgage or trust deed.
A common form of mortgage or deed of trust used by institutional lenders
typically contains a "future advance" clause which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured
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by the mortgage or deed of trust. While such a clause is valid under the laws of
most states, the priority of any advance made under the clause depends, in some
states, on whether the advance was an "obligatory" or "optional" advance. If the
mortgagee or beneficiary is obligated to advance the additional amounts, the
advance is entitled to receive the same priority as amounts initially loaned
under the mortgage or deed of trust, notwithstanding that there may be
intervening junior mortgages or deeds of trust and other liens at the time of
the advance. Where the mortgagee or beneficiary is not obligated to advance the
additional amounts (and, in some jurisdictions, has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens), the advance
will be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under the clause rests, in many other states,
on state statutes giving priority to all advances made under the loan agreement
at a "credit limit" amount stated in the recorded mortgage.
Other provisions sometimes included in the form of the mortgage or deed
of trust used by institutional lenders (and included in some of the forms used
by the Seller) obligate the mortgagor or trustor to pay, before delinquency, all
taxes and assessments on the property and, when due, all encumbrances, charges
and liens on the property which appear prior to the mortgage or deed of trust,
to provide and maintain fire insurance on the property, to maintain and repair
the property and not to commit or permit any waste thereof, and to appear in and
defend any action or proceeding purporting to affect the property or the rights
of the mortgagee or beneficiary under the mortgage or deed of trust. Upon a
failure of the mortgagor or trustor to perform any of these obligations, the
mortgagee or beneficiary is given the right under certain mortgages or deeds of
trust to perform the obligation itself, at its election, with the mortgagor or
trustor agreeing to reimburse the mortgagee or beneficiary for any sums expended
by the mortgagee or beneficiary on behalf of the mortgagor or trustor. All sums
so expended by the mortgagee or beneficiary become part of the indebtedness
secured by the mortgage or deed of trust.
Right of Redemption
In some states, after foreclosure of a mortgage or sale pursuant to a
deed of trust, the borrower and certain foreclosed junior lienholders are given
a statutory period in which to redeem the Mortgaged Premises from the
foreclosure sale. Depending upon state law, the right of redemption may apply to
sale following judicial foreclosure or to sale pursuant to a non-judicial power
of sale. In some states, statutory redemption may occur only upon payment of the
foreclosure purchase price, accrued interest and taxes and certain of the costs
and expenses incurred in enforcing the obligation. In some states, the right to
redeem is a statutory right and in others it is a contractual right. The effect
of a right of redemption is to diminish the ability of the lender to sell the
foreclosed Mortgaged Premises while such right of redemption is outstanding. The
exercise of a right of redemption would defeat the title of any purchaser at a
foreclosure sale or of any purchaser from the lender subsequent to judicial
foreclosure or sale under a deed of trust. The practical effect of the
redemption right is to force the lender to maintain the property and pay the
expenses of ownership until the redemption period has run.
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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
amount due to the lender and the fair market value of the real property sold at
the foreclosure sale. As a result of these prohibitions, it is anticipated that
in many instances the Servicer will not seek deficiency judgments against
defaulting borrowers.
In addition to anti-deficiency and related legislation, numerous other
federal and state 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, in a preceding under the federal Bankruptcy
Code, a lender may not foreclose on the Mortgaged Premises without the
permission of the bankruptcy court. The rehabilitation plan proposed by the
debtor may provide, if the court determines that the value of the Mortgaged
Premises is less than the principal balance of the mortgage loan, for the
reduction of the secured indebtedness to the value of the Mortgaged Premises as
of the date of the commencement of the bankruptcy, rendering the lender a
general unsecured creditor for the difference, and also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. The effect of any such proceedings under the
federal Bankruptcy Code, including, but not limited to, any automatic stay,
could result in delays in receiving payments on the Mortgage Loans underlying a
Series of Certificates and possible reductions in the aggregate amount of such
payments. Some states also have homestead exemption laws which would protect a
principal residence from a liquidation in bankruptcy.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws impose substantive requirements upon mortgage lenders
in connection with the origination, servicing and enforcement of Single Family
Loans and Cooperative Loans. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act and related states and
regulations. These federal and state laws impose specific statutory liabilities
upon lenders who fail to comply with the provisions of the law. In some cases,
this liability may affect assignees of mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the
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shares of the Cooperative and the related proprietary lease or occupancy
agreement) was conducted in a commercially reasonable manner.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the Soldiers' and Sailors' Civil Relief Act of 1940, members of
all branches of the military on active duty, including draftees and reservists
in military service, (i) are entitled to have interest rates reduced and capped
at 6% per annum on obligations (including mortgage loans) incurred prior to the
commencement of military service for the duration of military service, (ii) may
be entitled to a stay of proceedings on any kind of foreclosure or repossession
action in the case of defaults on such obligations incurred prior to the
commencement of military service and (iii) may have the maturity of such
obligations incurred prior to the commencement of military service extended, the
payments lowered and the payment schedule readjusted for a period of time after
the completion of military service. The benefits of (i), (ii), or (iii) above
are subject to challenge by creditors, however, and if, in the opinion of the
court, the ability of a person to comply with such obligations is not materially
impaired by military service, the court may apply equitable principles
accordingly. If a borrower's obligation to repay amounts otherwise due on a
Mortgage Loan included in the Trust for a Series is relieved pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940, neither the Servicer, the
Master Servicer nor the Trustee will be required to advance such amounts and any
loss in respect thereof may reduce the amounts available to be paid to the
holders of the Certificates of such Series. Unless otherwise specified in the
Prospectus Supplement for a Series, any shortfalls in interest collections on
Mortgage Loans included in the Trust for such Series resulting from application
of the Soldiers' and Sailors' Civil Relief Act of 1940 will be allocated to each
Class of Certificates of such Series that is entitled to receive interest in
respect of such Mortgage Loans in proportion to the interest that each such
Class of Certificates would have otherwise been entitled to receive in respect
of such Mortgage Loans had such interest shortfall not occurred.
Environmental Considerations
Environmental conditions may diminish the value of the Mortgage Assets
and give rise to liability of various parties, including federal, state and
local environmental laws, regulations and ordinances concerning hazardous waste,
hazardous substances, petroleum, underground and aboveground storage tanks,
solid waste, lead and copper in drinking water, asbestos, lead-based paint and
other materials ("Adverse Environmental Conditions") under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"). A secured party which participates in management of a
facility, participates in the management of the owner of a facility, takes a
deed in lieu of foreclosure or purchases a mortgaged premises at a foreclosure
sale may become liable in certain circumstances for the costs of a remedial
action ("Cleanup Costs") if hazardous substances have been released or disposed
of on the property. Such Cleanup Costs may be substantial. The U.S.
Environmental Protection Agency (the "EPA") has established a Policy Towards
Owners of Residential Property at Superfund Sites (July 3,
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1991) which provides that EPA will not proceed against owners of residential
property contaminated with hazardous substances under certain circumstances.
Similarly, EPA and the Department of Justice have adopted a policy not to
proceed against lenders which are acting primarily to protect a security
interest at the inception of loan, during a workout, in foreclosure or after
foreclosure or the taking of a deed in lieu of foreclosure. Policy on CERCLA
Enforcement Against lenders and Government Entities that Acquire Property
Involuntarily (September 22, 1995). These policies are not binding on the EPA, a
state or third parties who may have a cause of action under CERCLA, however, and
are subject to certain limitations and conditions. Many state or local laws,
regulations or ordinances may also provide for owners or operators of property
(which may include a lender in certain circumstances) where hazardous
substances, hazardous wastes, petroleum or solid waste are released or otherwise
exist to incur Cleanup Costs.
It is possible that Cleanup Costs under CERCLA or other federal, state or local
laws, regulations or ordinances could become a liability of a Trust and reduce
the amounts otherwise distributable to the Certificateholders if a Mortgaged
Premises securing a Mortgage Loan becomes the property of such Trust in certain
circumstances and if such Cleanup Costs were incurred. Moreover, certain states
or localities by statute or ordinance impose a lien for any Cleanup Costs
incurred by such state or locality on the property that is the subject of such
Cleanup Costs (a "Superlien"). Some Superliens take priority over all other
prior recorded liens, and others take the same priority as taxes in the
jurisdiction. In both instances, the Superlien would take priority over the
security interest of the Trustee in a Mortgaged Premises in the jurisdiction in
question.
Unless otherwise specified in the Prospectus Supplement for a Series, at
the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Premises was conducted. Unless otherwise specified in such Prospectus
Supplement, no representations or warranties are made by the Seller or Saxon
Mortgage as to the absence or effect of Adverse Environmental Conditions on any
of the Mortgaged Premises. In addition, the Servicers have not made any
representations or warranties or assumed any liability with respect to the
absence or effect of Adverse Environmental Conditions on any Mortgaged Premises
or any casualty resulting from the presence or effect of Adverse Environmental
Conditions, and any loss or liability resulting from the presence or effect of
such Adverse Environmental Conditions will reduce the amounts otherwise
available to pay to the holders of the Certificates.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Servicers are not permitted to foreclose on any Mortgaged Premises
without the approval of the Master Servicer. The Master Servicer is not
permitted to approve foreclosure on any property which it knows or has reason to
know is contaminated with or affected by hazardous wastes or hazardous
substances. The Master Servicer is required to inquire of any Servicer
requesting approval of foreclosure whether the property proposed to be
foreclosed upon is so contaminated. If a Servicer does not foreclose on
Mortgaged Premises, the amounts otherwise available to pay the holders of the
Certificates may be reduced. A Servicer will not be liable to the holders of the
Certificates if it fails to foreclose on Mortgaged Premises that it
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reasonably believes may be so contaminated or affected, even if such Mortgaged
Premises are, in fact, not so contaminated or affected. In addition, a Servicer
will not be liable to the holders of the Certificates if, based on its
reasonable belief that no such contamination or effect exists, the Servicer
forecloses on Mortgaged Premises and takes title to such Mortgaged Premises and
thereafter such Mortgaged Premises are determined to be so contaminated or
affected.
"Due-on-Sale" Clauses
The forms of Mortgage Note, mortgage and deed of trust relating to
conventional Mortgage Loans may contain a "due-on-sale" clause permitting
acceleration of the maturity of a loan if the borrower transfers its interest in
the Mortgaged Premises. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce such clauses
in many states. Effective October 15, 1982, however, Congress enacted the
Garn-St. Germain Depository Institutions Act of 1982 (the "Act"), which, after a
three-year grace period, preempted state laws which prohibit the enforcement of
due-on-sale clauses by providing, among other matters, that "due-on-sale"
clauses in certain loans (which loans include Conventional Mortgage Loans) made
after the effective date of the Act are enforceable within certain limitations
as set forth in the Act and the regulations promulgated thereunder.
By virtue of the Act, a mortgage lender generally may accelerate any
conventional Mortgage Loan which contains a "due-on-sale" clause upon transfer
of an interest in the Mortgaged Premises. With respect to any Mortgage Loan
secured by a residence occupied or to be occupied by the borrower, this ability
to accelerate will not apply to certain types of transfers, including (i) the
granting of a leasehold interest which has a term of three years or less and
which does not contain an option to purchase, (ii) a transfer to a relative
resulting from the death of a borrower, or a transfer where the spouse or one or
more children become owners of the Mortgaged Premises, in each case where the
transferee(s) will occupy the Mortgaged Premises, (iii) a transfer resulting
from a decree of dissolution of marriage, legal separation agreement or an
incidental property settlement agreement by which the spouse becomes an owner of
the Mortgaged Premises, (iv) the creation of a lien or other encumbrance
subordinate to the lender's security instrument which does not relate to a
transfer of rights of occupancy in the Mortgaged Premises (provided that such
lien or encumbrance is not created pursuant to a contract for deed), (v) a
transfer by devise, descent or operation of law on the death of a joint tenant
or tenant by the entirety and (vi) other transfers as set forth in the Act and
the regulations thereunder. As a result, a lesser number of Mortgage Loans which
contain "due-on-sale" clauses may extend to full maturity than earlier
experience would indicate with respect to single-family mortgage loans. The
extent of the effect of the Act on the average lives and delinquency rates of
the Mortgage Loans, however, cannot be predicted. FHA Loans and VA Loans do not
contain due-on-sale clauses. See "Maturity, Prepayment and Yield
Considerations."
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Enforceability of Certain Provisions
The forms of Mortgage Note, mortgage and deed of trust used by the
Servicers may contain provisions obligating the borrower to pay a late charge if
payments are not timely made and in some circumstances may provide for
prepayment fees or penalties if the obligation is paid prior to maturity. In
certain states, there are or may be specific limitations upon late charges which
a lender may collect from a borrower for delinquent payments. Certain states
also limit the amounts that a lender may collect from a borrower as an
additional charge if the loan is prepaid. Under each Servicing Agreement, late
charges and prepayment fees (to the extent permitted by law and not waived by
the Servicers) will be retained by the related Servicer as additional servicing
compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required lenders to reinstate loans or recast payment schedules to
accommodate borrowers who are suffering from temporary financial disability. In
some cases, courts have limited the right of lenders to foreclose if the default
under the security instrument is not monetary, such as the borrower failing to
adequately maintain the Mortgaged Premises or the borrower executing a second
mortgage or deed of trust affecting the Mortgaged Premises. In other cases, some
courts have been faced with the issue whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under deeds of trust receive notices in addition to the
statutorily-prescribed minimum requirements. For the most part, these cases have
upheld the notice provisions as being reasonable or have found that the sale by
a trustee under a deed of trust or under a mortgage having a power of sale does
not involve sufficient state action to afford constitutional protections to the
borrower.
THE SELLER
Saxon Asset Securities Company was incorporated in Virginia on May 6,
1996, as a wholly owned, limited-purpose financing subsidiary of Dominion
Mortgage Services, Inc., a Virginia corporation ("Dominion Mortgage"). Dominion
Mortgage is a wholly owned subsidiary of Dominion Capital, Inc., a Virginia
corporation ("Dominion Capital"). None of Dominion Capital, Dominion Mortgage or
the Seller has guaranteed, or is otherwise obligated with respect to, the
Certificates of any Series. The principal executive offices of the Seller are
located at 4880 Cox Road, Glen Allen, Virginia 23060, and the telephone number
of the Seller is (804) 967-7400. The Seller was formed solely for the purpose of
facilitating the financing and sale of Mortgage Assets and certain other assets.
It does not intend to engage in any business or investment activities other than
issuing and selling securities secured primarily by, or evidencing interests in,
Mortgage Assets and certain other assets and taking certain action with respect
thereto. The Seller's Articles of Incorporation, which have been filed as an
exhibit to the Registration Statement of which
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this Prospectus is a part, limit the Seller's business to the foregoing and
place certain other restrictions on the Seller's activities.
USE OF PROCEEDS
Substantially all of the net proceeds from the sale of the Certificates
of each Series will be applied by the Seller to purchase the Mortgage Assets
assigned to the Trust underlying such Series.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the anticipated material
federal income tax consequences of the purchase, ownership, and disposition of
the Certificates. The summary is based upon laws, regulations, rulings, and
decisions now in effect, all of which are subject to change (including changes
in effective dates). Because real estate mortgage investment conduit ("REMIC")
status may be elected with respect to certain Series of Certificates, the
discussion includes a summary of the federal income tax consequences to
Certificateholders of Certificates issued under such an election ("REMIC
Certificates").
The discussion does not address the federal income tax consequences for
all categories of investors, some of which may be subject to special rules. The
discussion focuses primarily on investors who will hold the Certificates as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"),
although much of the discussion is applicable to other investors as well.
Investors should note that, although final regulations under the REMIC
provisions of the Code (the "REMIC Regulations") have been issued by the U.S.
Treasury Department (the "Treasury"), no currently effective regulations or
other administrative guidance has been issued with respect to certain provisions
of the Code that are or may be applicable to Certificateholders, particularly
the provisions dealing with market discount and stripped debt instruments.
Although the Treasury recently issued final regulations dealing with original
issue discount and premium, those regulations do not address directly the
treatment of "REMIC Regular Certificates" (as defined below) and certain other
types of Certificates. Furthermore, the REMIC Regulations do not address all of
the issues that arise in connection with the formation and operation of a REMIC.
Hence, definitive guidance cannot be provided with respect to many aspects of
the tax treatment of Certificateholders. Moreover, the summary is based on
current law, and there can be no assurance that the law will not change or that
the Internal Revenue Service (the "Service") will not take positions that would
be materially adverse to investors. Finally, the summary does not purport to
address the anticipated state income tax consequences to investors of owning and
disposing of the Certificates. Consequently, investors should consult their own
tax advisors in determining the federal, state, local, and any other tax
consequences to them of the purchase, ownership, and disposition of the
Certificates.
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General
Many aspects of the federal income tax treatment of the Certificates of
a particular Series will depend upon whether an election is made to treat the
Trust, or one or more segregated pools of assets held by the Trust, as a REMIC.
The Prospectus Supplement for each Series will indicate whether such an election
is intended. For each Series with respect to which one or more REMIC elections
are to be made, special tax counsel to the Seller ("Special Tax Counsel") will
deliver a separate opinion generally to the effect that, assuming timely filing
of a REMIC election and compliance with the Agreement and certain other
documents specified in the opinion, the Trust (or one or more segregated pools
of Trust assets) will qualify as one or more REMICs (each, a "Series REMIC").
For each Series with respect to which a REMIC election is not made, Special Tax
Counsel will deliver a separate opinion generally to the effect that, assuming
compliance with the Agreement and certain other documents, the Trust will be
treated as a grantor trust under subpart E, Part I of subchapter J of the Code
and not as an association taxable as a corporation. Those opinions will be based
on existing law, but there can be no assurance that the law will not change or
that contrary positions will not be taken by the Service.
REMIC Certificates
REMIC Certificates will be classified as either "REMIC Regular
Certificates," which generally are treated as debt for federal income tax
purposes, or "REMIC Residual Certificates," which generally are not treated as
debt for such purposes, but rather as representing rights and responsibilities
with respect to the taxable income or loss of the REMIC. The Prospectus
Supplement for each Series of Certificates will indicate whether a REMIC
election will be made for that Series and which of the Certificates of such
Series will be designated as REMIC Regular Certificates, and which will be
designated as REMIC Residual Certificates.
REMIC Certificates held by a real estate investment trust ("REIT") will
qualify as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code, and interest on such Certificates will be considered "interest on
obligations secured by mortgages on real property" ("Qualifying REIT Interest")
for REIT qualification purposes, in the same proportion that the assets of the
Series REMIC would qualify as real estate assets for REIT purposes. Similarly,
REMIC Certificates held by a thrift institution taxed as a "mutual savings bank"
or a "domestic building and loan association" (collectively, "Thrift
Institutions") will qualify as "qualifying real property loans" for purposes of
the special bad debt reserve deduction of Section 593, and a REMIC Certificate
held by a thrift institution taxed as a "domestic building and loan association"
will qualify as a "loan secured by an interest in real property," for purposes
of the qualification requirements of domestic building and loan associations set
forth in Section 7701(a)(19), in the same proportion that the assets of the
Series REMIC would so qualify. However, if 95% or more of the assets of a given
Series REMIC constitute real estate assets for REIT purposes, the REMIC
Certificates will be treated entirely as such assets and 100% of the interest
income derived from that REMIC will be treated as Qualifying REIT Interest.
Similarly, if 95% or more of the assets of a given Series REMIC constitute
qualifying real
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property loans and loans secured by interests in real property, the REMIC
Certificates will be treated entirely as such assets for purposes of the special
bad debt reserve deduction and the qualification requirements of domestic
building and loan associations, respectively. In the case of a Series for which
two or more Series REMICs will be created, all Series REMICs will be treated as
a single REMIC for purposes of determining the extent to which the related
Certificates and the income thereon will be treated as qualifying assets and
income for such purposes. However, REMIC Certificates will not qualify as
"Government securities" for either REIT or regulated investment company ("RIC")
qualification purposes.
Tax Treatment of REMIC Regular Certificates
Payments received by holders of REMIC Regular Certificates ("REMIC
Regular Certificateholders") generally should be accorded the same tax treatment
under the Code as payments received on other taxable corporate debt instruments.
Except as described below for REMIC Regular Certificates issued with original
issue discount or acquired with market discount or premium, interest paid or
accrued on a REMIC Regular Certificate will be treated as ordinary income to the
REMIC Regular Certificateholder and a principal payment on such Certificate will
be treated as a return of capital to the extent that the REMIC Regular
Certificateholder's basis in such Certificate is allocable to that payment.
REMIC Regular Certificateholders or holders of REMIC Residual Certificates
("REMIC Residual Certificateholders") must report income from such Certificates
under an accrual method of accounting, even if they otherwise would have used
the cash receipts and disbursements method. The Trustee or the Master Servicer
will report annually to the Service and the Certificateholders of record with
respect to interest paid or accrued and original issue discount, if any, accrued
on the Certificates.
Under temporary Treasury regulations, holders of REMIC Regular
Certificates issued by "single-class REMICs" who are individuals, trusts,
estates, or pass-through entities in which such investors hold interests may be
required to recognize certain amounts of income in addition to interest and
discount income. A single-class REMIC, in general, is a REMIC that (i) would be
classified as an investment trust in the absence of a REMIC election or (ii) is
substantially similar to an investment trust. Under the temporary Treasury
regulations, each holder of a regular or residual interest in a single-class
REMIC is allocated (i) a share of the REMIC's "allocable investment expenses"
(i.e., expenses normally allowable under Section 212 of the Code, which may
include servicing and administrative fees and insurance premiums) and (ii) a
corresponding amount of additional income. Section 67 permits an individual,
trust or estate to deduct miscellaneous itemized expenses (including Section 212
expenses) only to the extent that such expenses, in the aggregate, exceed 2% of
its adjusted gross income. Consequently, an individual, trust or estate that
holds a regular interest in a single-class REMIC (either directly or through a
pass-through entity) will recognize additional income with respect to such
regular interest to the extent that its share of allocable investment expenses,
when combined with its other miscellaneous itemized deductions for the taxable
year, fails to exceed 2% of its adjusted gross income. Any such additional
income will be treated as interest income. In addition, Section 68 provides
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that the amount of itemized deductions otherwise allowable for the taxable year
for an individual whose adjusted gross income exceeds the applicable amount
($100,000, or $50,000 in the case of a separate return by a married individual
within the meaning of Section 7703 for taxable year 1991 and adjusted for
inflation each year thereafter) will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the applicable amount, or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. The
amount of such additional taxable income recognized by holders who are subject
to the limitations of either Section 67 or Section 68 may be substantial and may
reduce or eliminate the after-tax yield to such holders of an investment in the
Certificates of an affected Series. Non-corporate holders of REMIC Regular
Certificates evidencing an interest in a single-class REMIC also should be aware
that miscellaneous itemized deductions, including allocable investment expenses
attributable to such REMIC, are not deductible for purposes of the alternative
minimum tax ("AMT").
Original Issue Discount. Certain Classes of REMIC Regular Certificates
may be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. In general, such original issue discount will equal the
difference between the "stated redemption price at maturity" of the REMIC
Regular Certificate (generally, its principal amount) and its issue price.
Holders of REMIC Regular Certificates as to which there is original issue
discount should be aware that they generally must include original issue
discount in income for federal income tax purposes on an annual basis under a
constant yield accrual method that reflects compounding.
In general, original issue discount is treated as ordinary interest income and
must be included in income in advance of the receipt of the cash to which it
relates. The amount of original issue discount required to be included in a
REMIC Regular Certificateholder's income in any taxable year will be computed in
accordance with Section 1272(a)(6). No regulatory guidance currently exists
under Section 1272(a)(6). The Master Servicer or other person responsible for
computing the amount of original issue discount to be reported to a REMIC
Regular Certificateholder each taxable year (the "Tax Administrator") will base
its computations on Section 1272(a)(6) and final regulations governing the
accrual of original issue discount on debt instruments that were issued by the
Treasury on January 27, 1994, but do not address directly the treatment of
instruments that are subject to Section 1272(a)(6) (the "OID Regulations").
There can be no assurance that such methodology represents the correct manner of
calculating original issue discount on the REMIC Regular Certificates
The amount of original issue discount on a REMIC Regular Certificate
equals the excess, if any, of the Certificate's "stated redemption price at
maturity" over its "issue price." A debt instrument's stated redemption price at
maturity is the sum of all payments provided by the instrument other than
"qualified stated interest" ("Deemed Principal Payments"). Qualified stated
interest, in general, is stated interest that is unconditionally payable in cash
or property (other than debt instruments of the issuer) at lease annually at (i)
a single fixed rate or (ii) a variable rate that meets certain requirements set
out in the OID Regulations. See "-- Variable Rate Certificates." Thus, in the
case of any REMIC Regular Certificate other than a Compound Interest
Certificate, the stated
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redemption price at maturity will equal the total amount of all Deemed Principal
Payments due on that Certificate. Since a Compound Interest Certificate
generally does not require unconditional payments of interest at least annually,
the stated redemption price at maturity of such a Certificate will equal the
aggregate of all payments due, whether designated as principal, accrued
interest, or current interest. The issue price of a REMIC Regular Certificate
generally will equal the initial price at which a substantial amount of such
Certificates is sold to the public.
Under a de minimis rule, a REMIC Regular Certificate will be considered
to have no original issue discount if the amount of original issue discount is
less than 0.25% of the Certificate's stated redemption price at maturity
multiplied by the weighted average maturity ("WAM") of all Deemed Principal
Payments. For that purpose, the WAM of a REMIC Regular Certificate is the sum of
the amounts obtained by multiplying the amount of each Deemed Principal Payment
by a fraction, the numerator of which is the number of complete years from the
Certificate's issue date until the payment is made, and the denominator of which
is the Certificate's stated redemption price at maturity. Although no Treasury
regulations have been issued under the relevant provisions of the Tax Reform Act
of 1986 (the "1986 Act"), it is expected that the WAM of a REMIC Regular
Certificate will be computed using the prepayment assumptions used in pricing
the REMIC Regular Certificate ("Pricing Prepayment Assumptions"). A REMIC
Regular Certificateholder will include de minimis original issue discount in
income on a pro rata basis as stated principal payments on the Certificate are
received or, if earlier, upon disposition of the Certificate, unless the
Certificateholder makes the "All OID Election" (as defined below).
REMIC Regular Certificates of certain Series may bear interest under
terms that provide for a teaser rate period, interest holiday, or other period
during which the rate of interest payable on the Certificates is lower than the
rate payable during the remainder of the life of the Certificates ("Teaser
Certificates"). The OID Regulations provide a more expansive test under which a
Teaser Certificate may be considered to have a de minimis amount of original
issue discount even though the amount of original issue discount on the
Certificate would be more than de minimis as determined under the regular test.
The expanded test applies to a Teaser Certificate only if the stated interest on
such Certificate would be qualified stated interest but for the fact that during
one or more accrual periods its interest rate is below the rate applicable for
the remainder of its term. Under the expanded test, the amount of original issue
discount on a Teaser Certificate that is measured against the de minimis amount
of original issue discount allowable on the Certificate is the greater of (i)
the excess of the stated principal amount of the Certificate over its issue
price ("True Discount") and (ii) the amount of interest that would be necessary
to be payable on the Certificate in order for all stated interest to be
qualified stated interest (the "Additional Interest Amount").
A REMIC Regular Certificateholder generally must include in gross income
the sum, for all days during its taxable year on which it holds the REMIC
Regular Certificate, of the "daily portions" of the original issue discount on
such Certificate. In the case of an original holder
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of a REMIC Regular Certificate, the daily portions of original issue discount
with respect to such Certificate generally will be determined by allocating to
each day in any accrual period the Certificate's ratable portion of the excess,
if any, of (i) the sum of (a) the present value of all payments under the
Certificate yet to be received as of the close of such period and (b) the amount
of any Deemed Principal Payments received on the Certificate during such period
over (ii) the Certificate's "adjusted issue price" at the beginning of such
period. The present value of payments yet to be received on a REMIC Regular
Certificate is computed by using the Pricing Prepayment Assumptions and the
Certificate's original yield to maturity (adjusted to take into account the
length of the particular accrual period), and taking into account Deemed
Principal Payments actually received on the Certificate prior to the close of
the accrual period. The adjusted issue price of a REMIC Regular Certificate at
the beginning of the first accrual period is its issue price. The adjusted issue
price at the beginning of each subsequent period is the adjusted issue price of
the Certificate at the beginning of the preceding period increased by the amount
of original issue discount allocable to that period and decreased by the amount
of any Deemed Principal Payments received during that period. Thus, an increased
(or decreased) rate of prepayments received with respect to a REMIC Regular
Certificate will be accompanied by a correspondingly increased (or decreased)
rate of recognition of original issue discount by the holder of such
Certificate.
A REMIC Regular Certificate having original issue discount may be
acquired subsequently for more than its adjusted issue price. If the subsequent
holder's adjusted basis in such a REMIC Regular Certificate, immediately after
its acquisition, exceeds the sum of all Deemed Principal Payments to be received
on the Certificate after the acquisition date, the Certificate will no longer
have original issue discount, and the holder may be entitled to reduce the
amount of interest income recognized on the Certificate by the amount of
amortizable premium. See "-- Amortizable Premium." If the subsequent holder's
adjusted basis in the Certificate immediately after the acquisition exceeds the
adjusted issue price of the Certificate, but is less than or equal to the sum of
the Deemed Principal Payments to be received under the Certificate after the
acquisition date, the amount of original issue discount on the Certificate will
be reduced by a fraction, the numerator of which is the excess of the
Certificate's adjusted basis immediately after its acquisition over the adjusted
issue price of the Certificate and the denominator of which is in the excess of
the sum of all Deemed Principal Payments to be received on the Certificate after
the acquisition date over the adjusted issue price of the Certificate. For that
purpose, the adjusted basis of a REMIC Regular Certificate generally is reduced
by the amount of any qualified stated interest that is accrued but unpaid as of
the acquisition date. Alternatively, the subsequent purchaser of a REMIC Regular
Certificate having original issue discount may make an All OID Election (as
defined below) with respect to the Certificate.
A Certificateholder generally may make an election (an "All OID
Election") to include in gross income all stated interest, original issue
discount, de minimis original issue discount, market discount (as described
below under "--Market Discount"), and de minimis market
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discount that accrues on the Certificate (as reduced by any amortizable premium,
as described below under "Amortizable Premium," or acquisition premium, as
described below) under the constant yield method used to account for original
issue discount. To make an All OID Election, the holder of the Certificate must
attach a statement to its timely filed federal income tax return for the taxable
year in which the holder acquired the Certificate. The statement must identify
the instruments to which the election applies. An All OID Election is
irrevocable unless the holder obtains the consent of the Service. If an All OID
Election is made for a debt instrument with market discount, the holder is
deemed to have made an election to include in income currently the market
discount on all of the holder's other debt instruments with market discount, as
described in "-- Market Discount" below. In addition, if an All OID Election is
made for a debt instrument with amortizable premium, the holder is deemed to
have made an election to amortize the premium on all of the holder's other debt
instruments with amortizable premium under the constant yield method. See "--
Amortizable Premium." Certificateholders should be aware that the law is unclear
as to whether an All OID Election is effective for a Certificate that is subject
to the contingent payment rules. See "-- Interest Weighted Certificates and
Non-VRDI Certificates."
If the interval between the issue date of a Current Interest Certificate
and the first Distribution Date (the "First Distribution Period") contains more
days than the number of days of stated interest that are payable on the first
Distribution Date, the effective interest rate received by the Certificateholder
during the first Distribution Period will be less than the Certificate's stated
interest rate making such Certificate a Teaser Certificate. If the amount of
original issue discount on the Certificate measured under the expanded de
minimis test exceeds the de minimis amount of original issue discount allowable
on the Certificate, the amount by which the stated interest on the Certificate
exceeds the interest that would be payable on the Certificate at the effective
rate of interest for the First Distribution Period (the "Nonqualified Interest
Amount") would be treated as part of the Certificate's stated redemption price
at maturity. Accordingly, the holder of a Teaser Certificate may be required to
recognize ordinary income arising from original issue discount attributable to
the First Distribution Period in addition to any qualified stated interest that
accrues in that period.
Similarly, if the First Distribution Period is shorter than the interval
between subsequent Distribution Dates, the effective rate of interest payable on
a Certificate during the First Distribution Period will be higher than the
stated rate of interest if a Certificateholder receives interest on the first
Distribution Date based on a full accrual period. Such Certificate would be
issued with original issue discount unless the amount of original issue discount
is de minimis. However, if (i) a portion of the initial purchase price of such
Certificate is allocable to interest that has accrued under the terms of the
Certificate prior to its issue date ("Pre-Issuance Accrued Interest") and (ii)
the Certificate provides for a payment of stated interest on the first payment
date within one year of the issue date that equals or exceeds the amount of the
Pre-Issuance Accrued Interest, the Certificate's issue price may be computed by
subtracting from the issue price the amount of Pre-Issuance Accrued Interest.
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Thus, such Certificate will not have original issue discount attributable to the
First Distribution Period, provided that the increased effective interest rate
for that Period is attributable solely to Pre-Issuance Accrued Interest, as
typically will be the case.
It is not entirely clear how income should be accrued with respect to
REMIC Regular Certificates, the payments on which consist entirely or primarily
of a specified nonvarying portion of the interest payable on one or more of the
qualified mortgages held by the REMIC ("Interest Weighted Certificates"). Unless
and until the Service provides contrary administrative guidance on the income
tax treatment of an Interest Weighted Certificate, the Tax Administrator intends
to take the position that an Interest Weighted Certificate does not bear
qualified stated interest, and will account for the income thereon as described
in "Interest Weighted Certificates and Non-VRDI Certificates" below. Some
Interest Weighted Certificates may provide for a relatively small amount of
principal and for interest that can be expressed as qualified stated interest at
a very high fixed rate with respect to that principal ("Superpremium
Certificates"). Superpremium Certificates technically are issued with
amortizable premium. However, because of their close similarity to other
Interest Weighted Certificates it appears more appropriate to account for
Superpremium Certificates in the same manner as for other Interest Weighted
Certificates. Consequently, in the absence of further administrative guidance,
the Tax Administrator intends to account for Superpremium Certificates in the
same manner as other Interest Weighted Certificates. However, there can be no
assurance that the Service will not assert a position contrary to that taken by
the Tax Administrator, and, therefore, holders of Superpremium Certificates
should consider making a protective election to amortize premium on such
Certificates.
In view of the complexities and current uncertainties as to the manner
of inclusion in income of original issue discount on the REMIC Regular
Certificates, each investor should consult his own tax advisor to determine the
appropriate amount and method of inclusion in income of original issue discount
on such Certificates for deferral income tax purposes.
Variable Rate Certificates. A REMIC Regular Certificate may pay interest
at a variable rate (a "Variable Rate Certificate"). A Variable Rate Certificate
that qualifies as a "variable rate debt instrument" as that term is defined in
the OID Regulations (a "VRDI") will be governed by the rules applicable to VRDIs
in the OID Regulations, which are described below. A Variable Rate Certificate
qualifies as a VRDI under the OID Regulations if (i) the Certificate is not
issued at a premium to its noncontingent principal amount in excess of the
lesser of (a) .015 multiplied by the product of such noncontingent principal
amount and the WAM (as that term is defined above in the discussion of the de
minimis rule) of the Certificate or (b) 15 percent of such noncontingent
principal amount (an "Excess Premium"); (ii) stated interest on the Certificate
compounds or is payable unconditionally at least annually at (a) one or more
"qualified floating rates," (b) a single fixed rate and one or more qualified
floating rates, (c) a single "objective rate," or (d) a single fixed rate and a
single objective rate that is a "qualified
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inverse floating rate," and (iii) the qualified floating rate or the objective
rate in effect during an accrual period is set at a current value of that rate
(i.e., the value of the rate on any day occurring during the interval that
begins three months prior to the first day on which that value is in effect
under the Certificate and ends one year following that day).
On June 11, 1996, the Treasury issued final regulations that both
address the federal income tax treatment of debt obligations that provide for
one or more contingent payments and would make certain changes to rules
applicable to VRDIs in the OID Regulations (the " 1996 Regulations"). Pursuant
to certain of the amendments to the OID Regulations that are set forth in the
1996 Regulations, (i) a Variable Rate Certificate would qualify as a VRDI only
if, in addition to satisfying the three conditions set forth in the current OID
Regulations (and described above), such Certificate does not provide for any
principal payments that are contingent and (ii) a Variable Rate Certificate that
does not qualify as a VRDI would be treated as a debt obligation that provides
for one or more contingent payments. Those amendments to the OID Regulations
apply retroactively to debt instruments issued on or after April 4, 1994, which
is the effective date of the OID Regulations. Consequently, the Tax
Administrator will treat Variable Rate Certificates that do not qualify as VRDIs
as debt obligations that provide for one or more contingent payments, and will
account for the income thereon as described in "Interest Weighted Certificates
and Non-VRDI Certificates" below.
Under the OID Regulations, a rate is a qualified floating rate if
variations in the rate reasonably can be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the debt
instrument is denominated. A qualified floating rate may measure contemporaneous
variations in borrowing costs for the issuer of the debt instrument or for
issuers in general.
Effective for debt instruments issued after August 13, 1996, a multiple of a
qualified floating rate is considered a qualified floating rate only if the rate
is equal to either (a) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35 or (b) the product of
a qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35, increased or decreased by a fixed rate. If a Certificate
provides for two or more qualified floating rates that reasonably can be
expected to have approximately the same values throughout the term of the
Certificate, the qualified floating rates together will constitute a single
qualified floating rate. Two or more qualified floating rates conclusively will
be presumed to have approximately the same values throughout the term of a
Certificate if the values of all rates on the issue date of the Certificate are
within 25 basis points of each other.
A variable rate will be considered a qualified floating rate if it is
subject to a restriction or restrictions on the maximum stated interest rate (a
"Cap"), a restriction or restrictions on the minimum stated interest rate (a
"Floor"), a restriction or restrictions on the
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amount of increase or decrease in the stated interest rate (a "Governor"), or
other similar restriction only if: (a) the Cap, Floor, or Governor is fixed
throughout the term of the related Certificate or (b) the Cap, Floor, Governor,
or similar restriction is not reasonably expected, as of the issue date, to
cause the yield on the Certificate to be significantly less or significantly
more than the expected yield on the Certificate determined without such Cap,
Floor, Governor, or similar restriction, as the case may be. Although the OID
Regulations are unclear, it appears that a VRDI, the principal rate on which is
subject to a Cap, Floor, or Governor that itself is a qualified floating rate,
bears interest at an objective rate.
Under the OID Regulations, an objective rate is a rate (other than a
qualified floating rate) that is determined using a single fixed formula and is
based on (i) one or more qualified floating rates (e.g., a rate equal to a
multiple greater than 1.35 times a qualified floating rate), (ii) one or more
rates where each rate would be a qualified floating rate for a debt instrument
denominated in a currency other than the currency in which the debt instrument
is denominated, (iii) the yield or changes in the price of actively traded
personal property (other than stock or debt of the issuer or certain related
parties), or (iv) any combination of objective rates. Notwithstanding the
foregoing, a variable rate will not be considered an objective rate if the
average value of the rate during the first half of the Certificate's term
reasonably is expected to be either significantly less than or significantly
greater than the average value of the rate during the final half of the
instrument's term (i.e., the rate will result in a significant frontloading or
backloading of interest). Additional objective rates subsequently may be
designated by the Service in revenue rulings or revenue procedures.
An objective rate also includes a "qualified inverse floating rate" if the rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate reasonably can be expected to inversely reflect contemporaneous variations
in the cost of newly borrowed funds (disregarding any Caps, Floors, Governors,
or similar restrictions on the rate).
Under the 1996 Regulations, an objective rate would be redefined as a
rate (other than a qualified floating rate) that (i) is determined using a
single fixed formula, (ii) is based on objective financial or economic
information, and (iii) is not based on information that either is within the
control of the issuer (or a related party) or is unique to the circumstances of
the issuer (or related party), such as dividends, profits, or the value of the
issuer's (or related party's) stock. That definition is broader than the
definition of objective rate set forth in the OID Regulations and would include,
in addition to a rate that is based on one or more qualified floating rates or
on the yield of actively traded personal property, a rate that is based on
changes in a general inflation index. In addition, a rate would not fail to be
an objective rate under the 1996 Regulations merely because it is based on the
credit quality of the issuer. The revised definition of an objective rate in the
1996 Regulations is effective for debt instruments issued on or after August 13,
1996.
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Under the OID Regulations, if interest on a Variable Rate Certificate is
stated at a fixed rate for an initial period of less than one year followed by a
variable rate that is either a qualified floating rate or an objective rate for
a subsequent period, and the value of the variable rate on the issue date is
intended to approximate the fixed rate, the fixed rate and the variable rate
together constitute a single qualified floating rate or objective rate. A
variable rate conclusively will be presumed to approximate an initial fixed rate
if the value of the variable rate on the issue date does not differ from the
value of the fixed rate by more than 25 basis points.
Under the OID Regulations, all interest payable on a Variable Rate
Certificate that qualifies as a VRDI and provides for stated interest
unconditionally payable in a cash or property at least annually at a single
qualified floating rate or a single objective rate (a "Single Rate VRDI
Certificate") is treated as qualified stated interest. The amount and accrual of
OID on a Single Rate VRDI Certificate is determined, in general, by converting
such Certificate into a hypothetical fixed rate security and applying the rules
applicable to fixed rate securities described under "Original Issue Discount"
above to such hypothetical fixed rate security.
Except as provided below, the amount and accrual of OID on a Variable
Rate Certificate that qualifies as a VRDI but is not a Single Rate VRDI
Certificate (a "Multiple Rate VRDI Certificate") is determined by converting
such Certificate into a hypothetical equivalent fixed rate security that has
terms that are identical to those provided under the Multiple Rate VRDI
Certificate, except that such hypothetical equivalent fixed rate security will
provide for fixed rate substitutes in lieu of the qualified floating rates or
objective rate provided for under the Multiple Rate VRDI Certificate. A Multiple
Rate VRDI Certificate that provides for a qualified floating rate or rates or a
qualified inverse floating rate is converted to a hypothetical equivalent fixed
rate security by assuming that each qualified floating rate or the qualified
inverse floating rate will remain at its value as of the issue date. A Multiple
Rate VRDI Certificate that provides for an objective rate or rates is converted
to a hypothetical equivalent fixed rate security by assuming that each objective
rate will equal a fixed rate that reflects the yield that reasonably is expected
for the Multiple Rate VRDI Certificate. Qualified stated interest or original
issue discount allocable to an accrual period with respect to a Multiple Rate
VRDI Certificate must be increased (or decreased) if the interest actually
accrued or paid during such accrual period exceeds (or is less than) the
interest assumed to be accrued or paid during such accrual period under the
hypothetical equivalent fixed rate security.
The 1996 Regulations amend the OID Regulations to clarify that qualified
stated interest or original issue discount allocable to an accrual period with
respect to a Single Rate VRDI Certificate also must be increased (or decreased)
if the interest actually accrued or paid during such accrual period exceeds (or
is less than) the interest assumed to be accrued or paid during such accrual
period under the related hypothetical fixed rate security. Because that
amendment was intended to clarify the OID Regulations, it is effective for debt
instrument issued on or after April 4, 1994, which is the effective date of the
OID Regulations.
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Under the OID Regulations, the amount and accrual of OID on a Multiple
Rate VRDI Certificate that provides for stated interest at either one or more
qualified floating rates or at a qualified inverse floating rate and in addition
provides for stated interest at a single fixed rate (other than an initial fixed
rate that is intended to approximate the subsequent variable rate) is determined
using the method described above for all other Multiple Rate VRDI Certificates
except that prior to its conversion to a hypothetical equivalent fixed rate
security, such Multiple Rate VRDI Certificate is treated as if it provided for a
qualified floating rate (or a qualified inverse floating rate), rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the Multiple
Rate VRDI Certificate as of its issue date would be approximately the same as
the fair market value of an otherwise identical debt instrument that provides
for the qualified floating rate (or qualified inverse floating rate), rather
than the fixed rate.
REMIC Regular Certificates of certain Series may provide for interest
based on a weighted average of the interest rates on some or all of the Mortgage
Loans of the related Trust ("Weighted Average Certificates"). Under the OID
Regulations, it appears that Weighted Average Certificates relating to a trust
whose Mortgage Loans are exclusively ARM Loans bear interest at an "objective
rate" provided the ARM Loans themselves bear interest at qualified floating
rates. However, under the OID Regulations, Weighted Average Certificates
relating to a Trust whose Mortgage Loans do not bear interest at qualified
floating rates ("Non-Objective Weighted Average Certificates" or "NOWA
Certificates") do not bear interest at an objective or qualified floating rate
and, consequently, do not qualify as VRDIs. Accordingly, unless and until the
Service provides contrary administrative guidance on the income tax treatment of
NOWA Certificates, the Tax Administrator intends to treat such Certificates as
debt obligations that provide for one or more contingent payments, and will
account for the income thereon as described in "Interest Weighted Certificates
and Non-VRDI Certificates" below.
REMIC Regular Certificates of certain Series may provide for the payment
of interest at a rate determined as the difference between two interest rate
parameters, one of which is a variable rate and the other of which is a fixed
rate or a different variable rate ("Inverse Floater Certificates"). Under the
OID Regulations, Inverse Floater Certificates generally bear interest at
objective rates, because their rates either constitute "qualified inverse
floating rates" under those Regulations or, although not qualified floating
rates themselves, are based on one or more qualified floating rates.
Consequently, if such Certificates are not issued at an Excess Premium and their
interest rates otherwise meet the test for qualified stated interest, the income
on such Certificates will be accounted for under the rules applicable to VRDIs
described above. However, an Inverse Floater Certificate may have an interest
rate parameter equal to the weighted average of the interest rates on some or
all of the Mortgage Loans of the related Trust in a case where one or more of
those rates is a fixed rate or otherwise may not qualify as a VRDI. Unless and
until the Service provides contrary administrative guidance on the income
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tax treatment of such Inverse Floater Certificates, the Tax Administrator
intends to treat such Certificates as debt obligations that provide for one or
more contingent payments, and will account for the income thereon as described
in "Interest Weighted Certificates and Non-VRDI Certificates" below.
Interest Weighted Certificates and Non-VRDI Certificates. The treatment
of a NOWA Certificate, a Variable Rate Certificate that is issued at an Excess
Premium, or any other Variable Rate Certificate that does not qualify as a VRDI
Certificate (each, a "Non-VRDI Certificate") or an Interest Weighted Certificate
is unclear under current law. The OID Regulations are ambiguous as to whether
interest payments (other than qualified stated interest) on a Non-VRDI
Certificate or an Interest Weighted Certificate are considered to be contingent
payments subject to special original issue discount rules described in the next
paragraph or whether such payments should be treated as Deemed Principal
Payments subject to the regular original issue discount rules described in
"Original Issue Discount" above. Moreover, to the extent that the contingent
payment rules are applicable, their impact on instruments that are subject to
Section 1272(a)(6) of the Code is unclear.
The 1996 Regulations contain provisions (the " Contingent Payment
Regulations") that address the federal income tax treatment of debt obligations
with one or more contingent payments ("Contingent Payment Obligations"). Under
the Contingent Payment Regulations, any variable rate debt instrument that is
not a VRDI is classified as a Contingent Payment Obligation. However, the
Contingent Payment Regulations, by their terms, do not apply to REMIC regular
interests and other instruments that are subject to Section 1272(a)(6) of the
Code. Furthermore, they are proposed to be effective only for debt instruments
issued on or after August 13, 1996.
In the absence of further guidance, the Tax Administrator will account for
Non-VRDI Certificates, Interest Weighted Certificates, and other REMIC Regular
Certificates that are Contingent Payment Obligations in accordance with Section
1272(a)(6). Income will be accrued on such Certificates based on a constant
yield that is derived from a projected payment schedule as of the related
closing date. The projected payment schedule will take into account the Pricing
Prepayment Assumptions and the interest payments that are expected to be made
based on the value of any relevant indices on the issue date. To the extent that
actual payments differ from projected payments for a particular taxable year,
appropriate adjustments to interest income and expense accruals will be made for
that year. In the case of a Weighted Average Certificate, the projected payment
schedule will be derived based on the assumption that the principal balances of
the Mortgage Loans that collateralize the Certificate pay down pro rata.
The method described in the foregoing paragraph for accounting for
Interest Weighted Certificates and Non-VRDI Certificates is consistent with
Section 1272(a)(6) and the legislative history thereto. Because of the
uncertainty with respect to the treatment of such Certificates under the OID
Regulations and Contingent Payment Regulations, however, there can be no
assurance that the Service will not assert successfully that a method less
favorable to Certificateholders will apply. In view of the complexities and the
current uncertainties as
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to income inclusions with respect to Non-VRDI Certificates and Interest Weighted
Certificates, each investor should consult his or her own tax advisor to
determine the appropriate amount and method of income inclusion on such
Certificates for federal income tax purposes.
Market Discount. A subsequent purchaser of a REMIC Regular Certificate
at a discount from its outstanding principal amount (or, in the case of a REMIC
Regular Certificate having original issue discount, its "adjusted issue price")
will acquire such Certificate with market discount. The purchaser generally will
be required to recognize the market discount (in addition to any original issue
discount remaining with respect to the Certificate) as ordinary income. A person
who purchases a REMIC Regular Certificate at a price lower than the
Certificate's outstanding principal amount but higher than its adjusted issue
price does not acquire the Certificate with market discount, but will be
required to report original issue discount, appropriately adjusted to reflect
the excess of the price paid over the adjusted issue price. See "-- Original
Issue Discount."
A REMIC Regular Certificate will not be considered to have market discount if
the amount of such market discount is de minimis, i.e., less than the product of
(i) 0.25% of the remaining principal amount (or, in the case of a REMIC Regular
Certificate having original issue discount, the adjusted issue price of such
Certificate), multiplied by (ii) the weighted average maturity of the
Certificate (determined as for original issue discount) remaining after the date
or purchase. Regardless of whether the subsequent purchaser of a REMIC Regular
Certificate with more than a de minimis amount of market discount is a
cash-basis or accrual-basis taxpayer, market discount generally will be taken
into income as principal payments (including, in the case of a REMIC Regular
Certificate having original issue discount, any Deemed Principal Payments) are
received, in an amount equal to the lesser of (i) the amount of the principal
payment received or (ii) the amount of market discount that has "accrued" (as
described below), but that has not yet been included in income. The purchaser
may make a special election, which generally applies to all market discount
instruments held or acquired by the purchaser in the taxable year of election or
thereafter, to recognize market discount currently on an uncapped accrual basis
(the "Current Recognition Election"). The Service has indicated in Revenue
Procedure 92-67 the manner in which a Current Recognition Election may be made.
In addition, the purchaser may make an All OID Election with respect to a REMIC
Regular Certificate purchased with market discount. See "--Original Issue
Discount" above.
Until the Treasury promulgates applicable regulations, the purchaser of
a REMIC Regular Certificate with market discount generally may elect to accrue
the market discount either: (i) on the basis of a constant interest rate; (ii)
in the case of a REMIC Regular Certificate not issued with original issue
discount, in the ratio of stated interest payable in the relevant period to the
total stated interest remaining to be paid from the beginning of such period; or
(iii) in the case of a REMIC Regular Certificate issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the total remaining original issue discount at the beginning of such
period. The Service indicated in Revenue Ruling 92-67 the manner in which an
election may be made to accrue market discount on a REMIC Regular Certificate on
the basis of a
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constant interest rate. Regardless of which computation method is elected, the
Pricing Prepayment Assumptions must be used to calculate the accrual of market
discount.
A Certificateholder who has acquired any REMIC Regular Certificate with
market discount generally will be required to treat a portion of any gain on a
sale or exchange of the Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary income
as partial principal payments were received. Moreover, such Certificateholder
generally must defer interest deductions attributable to any indebtedness
incurred or continued to purchase or carry the Certificate to the extent they
exceed income on the Certificate. Any such deferred interest expense, in
general, is allowed as a deduction not later than the year in which the related
market discount income is recognized. If a REMIC Regular Certificateholder makes
a Current Recognition Election or an all OID Election the interest deferral rule
will not apply. Under the Contingent Payment Regulations, a secondary market
purchaser of a non-VRDI Certificate or an Interest Weighted Certificate at
discount generally would continue to accrue interest and determine adjustment on
such Certificate based on the original projected payment schedule derived by the
issuer of such Certificate. See "-- Interest Weighted Certificates and Non-VRDI
Certificates" above. The holder of such a Certificate would be required,
however, to allocate the difference between the adjusted issue price of the
Certificate and its basis in the Certificate as positive adjustments to the
accruals or projected payments on the Certificate over the remaining term of the
Certificate in a manner that is reasonable (e.g., based on a constant yield to
maturity).
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those rules.
For example, the treatment of a REMIC Regular Certificate subject to redemption
at the option of the Seller that is acquired at a market discount is unclear. It
appears likely, however, that the market discount rules applicable in such a
case would be similar to the rules pertaining to original issue discount. Due to
the substantial lack of regulatory guidance with respect to the market discount
rules, it is unclear how those rules will affect any secondary market that
develops for a given Class of REMIC Regular Certificate. Prospective investors
in REMIC Regular Certificates should consult their own tax advisors regarding
the application of the market discount rules to those securities.
Amortizable Premium. A Purchaser of a REMIC Regular Certificate who
purchases the Certificate at a premium over the total of its Deemed Principal
Payments may elect to amortize such premium under a constant yield method that
reflects compounding based on the interval between payments on the Certificates.
The legislative history of the 1986 Act indicates that premium is to be accrued
in the same manner as market discount. Accordingly, it appears that the accrual
of premium on a REMIC Regular Certificate will be calculated using the Pricing
Prepayment Assumptions. Under the Code, except as otherwise provided in Treasury
regulations to be issued, amortized premium would be treated as an offset to
interest income on a REMIC Regular Certificate and not as a separate deduction
item. If a holder makes an election
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to amortize premium on a REMIC Regular Certificate, such election will apply to
all taxable debt instruments (including all REMIC regular interests) held by the
holder at the beginning of the taxable year in which the election is made, and
to all taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the Service. Purchasers who pay a premium for
the REMIC Regular Certificates should consult their tax advisors regarding the
election to amortize premium and the method to be employed.
Amortizable premium on a REMIC Regular Certificate that is subject to
redemption at the option of the Seller generally must be amortized as if the
optional redemption price and date were the Certificate's principal amount and
maturity date if doing so would result in a smaller amount of premium
amortization during the period ending with the optional redemption date. Thus, a
Certificateholder would not be able to amortize any premium on a REMIC Regular
Certificate that is subject to optional redemption at a price equal to or
greater than the Certificateholder's acquisition price unless and until the
redemption option expires. In cases where premium must be amortized on the basis
of the price and date of an optional redemption, the Certificate will be treated
as having matured on the redemption date for the redemption price and then
having been reissued on that date for that price. Any premium remaining on the
Certificate at the time of the deemed reissuance will be amortized on the basis
of (i) the original principal amount and maturity date or (ii) the price and
date of any succeeding optional redemption, under the principles described
above.
Under the Contingent Payment Regulations, a secondary market purchaser
of a Non-VRDI Certificate or an Interest Weighted Certificate at a premium
generally would continue to accrue interest and determine adjustments on such
Certificate based on the original projected payment schedule devised by the
issuer of such Certificate. See "--Interest Weighted Certificates and Non-VRDI
Certificates" above. The holder of such a Certificate would allocate the
difference between its basis in the Certificate and the adjusted issue price of
the Certificate as negative adjustments to the accruals or projected payments on
the Certificate over the remaining term of the Certificate in a manner that is
reasonable (e.g., based on a constant yield to maturity).
Gain or Loss on Disposition. If a REMIC Regular Certificate is sold, the
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and his adjusted basis in the Certificate. The
adjusted basis of a REMIC Regular Certificate generally will equal the cost of
the Certificate to the Certificateholder, increased by any original issue
discount or market discount previously includable in the Certificateholder's
gross income with respect to the Certificate, and reduced by the portion of the
basis of the Certificate allocable to payments on the Certificate (other than
qualified stated interest) previously received by the Certificateholder and by
any amortized premium. Similarly, a Certificateholder who receives a scheduled
or prepaid principal payment with respect to a REMIC Regular Certificate will
recognize gain or loss equal to the difference between the amount of the payment
and the allocable portion of his adjusted basis in the Certificate. Except to
the extent that the market discount rules apply and except as provided below,
any gain or loss on the sale or other disposition
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of a REMIC Regular Certificate generally will be capital gain or loss.
Such gain or loss will be long-term gain or loss if the Certificate
is held as a capital asset for more than 12 months.
If a REMIC Regular Certificateholder is a bank, thrift, or similar
institution described in Section 582 of the Code, any gain or loss on the sale
or exchange of the REMIC Regular Certificate will be treated as ordinary income
or loss. In the case of other types of holders, gain from the disposition of a
REMIC Regular Certificate that otherwise would be capital gain will be treated
as ordinary income to the extent that the amount actually includable in income
with respect to the Certificate by the Certificateholder during his holding
period is less than the amount that would have been includable in income if the
yield on that Certificate during the holding period had been 110% of a specified
U.S. Treasury borrowing rate as of the date that the Certificateholder acquired
the Certificate. Although the legislative history to the 1986 Act indicates that
the portion of the gain from disposition of a REMIC Regular Certificate that
will be recharacterized as ordinary income is limited to the amount of original
issue discount (if any) on the Certificate that was not previously includable in
income, the applicable Code provision contains no such limitation.
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 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 Service) at the time the taxpayer entered into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income from the transaction.
Tax Treatment of REMIC Residual Certificates
Overview. REMIC Residual Certificates will be considered residual
interests in the Series REMIC to which they relate. A REMIC is an entity for
federal income tax purposes consisting of a fixed pool of mortgages or other
mortgage-backed assets in which investors hold multiple classes of interests. To
be treated as a REMIC, the Trust (or one or more segregated pools of Trust
assets) underlying a Series must meet certain continuing qualification
requirements, and a REMIC election must be in effect. A Series REMIC generally
will be treated as a pass-through entity for federal income tax purposes, i.e.,
as not subject to entity-level tax. All interests in a Series REMIC other than
the REMIC Residual Certificates must be regular interests, i.e., REMIC Regular
Certificates. As described in "Tax Treatment of Regular Certificates" above, a
regular interest generally is an interest whose terms are analogous to those of
a debt instrument, and it generally is treated as a debt instrument for all
federal income tax purposes. The
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REMIC Regular Certificates will generate interest and original issue discount
deductions for the REMIC. As a residual interest, a REMIC Residual Certificate
represents the right to (i) stated principal and interest on such Certificate,
if any, and (ii) the income generated by the REMIC assets in excess of the
amount necessary to service the regular interests and pay the REMIC's expenses.
In a manner similar to that employed in the taxation of partnerships,
REMIC taxable income or loss will be determined at the REMIC level, but passed
through to the REMIC Residual Certificateholders. Thus, REMIC taxable income or
loss will be allocated pro rata to the REMIC Residual Certificateholders, and
each REMIC Residual Certificateholder will report its share of REMIC taxable
income or loss on its own federal income tax return. Prospective investors in
REMIC Residual Certificates should be aware that the obligation to account for
the REMIC's income or loss will continue until all of the REMIC Regular
Certificates have been retired, which may not occur until well beyond the date
on which the last payments on REMIC Residual Certificates are made. In addition,
because of the way in which REMIC taxable income is calculated, a REMIC Residual
Certificateholder may recognize "phantom income" (i.e., income recognized for
tax purposes in excess of income as determined under financial accounting or
economic principles) which will be matched in later years by a corresponding tax
loss or reduction in taxable income, but which could lower the yield to REMIC
Residual Certificateholders due to the lower present value of such loss or
reduction.
A portion of the income of REMIC Residual Certificateholders in certain
Series REMICs will be treated unfavorably in three contexts: (i) it may not be
offset by current or net operating loss deductions (except in the case of
certain thrift institutions holding REMIC Residual Certificates with significant
value); (ii) it will be considered unrelated business taxable income ("UBTI") to
tax-exempt entities; and (iii) it is ineligible for any statutory or treaty
reduction in the 30 percent withholding tax otherwise available to a foreign
REMIC Residual Certificateholder.
Taxation of REMIC Residual Certificateholders. A REMIC Residual
Certificateholder will recognize his share of the related REMIC's taxable income
or loss for each day during his taxable year on which he holds the REMIC
Residual Certificate. The amount so recognized will be characterized as ordinary
income or loss and will not be taxed separately to the REMIC. If a REMIC
Residual Certificate is transferred during a calendar quarter, REMIC taxable
income or loss for that quarter will be prorated between the transferor and the
transferee on a daily basis.
A REMIC generally determines its taxable income or loss in a manner
similar to that of an individual using a calendar year and the accrual method of
accounting. A REMIC's taxable income or loss generally will be characterized as
ordinary income or loss, and will consist of the REMIC's gross income, including
interest, original issue discount, and market discount income, if any, on the
REMIC's assets (including temporary cash flow investments), premium amortization
on the REMIC Regular Certificates, income from foreclosure property, and any
cancellation of indebtedness income due to the allocation of realized
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losses to REMIC Regular Certificates, reduced by the REMIC's deductions,
including deductions for interest and original issue discount expense on the
REMIC Regular Certificates, premium amortization and servicing fees with respect
to the REMIC's assets, the administrative expenses of the REMIC and the REMIC
Regular Certificates, any tax imposed on the REMIC's income from foreclosure
property, and any bad debt deductions with respect to the Mortgage Loans. The
REMIC may not take into account any items allocable to a "prohibited
transaction." See "-- REMIC-Level Taxes" below. The deduction of REMIC expenses
by REMIC Residual Certificateholders who are individuals is subject to certain
limitations as described below in "Risk Factors for Certain Types of Investors
- -- Individuals and Pass-Through Entities."
The amount of the REMIC's net loss with respect to a calendar quarter
that may be deducted by a REMIC Residual Certificateholder is limited to such
Certificateholder's adjusted basis in the REMIC Residual Certificate as of the
end of that quarter (or time of disposition of the REMIC Residual Certificate,
if earlier), determined without taking into account the net loss for that
quarter. A REMIC Residual Certificateholder's basis in its REMIC Residual
Certificate initially is equal to the price paid for such Certificate. Such
basis is increased by the amount of taxable income of the REMIC reportable by
the REMIC Residual Certificateholder with respect to the REMIC Residual
Certificate and decreased (but not below zero) by the amount of distributions
made and the amount of net losses recognized with respect to that Certificate.
The amount of the REMIC's net loss allocable to a REMIC Residual
Certificateholder that is disallowed under the basis limitation may be carried
forward indefinitely, but may be used only to offset income with respect to the
related REMIC Residual Certificate. The ability of REMIC Residual
Certificateholders to deduct net losses with respect to a REMIC Residual
Certificate may be subject to additional limitations under the Code, as to which
Certificateholders should consult their tax advisors. A distribution with
respect to a REMIC Residual Certificate is treated as a non-taxable return of
capital up to the amount of the REMIC Residual Certificateholder's adjusted
basis in his REMIC Residual Certificate. If a distribution exceeds the adjusted
basis of the REMIC Residual Certificate, the excess is treated as gain from the
sale of such REMIC Residual Certificate.
Although the law is unclear in certain respects, a REMIC Residual
Certificateholder effectively should be able to recover some or all of the basis
in his REMIC Residual Certificate as the REMIC recovers the basis of its assets
through either the amortization of premium on such assets or the allocation of
basis to principal payments received on such assets. The REMIC's initial
aggregate basis in its assets will equal the sum of the issue prices of all
REMIC Residual Certificates and REMIC Regular Certificates. In general, the
issue price of a REMIC Regular Certificate of a particular Class is the initial
price at which a substantial amount of the Certificates of such Class is sold to
the public. In the case of a REMIC Regular Certificate of a Class not offered to
the public, the issue price is either the price paid by the first purchaser of
such Certificate or the fair market value of the property received in exchange
for such Certificate, as appropriate. The REMIC's aggregate basis will be
allocated among its assets in proportion to their respective fair market values.
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In the first years after the issuance of the REMIC Regular Certificates,
REMIC taxable income may include significant amounts of phantom income. Phantom
income arises from timing differences between income of the Mortgage Assets and
deductions on the REMIC Regular Certificates that result from the multiple-class
structure of the Certificates. Since phantom income will arise from timing
differences between income and deductions, it will be matched by a corresponding
loss or reduction in taxable income in later years, during which economic or
financial income will exceed REMIC taxable income. Any acceleration of taxable
income, however, could lower the yield to a REMIC Residual Certificateholder,
since the present value of the tax paid on that income will exceed the present
value of the corresponding tax reduction in the later years. The amount and
timing of any phantom income are dependent upon (i) the structure or the
particular Series REMIC and (ii) the rate of prepayment on the mortgage loans
comprising or underlying the REMIC's assets and, therefore, cannot be predicted
without reference to a particular Series REMIC.
The assets of certain Series REMICs may have bases that are less than
their principal amounts. In such a case, a REMIC Residual Certificateholder will
recover the basis in his REMIC Residual Certificate as the REMIC recovers the
portion of its basis in the assets that is attributable to the residual
interest. The REMIC's basis in the assets is recovered as it is allocated to
principal payments received by the REMIC.
A portion of a REMIC's taxable income may be subject to special
treatment. That portion (known as "excess inclusion income") generally is any
taxable income beyond that which the REMIC Residual Certificateholder would have
recognized had the REMIC Residual Certificate been a conventional debt
instrument bearing interest at 120 percent of the applicable long-term federal
rate (based on quarterly compounding) as of the date on which the REMIC Residual
Certificate was issued. Excess inclusion income generally is intended to
approximate phantom income and may result in unfavorable tax consequences for
certain investors. See "-- Limitations on Offset or Exemption of REMIC Income"
and "-- Risk Factors for Certain Types of Investors" below.
Limitations on Offset or Exemption of REMIC Income. Generally, a REMIC
Residual Certificateholder's taxable income for any taxable year may not be less
than such Certificateholder's excess inclusion income for that taxable year
unless (i) such Certificateholder is a Thrift Institution or a cooperative bank
described in Section 593 of the Code and (ii) the REMIC Residual Certificate has
significant value (as described in the following paragraph). Excess inclusion
income is equal to the excess of REMIC taxable income for the quarterly period
for such REMIC Residual Certificates over the product of (i) 120% of the
long-term applicable federal rate that would have applied to the REMIC Residual
Certificates if they were debt instruments for federal income tax purposes on
the related closing date and (ii) the adjusted issue price of such REMIC
Residual Certificates at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a REMIC Residual Certificate at the
beginning of a quarter is the issue price of the REMIC Residual Certificate,
increased by the amount of the
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daily accruals of REMIC income for all prior quarters, and decreased by any
distributions made with respect to such REMIC Residual Certificate prior to the
beginning of such quarterly period. If the REMIC Residual Certificateholder is
an organization subject to the tax on UBTI imposed by Section 511, the REMIC
Residual Certificateholder's excess inclusion income will be treated as UBTI. In
addition, under Treasury regulations yet to be issued, if a REIT or a RIC owns a
REMIC Residual Certificate that generates excess inclusion income, a pro rata
portion of the dividends paid by the REIT or the RIC generally will constitute
excess inclusion income for their shareholders. Finally, REMIC Residual
Certificateholders who are foreign persons will not be entitled to any exemption
from the 30% withholding tax or a reduced treaty rate with respect to their
excess inclusion income from the REMIC. See "-- Taxation of Certain Foreign
Holders of REMIC Certificates -- REMIC Residual Certificates" below.
Notwithstanding the limitations described above, a Thrift Institution or
a cooperative bank described in Section 593 of the Code that holds a REMIC
Residual Certificate with significant value may offset excess inclusion income
with deductions from other sources, including rent operating loss carryforwards.
Under the REMIC Regulations, a REMIC Residual Certificate will be considered to
have "significant value" if (i) the aggregate issue price of the REMIC Residual
Certificates is at least 2% of the aggregate issue price of all the Certificates
(both Regular and Residual) issued by the REMIC, and (ii) the anticipated
weighted average life of the REMIC Residual Certificates is at least 20% of the
anticipated weighted average life of the REMIC. The anticipated weighted average
life of a REMIC is the weighted average of the anticipated weighted average
lives of all the Certificates (both Regular and Residual) issued by the REMIC as
of the startup day. A Prospectus Supplement by which REMIC Residual Certificates
are offered will indicate whether the REMIC Residual Certificates are expected
to have significant value under the REMIC Regulations.
Legislation has been proposed which would provide that, effective for
taxable years beginning after December 31, 1986, alternative minimum taxable
income of a REMIC Residual Certificateholder cannot be less than the
Certificateholder's excess inclusions. Legislation has also been proposed which
would, effective for taxable years beginning after December 31, 1995, eliminate
the exception to the excess inclusion rules for thrift institutions that hold
residual interests with significant value. No prediction can be made whether
such proposed legislation will be enacted.
Non-Recognition of Certain Transfers for Federal Income Tax Purposes. In
addition to the limitations specified above, the REMIC Regulations provide that
the transfer of a "noneconomic residual interest" to a United States person will
be disregarded for tax purposes unless no significant purpose of the transfer
was to impede the assessment or collection of tax. A REMIC Residual Certificate
will constitute a noneconomic residual interest unless, at the time the interest
is transferred, (i) the present value of the expected future distributions with
respect to the REMIC Residual Certificate equals or exceeds the product of the
present value of the anticipated excess inclusion income and the highest
corporate tax rate for the year in which the transfer occurs, and (ii) the
transferor reasonably
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expects that the transferee will receive distributions from the REMIC in amounts
sufficient to satisfy the taxes on excess inclusion income as they accrue. If a
transfer of a residual interest is disregarded, the transferor would continue to
be treated as the owner of the REMIC Residual Certificate and thus would
continue to be subject to tax on its allocable portion of the net income of the
related REMIC. A significant purpose to impede the assessment or collection of
tax exists if the transferor, at the time of the transfer, either knew or should
have known that the transferee would be unwilling or unable to pay taxes due on
its share of the taxable income of the REMIC (i.e., the transferor had "improper
knowledge"). Under the REMIC Regulations, a transferor is presumed not to have
such improper knowledge if (i) the transferor conducted, at the time of the
transfer, a reasonable investigation of the financial condition of the
transferee and, as a result of the investigation, the transferor found that the
transferee had historically paid in debts as they came due and found no
significant evidence to indicate that the transferee would not continue to pay
its debts as they come due and (ii) the transferee represents to the transferor
that it understands that, as the holder of a noneconomic residual interest, it
may incur tax liabilities in excess of any cash flows generated by the interest
and that it intends to pay the taxes associated with holding the residual
interest as they become due. A similar limitation exists with respect to
transfers of certain residual interests to foreign investors. See "-- Taxation
of Certain Foreign Holders of REMIC Certificates -- REMIC Residual Certificates"
below.
Ownership of Residual Interests by Disqualified Organizations. The
Code contains three sanctions that are designed to prevent the direct
or indirect ownership of a REMIC residual interest (such as a REMIC
Residual Certificate) by the United States, any state or political
subdivision thereof, any foreign government, any international
organization, any agency or instrumentality of any of the foregoing,
any tax-exempt organization (other than a farmers' cooperative
described in Section 521 of the Code) that is not subject to the tax
on UBTI, or any rural electrical or telephone cooperative (each, a
=
"Disqualified Organization"). A corporation is not treated as an
instrumentality of the United States or any state or political
subdivision thereof if all of its activities are subject to tax and,
with the exception of FHLMC, a majority of its board of directors is
not selected by such governmental unit.
First, REMIC status of any REMIC created after March 31, 1988 is
dependent upon the presence of reasonable arrangements designed to prevent a
Disqualified Organization from acquiring record ownership of a residual
interest. Residual interests in Series REMICs (including REMIC Residual
Certificates) are not offered for sale to Disqualified Organizations.
Furthermore, (i) residual interests in Series REMICs will be registered as to
both principal and any stated interest with the Trustee (or its agent) and
transfer of a residual interest may be effected only (A) by surrender of the old
residual interest instrument and reissuance by the Trustee of a new residual
interest instrument to the new holder or (B) through a book entry system
maintained by the Trustee, (ii) the applicable Agreement will prohibit the
ownership of residual interests by Disqualified Organizations, and (iii) each
residual interest instrument will contain a legend providing notice of that
prohibition. Consequently, each Series REMIC should be
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considered to have made reasonable arrangements designed to prevent the
ownership of residual interests by Disqualified Organizations.
Second, the Code imposes a one-time tax on the transferor of a residual
interest (including a REMIC Residual Certificate or an interest therein) to a
Disqualified Organization. The one-time tax equals the product of (i) the
present value of the total anticipated excess inclusions with respect to the
transferred residual interest for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. Under the
REMIC Regulations, the anticipated excess inclusions with respect to a
transferred residual interest must be based on (i) both actual prior prepayment
experience and the prepayment assumptions used in pricing the related REMIC's
interests and (ii) any required or permitted clean up calls, or required
qualified liquidations provided for in the REMIC's organizational documents. The
present value of anticipated excess inclusions is determined using a discount
rate equal to the applicable federal rate that would apply to a debt instrument
that was issued on the date the Disqualified Organization acquired the residual
interest and whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the residual interest. Where a
transferee is acting as an agent for a Disqualified Organization, the transferee
is subject to the one-time tax. Upon the request of such transferee or the
transferor, the REMIC must furnish to the requesting party and to the Service
information sufficient to permit the computation of the present value of the
anticipated excess inclusions. For that purpose, the term "agent" includes a
broker, nominee, or other middleman. The transferor of a residual interest
(including a REMIC Residual Certificate or interest therein) will not be liable
for the one-time tax if the transferee furnishes to the transferor an affidavit
that states, under penalties of perjury, that the transferee is not a
Disqualified Organization, and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The one-time tax
must be paid by the later of March 24, 1993, or April 15th of the year following
the calendar year in which the residual interest is transferred to a
Disqualified Organization. The one-time tax may be waived by the Secretary of
the Treasury if, upon discovery that a transfer is subject to the one-time tax,
the Disqualified Organization promptly disposes of the residual interest and the
transferor pays any amounts that the Secretary of the Treasury may require.
Third, the Code imposes an annual tax on any pass-through entity (i.e.,
RIC, REIT, common trust fund, partnership, trust, estate or cooperative
described in Code section 1381) that owns a direct or indirect interest in a
residual interest (including a REMIC Residual Certificate), if record ownership
of an interest in the pass-through entity is held by one or more Disqualified
Organizations. The tax imposed equals the highest corporate rate multiplied by
the share of any excess inclusion income of the pass-through entity for the
taxable year allocable to interests in the pass-through entity held by
Disqualified Organizations. The same tax applies to a nominee who acquires an
interest in a residual interest (including a REMIC Residual Certificate) on
behalf of a Disqualified Organization. For example, a broker that holds an
interest in a REMIC Residual Certificate in "street name" for a Disqualified
Organization is subject to the tax. The tax due must be paid by the later of
March
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24, 1993, or the fifteenth day of the fourth month following the close of the
taxable year of the pass-through entity in which the Disqualified Organization
is a record holder. Any such tax imposed on a pass-through entity would be
deductible against that entity's ordinary income in determining the amount of
its required distributions. In addition, dividends paid by a RIC or a REIT are
not considered preferential dividends with the meaning of Section 562(c) of the
Code solely because the RIC or REIT allocates such tax expense only to the
shares held by Disqualified Organizations. A pass-through entity will not be
liable for the annual tax if the record holder of the interest in the
pass-through entity furnishes to the pass-through entity an affidavit that
states, under penalties of perjury, that the record holder is not a Disqualified
Organization, and the pass-through entity does not have actual knowledge that
such affidavit is false.
The Code and the REMIC Regulations also require that reasonable
arrangements be made with respect to each REMIC to enable the REMIC to provide
the Treasury and the transferor with information necessary for the application
of the one-time tax described above. Consequently, the applicable Agreement will
provide for an affiliate to perform such information services as may be required
for the application of the one-time tax. If a REMIC Residual Certificateholder
transfers an interest in a REMIC Residual Certificate in violation of the
relevant transfer restrictions and triggers the information requirement, the
affiliate may charge such REMIC Residual Certificateholder a reasonable fee for
providing the information.
Risk Factors for Certain Types of Investors
Dealers in Certificates. REMIC Residual Certificateholders that are
dealers in securities should be aware that on January 3, 1995 the Service
released proposed Treasury regulations (the "Proposed Mark-to-Market
Regulations") that supplement and revise temporary and proposed regulations
released by the Service on December 28, 1993 (the "Temporary Mark-to-Market
Regulations"), which relate to the requirement under Section 475 of the Code
that dealers in securities use mark-to-market accounting for federal income tax
purposes. Under the Temporary Regulations, dealers in securities are not
permitted to mark to market any negative value REMIC residual interests
("NVRIs"), or any interests or arrangements that are determined by the Internal
Revenue Service to have substantially the same economic effect as NVRIs. In
general a residual interest is a NVRI if on the date it is acquired, the present
value of the anticipated tax liabilities associated with holding the interest
exceeds the sum of (i) the represent value of the expected future distributions
on the interest and (ii) the present value of the anticipated tax savings
associated with holding the interest as the related REMIC generates losses.
Under the Proposed Mark-to-Market Regulations, dealers in securities would not
be permitted to mark to market any REMIC residual interests acquired on or after
January 4, 1995. Prospective purchasers of REMIC Residual Certificates should
consult with their tax advisors regarding the possible application of the
Proposed Mark-to-Market Regulations.
Tax-exempt Entities. Any excess inclusion income with respect to a
REMIC Residual Certificate held by a tax-exempt entity, including a
qualified profit-sharing, pension, or other employee benefit plan,
will be treated as UBTI. Although the legislative history and
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statutory provisions imply otherwise, the Treasury conceivably could take the
position that, under pre-existing Code provision, substantially all income on a
REMIC Residual Certificate (including non-excess inclusion income) is to be
treated as UBTI. See "-- Taxation of REMIC Residual Certificateholders" above.
Individuals and Pass-Through Entities. A REMIC Residual
Certificateholder who is an individual, trust, or estate will be able to deduct
its allocable share of the fees or expenses relating to servicing the assets
assigned to a Trust or administering the Series REMIC under Section 212 of the
Code only to the extent that the amount of such fees and expenses, when combined
with the REMIC Residual Certificateholder's other miscellaneous itemized
deductions for the taxable year, exceeds two percent of that holder's adjusted
gross income. That same limitation will apply to individuals, trusts, or estates
that hold REMIC Residual Certificates indirectly through a grantor trust, a
partnership, an S corporation, a common trust fund, a REMIC, or a nonpublicly
offered RIC. A nonpublicly offered RIC is a RIC other than one whose shares are
(i) continuously offered pursuant to a public offering, (ii) regularly traded on
an established securities market, or (iii) held by no fewer than 500 persons at
all times during the taxable year. In addition, that limitation will apply to
individuals, trusts, or estates that hold REMIC Residual Certificates through
any other person (i) that is not generally subject to federal income tax and
(ii) the character of whose income may affect the character of the income
generated by that person for its owners or beneficiaries. Further, Section 68
provides that the amount of itemized deductions otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds the
applicable amount ($100,000, or $50,000 in the case of a separate return by a
married individual within the meaning of Section 7703 for taxable year 1991 and
adjusted for inflation each year thereafter) will be reduced by the lesser of
(i) 3% of the excess of adjusted gross income over the applicable amount, or
(ii) 80% of the amount of itemized deductions otherwise allowable for such
taxable year. In some cases, the amount of additional income that would be
recognized as a result of the foregoing limitations by a REMIC Residual
Certificateholder who is an individual, trust, or estate could be substantial.
Non-corporate holders of REMIC Residual Certificates also should be aware that
miscellaneous itemized deductions, including allocable investment expenses
attributable to the related REMIC, are not deductible for purposes of the
alternative minimum tax. Finally, persons holding an interest in a REMIC
Residual Certificate indirectly through an interest in a RIC, common trust fund
or one of certain corporations doing business as a cooperative generally will
recognize a share of any excess inclusion allocable to that REMIC Residual
Certificate.
REITs and RICs. If the REMIC Residual Certificateholder is a REIT and
the REMIC generate excess inclusion income, a portion of REIT dividends will be
treated as excess inclusion income for the REIT's shareholders, in a manner to
be provided by regulations. Thus, shareholders in a REIT that invests in REMIC
Residual Certificates could face unfavorable treatment of a portion of their
REIT divided income for purposes of (i) using current deduction or NOL
carryovers or carrybacks, (ii) UBTI in the case of tax-exempt shareholders, and
(iii) withholding tax in the case of foreign shareholders (see "--
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Taxation of Certain Foreign Holders of REMIC Certificates -- REMIC Residual
Certificates" below). Moreover, because REMIC Residual Certificateholders may
recognize phantom income (see "--Taxation of REMIC Residual Certificateholders"
above), a REIT contemplating an investment in REMIC Residual Certificates should
consider carefully the effect of any phantom income upon its ability to meet its
income distribution requirements under the Code. The same rules regarding excess
inclusion will apply to a REMIC Residual Certificateholder that is a RIC, common
trust fund, or one of certain corporations doing business as a cooperative.
A REMIC Residual Certificate held by a REIT will be treated as a real
estate asset for purposes of the REIT qualification requirements in the same
proportion that the REMIC's assets would be treated as real estate assets if
held directly by the REIT, and interest income derived from such REMIC Residual
Certificate will be treated as Qualifying REIT Interest to the same extent. If
95% or more of a REMIC's assets qualify as real estate assets for REIT purposes,
100% of that REMIC's regular and residual interests (including REMIC Residual
Certificates) will be treated as real estate assets for REIT purposes, and all
of the income derived from such interests will be treated as Qualifying REIT
Interest. The REMIC regulations provide that payments of principal and interest
on Mortgage Loans that are reinvested pending distribution to the holders of the
REMIC Certificates constitute real estate assets for REIT purposes.
Notwithstanding that 95% or more of the assets of a given Series REMIC
constitute real estate assets for REIT purposes, 100% of the interest income
derived by a REIT from a residual interest in such REMIC may not be treated as
Qualifying REIT Interest if the REMIC holds Mortgage Loans that provide for
interest that is contingent on mortgagor profits or property appreciation. Two
REMICs that are part of a tiered structure will be treated as one REMIC for
purposes of determining the percentage of assets of each REMIC that constitutes
real estate assets. It is expected that at least 95% of each Series REMIC's
assets will be real estate assets throughout the REMIC's life.
The amount treated as a real estate asset in the case of a REMIC Residual
Certificate apparently is limited to the REIT's adjusted basis in the
Certificate.
Significant uncertainty exists with respect to the treatment of a REMIC
Residual Certificate for purposes of the various asset composition requirements
applicable to RICs. A REMIC Residual Certificate should be treated as a
"security," but probably will not be considered a "Government security" for
purposes of Section 851(b)(4) of the Code. Moreover, it is unclear whether a
REMIC Residual Certificate will be treated as a "voting security" under that
Code section. Finally, because the REMIC will be treated as the "issuer" of the
REMIC Residual Certificate for purposes of that section, a RIC would be unable
to invest more than 25% of the value of its total assets in REMIC Residual
Certificates.
Thrift Institutions, banks, and certain other financial institutions.
REMIC Residual Certificates will be treated as qualifying real property loans
and loans secured by interests in real property (collectively, "qualifying
assets") for Thrift institutions in the same proportion that the assets of the
REMIC would be so treated. However, if 95% or more of the assets of a given
Series
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REMIC are qualifying assets for Thrift Institutions, 100% of that REMIC's
regular and residual interests (including REMIC Residual Certificates) would be
treated as qualifying assets. In addition, the REMIC Regulations provide that
payments of principal and interest on Mortgage Loans that are reinvested pending
their distribution to the holders of the REMIC Certificates will be treated as
qualifying real property loans for Thrift Institutions. Moreover, two REMICs
that are part of a tiered structure will be treated as one REMIC for purposes of
determining the percentage of assets of each REMIC that constitutes qualifying
assets for Thrift purposes. It is expected that at least 95% of the assets of
any Series REMIC will be qualifying assets for Thrift Institutions throughout
the REMIC's life. The amount of a REMIC Residual Certificate treated as a
qualifying asset for Thrift Institutions, however, cannot exceed the holder's
adjusted basis in that REMIC Residual Certificate.
Generally, gain or loss arising from the sale or exchange of REMIC
Residual Certificates held by certain financial institutions will give rise to
ordinary income or loss, regardless of the length of the holding period for the
REMIC Residual Certificates. Those financial institutions include banks, mutual
savings banks, cooperative banks, domestic building and loan institutions,
savings and loan institutions, and similar institutions. See "-- Disposition of
REMIC Residual Certificates" below.
Disposition of REMIC Residual Certificates
Upon the sale or exchange of a REMIC Residual Certificate, a REMIC
Residual Certificateholder will recognize gain or loss equal to the difference
between the amount realized and its adjusted basis in the REMIC Residual
Certificate. It is possible that a disqualification of the REMIC (other than an
inadvertent disqualification for which relief may be provided in Treasury
regulations) may be treated as a sale or exchange of a REMIC Residual
Certificate. If the holder has held the REMIC Residual Certificate for more than
12 months, gain or loss on its disposition generally will be characterized as
long-term capital gain or loss. In the case of banks, thrifts, and certain other
financial institutions described in Section 582 of the Code, however, gain or
loss on the disposition of a REMIC Residual Certificate will be treated as
ordinary gain or loss, regardless of the length of the holding period.
A special version of the wash sale rules of the Code applies to
dispositions of REMIC Residual Certificates. Under that rule, losses on
dispositions of REMIC Residual Certificates generally will be disallowed where,
within six months before or after the disposition, the seller of such
Certificates acquires any residual interest in a REMIC or any interest in a
Taxable Mortgage Pool that is economically comparable to a REMIC Residual
Certificate. Treasury Regulations providing for appropriate exceptions to the
application of the wash sale rules have been authorized, but have not yet been
promulgated.
Liquidation of the REMIC
A REMIC may liquidate without the imposition of entity-level tax only in
a qualified liquidation. A liquidation is considered a "qualified liquidation"
if the REMIC (i) adopts a plan of complete
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liquidation, (ii) sells all of its non-cash assets within 90 days of the date on
which it adopts the plan, and (iii) credits or distributes in liquidation all of
the sale proceeds plus its cash (other than amounts retained to meet claims
against it) to its Certificateholders within the 90-day period. An early
termination of the REMIC caused by the redemption by the Seller of all
outstanding classes of the REMIC Certificates of a particular Series, and the
distribution to REMIC Residual Certificateholders of the excess, if any, of the
fair market value of the REMIC's assets at the time of such redemption over the
unpaid principal balance of such REMIC Certificates, will constitute a complete
liquidation as described in the preceding sentence. Under the REMIC Regulations,
a plan of liquidation need not be in any special form. Furthermore, if a REMIC
specifies the first day in the 90-day liquidation period in a statement attached
to its final tax return, the REMIC will be considered to have adopted a plan of
liquidation on that date.
REMIC-Level Taxes
Income from certain transactions by the REMIC, called prohibited
transactions, will not be part of the calculation of the REMIC's income or loss
that is includable in the federal income tax returns of REMIC Residual
Certificateholders, but rather will be taxed directly to the REMIC at a 100%
rate. In addition, net income from one prohibited transaction may not be offset
by losses from other prohibited transactions. Prohibited transactions generally
include: (i) the disposition of qualified mortgages other than pursuant to (a)
the repurchase of a defective mortgage, (b) the substitution for a defective
mortgage within two years of the closing date, (c) a substitution for any
qualified mortgage within three months of the closing date, (d) the foreclosure,
default, or imminent default of a qualified mortgage, (e) the bankruptcy or
insolvency of the REMIC, (f) the sale of a convertible mortgage loan upon its
conversion for an amount equal to the mortgage loan's current principal balance
plus accrued but unpaid interest (and provided that certain other requirements
are met) or (g) a qualified liquidation of the REMIC; (ii) the receipt of income
from assets that are not the type of mortgages or investments that the REMIC is
permitted to hold; (iii) the receipt of compensation for services by the REMIC;
and (iv) the receipt of gain from disposition of cash-flow investments other
than pursuant to a qualified liquidation of the REMIC. A disposition of a
qualified mortgage or cash flow investment will not give rise to a prohibited
transaction, however, if the disposition was (i) required to prevent default on
a regular interest resulting from a default on one or more of the REMIC's
qualified mortgages or (ii) made to facilitate a clean-up call. The REMIC
Regulations define a clean-up call as the redemption of a class of regular
interests when, by reason of prior payments with respect to those interests, the
administration costs associated with servicing the class outweigh the benefits
of maintaining the class. Under those regulations, the redemption of a class for
regular interests with an outstanding principal balance of no more than 10% of
the original principal balance qualifies as a clean-up call. The REMIC
Regulations also provide that the modification of a mortgage loan generally will
not be treated as a disposition of that loan if it is occasioned by a default or
a reasonably foreseeable default, an assumption of the mortgage loan, the waiver
of a due-on-sale or encumbrance clause, or the conversion
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of an interest rate by a mortgagor pursuant to the terms of a convertible
adjustable rate mortgage loan.
In addition, a REMIC generally will be taxed at a 100% rate on any
contribution to the REMIC after the closing date unless such contribution is a
cash contribution that (i) takes place within the three-month period beginning
on the closing date, (ii) is made to facilitate a clean-up call (as defined in
the preceding paragraph) or a qualified liquidation (as defined in "--
Liquidation of the REMIC" above), (iii) is a payment in the nature of a
guarantee, (iv) constitutes a contribution by the REMIC Residual
Certificateholders in the REMIC to a qualified reserve fund, or (v) is otherwise
permitted by Treasury regulations yet to be issued. The structure and operation
of Series REMICs will be designed to avoid the imposition of the 100% tax on
contributions.
To the extent that a REMIC derives certain types of income from
foreclosure property (generally, income relating to dealer activities of the
REMIC), it will be taxed on such income at the highest corporate income tax
rate. Although the relevant law is unclear, it is not anticipated that any
Series REMIC will receive significant amounts of such income.
The organizational documents governing the REMIC Regular and REMIC
Residual Certificates will be designed to prevent the imposition of the
foregoing taxes on the related Series REMIC in any material amounts. If any of
the foregoing taxes is imposed on a Series REMIC, the Trustee will seek to place
the burden thereof on the person whose action or inaction gave rise to such
taxes. To the extent that the Trustee is unsuccessful in doing so, the burden of
such taxes will be borne by any outstanding subordinated Class of Certificates
before it is borne by a more senior Class of Certificates.
Taxation of Certain Foreign Holders of REMIC Certificates
REMIC Regular Certificates. Interest, including original issue discount,
paid on a REMIC Regular Certificate to a nonresident alien individual, foreign
corporation, or other non-United States person ("Foreign Person") generally will
be treated as "portfolio interest" and, therefore, will not be subject to any
United States withholding tax, provided that (i) such interest is not
effectively connected with a trade or business in the United States of the
Certificateholder, and (ii) the Trustee (or other person who would otherwise be
required to withhold tax) is provided with appropriate certification that the
beneficial owner of the Certificate is a Foreign Person ("Foreign Person
Certification"). If Foreign Person Certification is not provided, interest
(including original issue discount) paid on such a Certificate may be subject to
either a 30 percent withholding tax or 31 percent backup withholding. See "--
Backup Withholding" below.
REMIC Residual Certificates. Amounts paid to REMIC Residual
Certificateholders who are Foreign Persons are treated as interest for purposes
of the 30 percent (or lower treaty rate) United States withholding tax. Under
temporary Treasury Regulations, non-excess inclusion income received by REMIC
Residual Certificateholders who are Foreign Persons generally qualifies as
"portfolio interest" exempt from the 30 percent withholding tax (as described in
the preceding
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paragraph) only to the extent that (i) the assets of the Trust REMIC are
Mortgage Certificates that are issued in registered form and (ii) the Mortgage
Loans underlying the Mortgage Certificates were originated after July 18, 1984.
Because Mortgage Loans are not issued in registered form, amounts received by
REMIC Residual Certificateholders who are Foreign Persons will not be exempt
from the 30 percent withholding tax to the extent such amounts relate to
Mortgage Loans held directly (rather than indirectly through Mortgage
Certificates) by the Series REMIC. If the portfolio interest exemption is
unavailable, such amounts generally will be subject to United States withholding
tax when paid or otherwise distributed (or when the REMIC Residual Certificate
is disposed of) under rules similar to those for withholding on debt instruments
that have original issue discount. However, the Code grants the Treasury
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance of
tax (i.e., where the REMIC Residual Certificates, as a Class, do not have
significant value). Further a REMIC Residual Certificateholder will not be
entitled to any exemption from the 30 percent withholding tax or a reduced
treaty rate on excess inclusion income.
Under the REMIC Regulations, the transfer of a REMIC Residual
Certificate that has tax avoidance potential to a Foreign Person will be
disregarded for all federal income tax purposes. A REMIC Residual Certificate is
deemed to have "tax avoidance potential" under those regulations unless, at the
time of the transfer, the transferor reasonably expects that, for each accrual
of excess inclusion, the REMIC will distribute to the transferee an amount that
will equal at least 30% of the excess inclusion, and that each such amount will
be distributed no later than the close of the calendar year following the
calendar year of accrual (the "30% Test"). A transferor of a REMIC Residual
Certificate to a Foreign Person will be presumed to have had a reasonable
expectation that the REMIC Residual Certificate satisfies the 30% Test if that
test would be satisfied for all Mortgage Loan prepayment rates between 50% and
200% of the Pricing Prepayment Assumption. See "-- Tax Treatment of REMIC
Regular Certificates -- Original Issue Discount," above. The REMIC Regulations
concerning transfers of residual interests to Foreign Persons generally are
effective for transfers that occur after April 20, 1992. If a Foreign Person
transfers a REMIC Residual Certificate to a United States person and the
transfer, if respected, would permit avoidance of withholding tax on accrued
excess inclusion income, that transfer also will be disregarded for federal
income tax purposes and distributions with respect to the REMIC Residual
Certificate will continue to be subject to 30% withholding as though the Foreign
Person still owned the REMIC Residual Certificate. Investors who are Foreign
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning and disposing of a REMIC Residual Certificate.
Backup Withholding. Under federal income tax law, a Certificateholder
may be subject to "backup withholding" under certain circumstances. Backup
withholding applies to a Certificateholder who is a United States person if the
Certificateholder, among other things, (i) fails to furnish his social security
number or other taxpayer identification number ("TIN") to the Trustee, (ii)
furnishes
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the Trustee an incorrect TIN, (iii) fails to report properly interest and
dividends, or (iv) under certain circumstances, fails to provide the Trustee or
the Certificateholder's securities broker with a certified statement, signed
under penalties of perjury, that the TIN provided to the Trustee is correct and
that the Certificateholder is not subject to backup withholding. Backup
withholding applies, under certain circumstances, to a Certificateholder who is
a foreign person if the Certificateholder fails to provide the Trustee or the
Certificateholder's securities broker with a Foreign Person certification (as
described in "Taxation of Certain Foreign Holders of REMIC Certificates -- REMIC
Regular Certificates" above). Backup withholding applies to "reportable
payments," which include interest payments and principal payments to the extent
of accrued original issue discount, as well as distributions of proceeds from
the sale of REMIC Regular Certificates or REMIC Residual Certificates. The
backup withholding rate for reportable payments made on or after January 1, 1993
is 31%. Backup withholding, however, does not apply to payments on a Certificate
made to certain exempt recipients, such as tax-exempt organizations, and to
certain Foreign Persons. Certificateholders should consult their tax advisors
for additional information concerning the potential application of backup
withholding to payments received by them with respect to a Certificate.
Reporting and Tax Administration
REMIC Regular Certificates. Reports will be made at least annually to
holders of record of REMIC Regular Certificates (other than those with respect
to whom reporting is not required) and to the Internal Revenue Service as may be
required by statute, regulation, or administrative ruling with respect to (i)
interest paid or accrued on the Certificates, (ii) original issue discount, if
any, accrued on the Certificates, and (iii) information necessary to compute the
accrual of any market discount or the amortization of any premium on the
Certificates.
REMIC Residual Certificates. For purposes of federal income tax
reporting and administration, a Series REMIC generally will be treated as a
partnership, and the related REMIC Residual Certificateholders as its partners.
A Series REMIC will file an annual return on Form 1066 and will be responsible
for providing information to REMIC Residual Certificateholders sufficient to
enable them to report properly their shares of the REMIC's taxable income or
loss, although it is anticipated that such information actually will be supplied
by the Trustee or the Master Servicer. The REMIC Regulations require reports to
be made by a REMIC to its REMIC Residual Certificateholders each calendar
quarter in order to permit such Certificateholders to compute their taxable
income accurately. A person that holds a REMIC Residual Certificate as a nominee
for another person is required to furnish those quarterly reports to the person
for whom it is a nominee within 30 days of receiving such reports. A REMIC is
required to file all such quarterly reports for a taxable year with the Service
as an attachment to the REMIC's income tax return for that year. As required by
the Code, a Series REMIC's taxable year will be the calendar year.
REMIC Residual Certificateholders should be aware that their
responsibilities as holders of the residual interest in a REMIC,
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including the duty to account for their shares of the REMIC's income or loss on
their returns, continue for the life of the REMIC, even after the principal and
interest on their REMIC Residual Certificates have been paid in full.
The Treasury has issued temporary and final regulations concerning
certain aspects of REMIC tax administration. Under those regulations, a REMIC
Residual Certificateholder must be designated as the REMIC's tax matters person
("TMP"). The TMP generally has responsibility for overseeing and providing
notice to the other REMIC Residual Certificateholders of certain administrative
and judicial proceedings regarding the REMIC's tax affairs, although other
holders of the REMIC Residual Certificates of the same Series would be able to
participate in such proceedings in appropriate circumstances. Unless otherwise
indicated in the related Prospectus Supplement, the Seller or an affiliate
thereof either will acquire a portion of the residual interest in each Series
REMIC in order to permit it to be designated as TMP for the REMIC or will obtain
from the REMIC Residual Certificateholders an irrevocable appointment to perform
the functions of the REMIC's TMP and will prepare and file the REMIC's federal
and state income tax and information returns.
Treasury regulations provide that a REMIC Residual Certificateholder is
not required to treat items on its return consistently with their treatment on
the REMIC's return if the Certificateholder owns 100% of the REMIC Residual
Certificates for the entire calendar year. Otherwise, each REMIC Residual
Certificateholder is required to treat items on its return consistently with
their treatment on the REMIC's return, unless the Certificateholder either files
a statement identifying the inconsistency or establishes that the inconsistency
resulted from incorrect information received from the REMIC. The Service may
assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC level.
A Series REMIC typically will not register as a tax shelter pursuant to Section
6111 of the Code because it generally will not have a net loss for any of the
first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as nominee for another person may be required to furnish
the REMIC, in a manner to be provided in treasury regulations, with the name and
address of such person and other specified information.
Non-REMIC Certificates
Treatment of the Trust for Federal Income Tax Purposes
In the case of Series with respect to which a REMIC election is not
made, the Trust will be classified as a grantor trust under Subpart E, Part I of
subchapter J of the Code and not as an association taxable as a corporation.
Thus, the owner of a Non-REMIC Certificate will be treated as the beneficial
owner of an appropriate portion of the principal and interest payments
(according to the characteristics of the Certificate in question) to be received
on the Mortgage Assets assigned to a Trust for federal income tax purposes.
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Taxable Mortgage Pools
Corporate income tax can be imposed on the net income of certain
entities issuing Non-REMIC debt obligations secured by real estate mortgages
("Taxable Mortgage Pools"). Under those provisions, any entity other than a
REMIC or a REIT will be considered to be a Taxable Mortgage Pool if (i)
substantially all of the assets of the entity consist of debt obligations and
more than 50% of such obligations consist of real estate mortgages, (ii) such
entity is the obligor under debt obligations with two or more maturities, and
(iii) under the terms of the debt obligations on which the entity is the
obligor, payments on such obligations bear a relationship to payment on the
obligations held by the entity. Furthermore, a group of assets held by an entity
can be treated as a separate Taxable Mortgage Pool if the assets are expected to
produce significant cash flow that will support one or more of the entity's
issues of debt obligations. The Seller generally will structure offerings of
Non-REMIC Certificates to avoid the application of the Taxable Mortgage Pool
rules.
Treatment of the Non-REMIC Certificates for Federal Income Tax
Purposes Generally
The types of Non-REMIC Certificates offered in a Series may include: (i)
securities evidencing ownership interests only in the interest payments on the
Mortgage Assets assigned to a Trust, net of certain fees, ("IO Certificates");
(ii) securities evidencing ownership interests in the principal, but not the
interest, payments on the Mortgage Assets ("PO Certificates"); (iii) securities
evidencing ownership interests in differing percentages of both the interest
payments and the principal payments on the Mortgage Assets ("Ratio
Certificates"); and (iv) securities evidencing ownership in equal percentages of
the principal and interest payments on the Mortgage Assets ("Pass-Through
Certificates"). The federal income tax treatment of Non-REMIC Certificates other
than Pass-Through Certificates ("Strip Certificates") will be determined in part
by Section 1286 of the Code. Little administrative guidance has been issued
under that section and, thus, many aspects of its operation are unclear,
particularly the interaction between that section and the rules pertaining to
discount and premium. Hence, significant uncertainty exists with respect to the
federal income tax treatment of the Strip Certificates, and potential investors
should consult their own tax advisors concerning such treatment.
Several Code Sections provide beneficial treatment to certain taxpayers
that invest in certain types of mortgage assets. For purposes of those Code
Sections, Pass-Through Certificates will be characterized with reference to the
Mortgage Assets in the Trust, but it is not clear whether the Strip Certificates
will be so characterized. The Service could take the position that the character
of the Mortgage Assets is not attributable to the Strip Certificates for
purposes of those Sections. However, because the Strip Certificates represent
sold ownership rights in the principal and interest payments on the Mortgage
Assets, the Strip Certificates, like the Pass-Through Certificates, unless
otherwise specified in the Prospectus Supplement, should be characterized with
reference to the Mortgage Assets in the Trust. Accordingly, all Non-REMIC
Certificates should be treated as qualifying assets for Thrift Institutions, and
as real estate assets for REITs in the same proportion that the Mortgage Assets
in the Trust would be so treated. Similarly, the interest
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income attributable to Non-REMIC Certificates should be considered Qualifying
REIT Interest for REIT purposes to the extent that the Mortgage Assets in the
Trust qualify as real estate assets for REIT purposes.
One or more Classes of Certificates may be subordinated to one or more
other Classes of Certificates of the same Series. In general, such subordination
should not affect the federal income tax treatment of either the subordinated or
senior Certificates. However, to the extent indicated in the relevant Prospectus
Supplement, holders of the subordinated Certificates will be allocated losses
that otherwise would have been borne by the holders of the more senior
Certificates. Holders of the subordinated Certificates should be able to
recognize any such losses no later than the taxable year in which they become
Realized Losses. Employee benefit plans subject to the ERISA, should consult
their own tax advisors before purchasing any subordinated Certificate. See
"ERISA Considerations" herein and in the Prospectus Supplement.
Treatment of Pass-Through Certificates
The holder of a Pass-Through Certificate generally will be treated as
owning a pro rata undivided interest in each of the Mortgage Loans, Mortgage
Certificates or other assets of the Trust. Accordingly, each Pass-Through
Certificateholder will be required to include in income its pro rata share of
the entire income from the Trust assets, including interest and discount income,
if any. Such Certificateholder generally will be able to deduct from its income
its pro rata share of the administrative fees and expenses incurred with respect
to the Trust assets (provided that such fees and expenses represent reasonable
compensation for the services rendered). An individual, trust, or estate that
holds a Pass-Through Certificate directly or through a pass-through entity will
be entitled to deduct such fees and expenses under Section 212 of the Code only
to the extent that the amount of the fees and expenses, when combined with its
other miscellaneous itemized deductions for the taxable year in question,
exceeds two percent of its adjusted gross income. In addition, Section 68
provides that the amount of itemized deductions otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds the
applicable amount ($100,000, or $50,000 in the case of a separate return by a
married individual within the meaning of Section 7703 for taxable year 1991,
adjusted each year thereafter for inflation) will be reduced by the lesser of
(i) 3% of the excess of adjusted gross income over the applicable amount, or
(ii) 80% of the amount of itemized deductions otherwise allowable for such
taxable year. Each Pass-Through Certificateholder generally will determine its
net income or loss with respect to the Trust in accordance with its own method
of accounting, although income arising from original issue discount must be
taken into account under the accrual method even though the Certificateholder
otherwise would use the cash receipts and disbursements method.
The Code provisions concerning original issue discount, market discount,
and amortizable premium will apply to the Trust assets. The rules regarding
discount and premium that are applicable to Non-REMIC Certificates generally are
the same as those that apply to REMIC Certificates. See "-- REMIC Certificates
- -- "Tax Treatment of REMIC
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Regular Certificates -- Original Issue Discount," "-- Market Discount," and "--
Amortizable Premium".
For instruments to which it applies, Section 1272(a)(6) of the Code
requires the use of an income tax accounting methodology that utilizes (i) a
single constant yield to maturity and (ii) the Pricing Prepayment Assumptions.
Unlike in the case of REMIC Regular Certificates, Section 1272(a)(6) technically
does not apply to Non-REMIC Certificates. Although the Treasury has authority to
apply that section to securities such as the Non-REMIC Certificates, it has not
yet done so. Nonetheless, unless and until the release of administrative
guidance to the contrary, the Tax Administrator intends to account for the
Non-REMIC Certificates as though Section 1272(a)(6) applied to them. Thus, the
Tax Administrator will account for a class of Non-REMIC Certificates in the same
manner as it would account for a class of REMIC Regular Certificates with the
same terms. There can be no assurance, however, that the Service ultimately will
sanction the Tax Administration's position.
The original issue discount rules generally apply to residential
mortgage loans originated after March 2, 1984, and the market discount rules
apply to any such loans originated after July 18, 1984. The rules allowing for
the amortization of premium are available with respect to mortgage loans
originated after September 27, 1985. It is anticipated that most or all of the
Mortgage Assets securing any Series will be subject to the original issue
discount, market discount, and amortizable premium rules. Although most mortgage
loans nominally are issued at their original principal amounts, original issue
discount could arise from the payment of points or certain other origination
charges by the borrower if the discount attributable to such payments exceeds
the de minimis amount. If the Trust contains Mortgage Assets purchased for
prices below their outstanding principal amounts, Pass-Through
Certificateholders will be required to take into account original issue discount
not previously accrued to the prior holder of such Mortgage Assets. Moreover, if
such Mortgage Assets were purchased for less than their adjusted issue prices,
Pass-Through Certificateholders generally will be required to take into account
market discount, unless the amount of such market discount is de minimis under
the market discount rules. Finally, Pass-Through Certificateholders generally
may elect to amortize any premium paid for Mortgage Assets over the aggregate
adjusted issue price of such Mortgage Assets. For a more complete elaboration of
the rules pertaining to original issue discount, market discount, and
acquisition premium, see the discussion under "Tax Treatment of REMIC Regular
Certificates."
Treatment of Strip Certificates
Many aspects of the federal income tax treatment of the Strip
Certificates are uncertain. The discussion below describes the treatment that
Special Tax Counsel believes is appropriate, but there can be no assurance that
the Service will not take a contrary position. Potential investors, therefore,
should consult their own tax advisors with respect to the federal income tax
treatment of the Strip Certificates.
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Under Section 1286 of the Code, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments on such
obligation results in the creation of "stripped coupons" with respect to the
separated rights to interest payments and "stripped bonds" with respect to the
principal and any undetached interest payments associated with that principal.
The issuances of IO or PO Certificates effects a separation of the ownership of
the interest and principal payments on some or all of the Mortgage Assets in the
Trust. In addition, the issuance of Ratio Certificates effectively separates and
reallocates the proportionate ownership of the interest and principal payments
on the Mortgage Assets. Therefore, Strip Certificates will be subject to Section
1286.
For federal income tax account purposes, Section 1286 of the Code treats
a stripped bond or a stripped coupon as a new debt instrument issued (i) on the
date that the stripped interest is purchased and (ii) at a price equal to its
purchase price or, if more than one stripped interest is purchased, the share of
the purchase price allocable to such stripped interest. Each stripped bond or
coupon generally will have original issue discount equal to the excess of its
stated redemption price at maturity (or, in the case of a stripped coupon, the
amount payable on the due date of such coupon) over its issue price. Treasury
regulations under Section 1286 (the "Stripping Regulations"), however, provide
that the original issue discount on a stripped bond or stripped coupon is zero
if the amount of the original issue discount would be de minimis under rules
generally applicable to debt instruments. For purposes of that determination,
(i) the number of complete years to maturity is measured from the date the
stripped bond or stripped coupon is purchased, (ii) an aggregation approach
similar to the Aggregation Rule (as described in "-- REMIC Certificates -- Tax
Treatment of REMIC Regular Certificates -- Original Issue Discount" above) may
be applied, and (iii) unstripped coupons may be treated as stated interest with
respect to the related bonds and, therefore, may be excluded from stated
redemption price at maturity in appropriate circumstances. In addition, the
Stripping Regulations provide that, in certain circumstances, the excess of a
stripped bond's stated redemption price at maturity over its issue price is
treated as market discount, rather than as original issue discount. See "--
Determination of Income With Respect to Strip Certificates" below.
The application of Section 1286 of the Code to the Strip Certificates is
not entirely clear under current law. It could be interpreted as causing: (i) in
the case of an IO Certificate, each interest payment due on the Mortgage Assets
to be treated as a separate debt instrument; (ii) in the case of a Ratio
Certificate entitled to a disproportionately high share of principal, each
excess principal amount (i.e., the portion of each principal payment on such
assets that exceeds the amount to which the Ration Certificateholder would have
been entitled if he had held an undivided interest in the Mortgage Assets) to be
treated as a separate debt instrument; and (iii) in the case of a Ratio
Certificate entitled to a disproportionately high share of interest, each excess
interest amount to be treated as a separate debt instrument. In addition,
Section 1286 would require the purchase price of a Strip Certificate to be
allocated among each of the rights to payment on the Mortgage Assets to which
the Certificateholder is entitled that are treated as
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separate debt instruments. Despite the foregoing, it may be appropriate to treat
stripped coupons and stripped bonds issued to the same holder as a single debt
instrument under an aggregation approach, depending on the facts and
circumstances surrounding the issuance. Facts and circumstances considered
relevant for this purpose should include the likelihood of the debt instruments
trading as a unit and the difficulty of allocating the purchase price of the
unit among the individual payments. Strip Certificates are designed to trade as
whole investment units and, to the extent that the Underwriter develops a
secondary market for the Strip Certificates, it anticipates that the Strip
Certificates would trade in such market as whole units.
In addition, because no market exists for individual payments on Mortgage
Assets, the proper allocation of the Certificate's purchase price to each
separate payment on the Mortgage Assets in the Trust would be difficult and
burdensome to determine. Based on those facts and circumstances, it appears that
all payments of principal and interest to which the holder of a Strip
Certificate is entitled should be treated as a single installment obligation.
Although the OID Regulations do not refer directly to debt instruments that are
governed by Section 1286, the application of the OID Regulations to such
instruments is consistent with the overall statutory and regulatory scheme.
Therefore, the Seller intends to treat each Strip Certificate as a single debt
instrument for income tax accounting purposes.
Determination of Income With Respect to Strip Certificates
For purposes of determining the amount of income on a Strip Certificate
that accrues in any period, the rules described under "-- REMIC Certificates --
Tax Treatment of REMIC Regular Certificates -- Original Issue Discount," "--
Variable Rate Certificates," "-- Interest Weighted Certificates and Non-VRDI
Certificates," "-- Market Discount," and "-- Amortizable Premium" will apply. PO
Certificates, and certain Classes of Ratio Certificates, will be issued at a
price that is less than their stated principal amount and thus generally will be
issued with original issue discount. A Strip Certificate that would meet the
definition of an Interest-Weighted Certificate or a Weighted Average Certificate
if it were a REMIC Regular Certificate is subject to the same tax accounting
considerations applicable to the REMIC Regular Certificate to which it
corresponds. Thus, as described in "-- REMIC Certificates -- Tax Treatment of
REMIC Regular Certificates -- Interest Weighted Certificates and Non-VRDI
Certificates," certain aspects of the tax accounting treatment of such a Strip
Certificate are unclear. Unless and until the Service provides administrative
guidance to the contrary, the Tax Administrator will account for such Strip
Certificate in the manner described for the corresponding REMIC Regular
Certificate. See "-- REMIC Certificates -- Tax Treatment of REMIC Regular
Certificates -- Interest Weighted Certificates and Non-VRDI Certificates."
If a PO Certificate or a Ratio Certificate that is not considered a
Contingent Payment Obligation (an "Ordinary Ratio Certificate") subsequently is
sold, the purchaser apparently would be required to treat the difference between
the purchase price and the stated redemption price at maturity as original issue
discount. The holders of such securities generally will be required to include
such original issue discount in income as described in "-- REMIC Certificates
- --Tax
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Treatment of REMIC Regular Certificates -- Original Issue Discount." PO
Certificates and Ratio Certificates issued at a price less than their stated
principal amount will be treated as issued with market discount rather than with
original issue discount if, after the most recent disposition of the related
Certificate, either (i) the amount of original issue discount on the Certificate
is considered to be de minimis under the Stripping Regulations or (ii) the
annual stated rate of interest payable on the Certificate is no more than one
percent lower than the annual stated rate of interest payable on the Mortgage
Loan from which the Certificate was stripped. The holders of such securities
generally would be required to include market discount in income in the manner
described in "-- REMIC Certificates -- Tax Treatment of REMIC Regular
Certificates -- Market Discount."
Limitations on Deductions With Respect to Strip Certificates
The holder of a Strip Certificate will be treated as owning an interest
in each of the Mortgage Loans, Mortgage Certificates, or other assets of the
Trust and will recognize an appropriate share of the income and expenses
associated with those assets. Accordingly an individual, trust, or estate that
holds a Strip Certificate directly or through a pass-through entity will be
subject to the same limitations on deductions with respect to such Certificate
as are applicable to holders of Pass-Through Certificates. See "-- Treatment of
Pass-Through Certificates" above.
Sale of a Non-REMIC Certificate
A sale of a Non-REMIC Certificate prior to its maturity will result in
gain or loss equal to the difference between the amount received and the
holder's adjusted basis in such Certificate. The Rules for computing the
adjusted basis of a Non-REMIC Certificate are the same as in the case of a REMIC
Regular Certificate. See "-- REMIC Certificates -- Tax Treatment of REMIC
Regular Certificates -- Gain or Loss on Disposition." Gain or loss from the sale
or other disposition of a Non-REMIC Certificate generally will be capital gain
or loss to a Certificateholder if the Certificate is held as a "capital asset"
within the meaning of Section 1221 of the Code, and will be long-term or
short-term depending on whether the Certificate has been held for the long-term
capital gain holding period (currently, more than twelve months). Ordinary
income treatment, however, will apply to the extent mandated by the original
issue discount and market discount rules or if the Certificateholder is a
financial institution described in Section 582. See "--REMIC Certificates -- Tax
Treatment of REMIC Regular Certificates -- Gain or Loss on Disposition."
Taxation of Certain Foreign Holders of Non-REMIC Certificates
Interest, including original issue discount, paid on a Non-REMIC
Certificate to a Foreign Person generally is treated as "portfolio interest"
and, therefore, is not subject to any United States tax, provided that (i) such
interest is not effectively connected with a trade or business in the United
States of the Certificateholder, and (ii) the Trustee (or other person who would
otherwise be required to withhold tax) is provided with Foreign Person
Certification (as described in "-- REMIC Certificates -- Taxation of Certain
Foreign Holders of REMIC Certificates -- REMIC Regular Certificates" above).
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If Foreign Person Certification is not provided, interest (including original
issue discount) paid on a Non-REMIC Certificate may be subject to either a 30
percent withholding tax or 31 percent backup withholding. See "--Backup
Withholding," below.
In the case of certain Series, portfolio interest treatment will not be
available for interest paid with respect to certain classes of Non-REMIC
Certificates. Interest on debt instruments issued on or before July 18, 1984
does not qualify as "portfolio interest" and, therefore, is subject to United
States withholding tax at a 30 percent rate (or lower treaty rate, if
applicable). IO Certificates and PO Certificates generally are treated, and
Ratio Certificates generally should be treated, as having been issued when they
are sold to an investor. In the case of Pass-Through Certificates, however, the
issuance date of the Certificate is determined by the issuance date of the
mortgage loans underlying the Trust. Thus, to the extent that the interest
received by a holder of a Pass-Through Certificate is attributable to mortgage
loans issued on or before July 18, 1984, such interest will be subject to the 30
percent withholding tax. Moreover, to the extent that a Ratio Certificate is
characterized as a pass-through type security and the underlying mortgage loans
were issued on or before July 18, 1984, interest generated by the Certificate
may be subject to the withholding tax. Although recently enacted tax legislation
denies portfolio interest treatment to certain types of contingent interest,
that legislation generally applies only to interest based on the income,
profits, or property values of the debtor. Accordingly, it is not anticipated
that such legislation will apply to deny portfolio interest treatment to
Certificateholders who are Foreign Persons. However, because the scope of the
new legislation is not entirely, clear, investors who are Foreign Persons should
consult their tax advisors regarding the potential application of the
legislation before purchasing a Certificate.
Backup Withholding
The application of backup withholding to Non-REMIC Certificates
generally is the same as in the case of REMIC Certificates. See "-- REMIC
Certificates -- Taxation of Certain Foreign Holders of REMIC Certificates
- --Backup Withholding" above.
Reporting and Tax Administration
For the purposes of reporting and tax administration, the holders of
Non-REMIC Certificates will be treated in the same fashion as the holders of
REMIC Regular Certificates. See "-- REMIC Certificates -- Reporting and Tax
Administration" above.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
CERTIFICATEHOLDERS , POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP,
AND DISPOSITION OF THE CERTIFICATES.
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition, ownership, and disposition of the Certificates. State income tax
law may differ substantially from the corresponding federal law, and this
discussion does not purport to describe any aspect of the income tax laws of any
state. Therefore, potential investors should consult their own tax advisors with
respect to the various state tax consequences of an investment in the
Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") imposes certain requirements and restrictions on employee benefit
plans within the meaning of Section 3(3) of ERISA (including collective
investment funds, separate accounts and insurance company general accounts in
which such plans are invested). ERISA also imposes certain duties on those
persons who are fiduciaries with respect to employee benefit plans that are
subject to ERISA. Investments by employee benefit plans covered by ERISA are
subject to the general fiduciary requirements of ERISA, including the
requirement of investment prudence and diversification, and the requirement that
the employee benefit plan's investments be made in accordance with the documents
governing the employee benefit plan.
In addition, employee benefit plans subject to ERISA (including
collective investment funds, separate accounts and insurance company general
accounts in which such plans are invested), and individual retirement accounts
and annuities or certain types of Keogh plans not subject to ERISA but subject
to Section 4975 of the Code (each, a "Plan"), are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("parties in interest" under ERISA and
"disqualified persons" under the Code). Such transactions are treated as
"prohibited transactions" under Sections 406 and 407 of ERISA and excise taxes
are imposed upon disqualified persons by Section 4975 of the Code (or, in some
cases, a civil penalty may be assessed pursuant to Section 502(i) of ERISA). The
Seller, the Credit Enhancer, the Underwriters and the Trustee, and certain of
their affiliates, might be considered parties in interest or disqualified
persons with respect to a Plan. If so, the acquisition or holding or transfer of
Certificates by or on behalf of such Plan could be considered to give rise to a
prohibited transaction within the meaning of ERISA and the Code unless an
exemption is available. The United States Department of Labor ("DOL") has issued
a regulation (29 C.F.R. Section 2510.3-101) concerning the definition of what
constitutes the assets of a Plan (the "Plan Asset Regulations"). Under the Plan
Asset Regulations, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan invests in an
"equity interest" will be deemed for purposes of ERISA to be assets of the
investing Plan unless certain exceptions apply. If an investing Plan's assets
were deemed to include an interest in the Mortgage Assets and any other assets
of a Trust and not merely an interest in the Certificates, the assets of the
Trust would become subject to the fiduciary responsibility standards of ERISA,
and transactions occurring between the Seller, the Servicer, the Credit
Enhancer, the Underwriters and the Trustee, or any of their affiliates, might
constitute prohibited transactions, unless an administrative exemption applies.
Certain such exemptions which may
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be applicable to the acquisition and holding of the Certificates or to
the servicing of the Mortgage Assets are discussed below.
DOL has issued an administrative exemption, Prohibited Transaction Class
Exemption 83-1 ("PTCE 83- 1"), which, under certain conditions, exempts from the
application of the prohibited transaction rules of ERISA and the excise tax
provisions of Section 4975 of the Code transactions involving a Plan in
connection with the operation of a "mortgage pool" and the purchase, sale and
holding of "mortgage pool pass-through certificates." A "mortgage pool" is
defined as an investment pool which is held in trust and which consists solely
of interest bearing obligations secured by first or second mortgages or deeds of
trust on single-family residential property, property acquired in foreclosure
and undistributed cash. A "mortgage pool pass-through certificate" is defined as
a certificate which represents a beneficial undivided fractional interest in a
mortgage pool which entitles the holder to pass-through payments of principal
and interest from the mortgage loans, less any fees retained by the pool
sponsor.
For the exemption to apply, PTCE 83-1 requires that (i) the Seller and
the Trustee maintain a system of insurance or other protection for the pooled
mortgage loans and the property securing such loans, and for indemnifying
holders of Certificates against reductions in pass-through payments due to
defaults in loan payments or property damage in an amount at least equal to the
greater of 1% of the aggregate principal balance of the covered pooled mortgage
loans and 1% of the principal balance of the largest covered pooled mortgage
loan; (ii) the Trustee may not be an affiliate of the Seller; and (iii) the
payments made to and retained by the Seller in connection with the Trust,
together with all funds inuring to its benefit for administering the Trust,
represent no more than "adequate consideration" for selling the mortgage loans,
plus reasonable compensation for services provided to the Trust.
In addition, PTCE 83-1 exempts the initial sale of Certificates to a
Plan with respect to which the Seller, the Servicer, the Credit Enhancer or the
Trustee is a party in interest if the Plan does not pay more than fair market
value for such Certificates and the rights and interests evidenced by such
Certificates are not subordinated to the rights and interests evidenced by other
Certificates of the same pool. PTCE 83-1 also exempts from the prohibited
transaction rules transactions in connection with the servicing and operation of
the Trust, provided that any payments made to the Servicer in connection with
the servicing of the Trust are made in accordance with a binding agreement,
copies of which must be made available to prospective investors before they
purchase Certificates.
In the case of any Plan with respect to which the Seller, the Servicer,
the Credit Enhancer or the Trustee is a fiduciary, PTCE 83-1 will only apply if,
in addition to the other requirements: (i) the initial sale, exchange or
transfer of Certificates is expressly approved by an independent fiduciary who
has authority to manage and control those plan assets being invested in
Certificates; (ii) the Plan pays no more for the Certificates than would be paid
in an arm's length transaction; (iii) no investment management, advisory or
underwriting fee, sale commission, or similar compensation is paid to the Seller
with regard to the sale, exchange or transfer of
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<PAGE>
Certificates to the Plan; (iv) the total value of the Certificates purchased by
the Plan does not exceed 25% of the amount issued; and (v) at least 50% of the
aggregate amount of Certificates is acquired by persons independent of the
Seller, the Servicer, the Credit Enhancer or the Trustee.
Before purchasing Certificates, a fiduciary of a Plan should confirm
that the Trust is a "mortgage pool," that the Certificates constitute "mortgage
pool pass-through certificates," and that the conditions set forth in PTCE 83-1
would be satisfied. In addition to making its own determination as to the
availability of the exemptive relief provided in PTCE 83-1, the Plan fiduciary
should consider the availability of any other prohibited transaction exemptions.
The Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Certificates on behalf of a Plan.
In addition, DOL has granted to certain underwriters and/or placement
agents individual prohibited transaction exemptions which may be applicable to
avoid certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale in the secondary market
by Plans of pass-through certificates representing a beneficial undivided
ownership interest in the assets of a trust that consist of certain receivables,
loans and other obligations that meet the conditions and requirements of PTCE
83-1 which may be applicable to the Certificates.
One or more other prohibited transaction exemptions issued by the DOL
may be available to a Plan investing in Certificates, depending in part upon the
type of Plan fiduciary making the decision to acquire a Certificate and the
circumstances under which such decision is made, including, but not limited to,
PTCE 90-1, regarding investments by insurance company pooled separate accounts,
PTCE 91-38, regarding investments by bank collective investment funds and PTCE
95-60, regarding investments by insurance company general accounts. However,
even if the conditions specified in PTCE 83-1 or one or more of these other
exemptions are met, the scope of the relief provided might not cover all acts
which might be construed as prohibited transactions.
Certain Classes of Certificates may not be offered for sale or
transferable to Plans. The Prospectus Supplement for each Series will indicate
which Classes of Certificates are subject to restrictions on transfer to Plans.
Any Plan fiduciary considering the purchase of a Certificate should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment. Moreover, each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
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<PAGE>
LEGAL INVESTMENT MATTERS
Unless otherwise specified in the Prospectus Supplement for a Series,
the Certificates of such Series will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"),
so long as they are rated in one of the two highest rating categories by one or
more nationally recognized statistical rating organizations, and, as such, will
be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including, but not limited
to, state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state government
employee retirement systems) created pursuant or existing under the laws of the
United States or any state, territory or possession of the United States
(including the District of Columbia or Puerto Rico) whose authorized investments
are subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Pursuant to SMMEA, a number of states enacted legislation, on or
before the October 3, 1991 cut-off for such enactments, limiting to varying
extents the ability of certain entities (in particular, insurance companies) to
invest in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law and not SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in the
Certificates only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with mortgage
related securities without limitation as to the percentage of their assets
represented thereby; federal credit unions may invest in mortgage related
securities; and national banks may purchase mortgage related securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. ss. 24 (Seventh), subject in each
case to such regulations as the applicable federal regulatory authority may
prescribe. Federal credit unions should review National Credit Union
Administration (the "NCUA") Letter to Credit Unions No. 96, as modified by
Letter to Credit Unions No. 108, which includes guidelines to assist federal
credit unions in making investment decisions for mortgage related securities.
The NCUA has adopted rules, effective December 2, 1991, which prohibit federal
credit unions from investing in certain mortgage related securities, possibly
including certain series or classes of Certificates, except under limited
circumstances.
If specified in the Prospectus Supplement for a Series, one or more
Classes of Certificates of such Series will not constitute "mortgage related
securities" for purposes of SMMEA. In such event, persons whose investments are
subject to state or federal regulation may not be legally authorized to invest
in such Classes of Certificates.
All depository institutions considering an investment in the
Certificates should review the "Supervisor Policy Statement on
Securities Activities" dated January 28, 1992 (the "Policy Statement")
of the Federal Financial Institution Examination Council. The Policy
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<PAGE>
Statement, which has been adopted by the Board of Governors of the Federal
Reserve System, the FDIC, the Comptroller of the Currency and the Office of
Thrift Supervision, effective February 10, 1992, and by the NCUA (with certain
modifications) effective June 26, 1992, prohibits depository institutions from
investing in certain "high-risk mortgage securities" (possibly including certain
Certificates), except under limited circumstances, and sets forth certain
investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing Certificates, as
certain Certificates may be deemed unsuitable investments, or may otherwise be
restricted, under such rules, policies or guidelines, in certain instances
irrespective of SMMEA.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investments in securities which are not
"interest-bearing" or "income-paying," and, with regard to any Book-Entry
Certificates, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Prospective investors should consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
PLAN OF DISTRIBUTION
The Seller may sell the Certificates offered hereby and by the related
Prospectus Supplement either directly or through one or more underwriters or
underwriting syndicates (the "Underwriters"). The Prospectus Supplement for each
Series will set forth the terms of the offering of such Series and of each Class
of such Series, including the name or names of the Underwriters, the proceeds to
and their use by the Seller and either the initial public offering price, the
discounts and commissions to the Underwriters and any discounts or concessions
allowed or reallowed to certain dealers or the method by which the price at
which the Underwriters will sell the Certificates will be determined.
The Certificates of a Series may be acquired by the Underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The obligations of
the Underwriters will be subject to certain conditions precedent, and the
Underwriters will be severally obligated to purchase all the Certificates of a
Series described in the related Prospectus Supplement if any are purchased. If
Certificates of a Series are offered other than through Underwriters, the
related Prospectus Supplement will contain information regarding the nature of
such offering and any agreements to be entered into between the Seller and the
purchasers of the Certificates of such Series.
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<PAGE>
The place and time of delivery for the Certificates of a Series in
respect of which this Prospectus is delivered will be set forth in the related
Prospectus Supplement.
144
<PAGE>
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
1986 Act Dominion Capital
1996 Regulations Dominion Mortgage
30% Test DTC
Accounting Date Due Period
Act EPA
Additional Interest Amount ERISA
Adjustable Rate Excess Premium
Advance FDIC
Advances FHA
Adverse Environmental Conditions FHA Loans
Agency Securities FHLMC
Agreement FHLMC Act
All OID Election FHLMC Certificate Group
AMT FHLMC Certificates
ARM Loans FHLMC Project Certificates
Asset Proceeds Account Final Scheduled Distribution Date
Asset Value Financial Intermediary
Available Distribution First Distribution Period
Balloon Loans Fixed Rate
Bankruptcy Bond Floor
Beneficial Owner FNMA
Book-Entry Certificates FNMA Certificates
Buy-Down Loans Foreign Person
Cap Foreign Person Certification
CERCLA GNMA
Certificate Guaranty Insurance Policy GNMA Certificates
Certificate Guaranty Insurer GNMA Issuer
Certificateholder Governor
Certificates GPM Loans
Charter Act Gross Margin
Class Guaranty Agreement
Cleanup Costs HELOCs
Code Housing Act
Commission HUD
Compound Interest Certificates Index
Contingent Payment Obligations Interest Adjustment Date
Contingent Payment Regulations Interest Weighted Certificates
Conventional Home Improvement Loans Inverse Floater Certificates
Conventional Mortgage Loans IO Certificates
Converted Mortgage Loan Junior Mortgage Loans
Cooperative Loans Lockout Periods
Cooperatives Master Servicer
Credit Enhancer Master Servicer Custodial Account
Current Recognition Election Mortgage Assets
Custodial Account Mortgage Certificates
Deemed Principal Payments Mortgage Insurance Loss
Delinquent Mortgage Loan Mortgage Interest Rate
Depository Mortgage Loans
Detailed Description Mortgage Note
Disqualified Organization Mortgage Pool Insurance Policy
Distribution Date Mortgaged Premises
DOL Multi-Family Loans
Multiple Rate VRDI Certificate
NCUA
Net Rate
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<PAGE>
Non-Objective Weighted Average Certificates
Nonqualified Interest Amount
Non-VRDI Certificate
NOWA Certificates
NVRIs
OID Regulations
Ordinary Ratio Certificate
Originator
Participant
Pass-Through Certificates
Pass-Through Rate
Periodic Rate Cap
Permitted Investments
Plan
Plan Asset Regulations
PMBS Agreement
PMBS Issuer
PMBS Servicer
PMBS Trustee
PO Certificates
Policy Statement
Pool Insurer
Pre-Funding Account
Pre-Funding Agreement
Pre-Issuance Accrued Interest
Prepayment Period
Pricing Prepayment Assumptions
Primary Mortgage Insurance Policies
Private Mortgage-Backed Securities
Proposed Mark-to-Market Regulations
PTCE 83-1
Qualifying REIT Interest
Rating Agency
Ratio Certificates
REIT
REMIC
REMIC Certificates
REMIC
Regular Certificateholder
REMIC Regular Certificates
REMIC Regulations
REMIC Residual Certificateholder
REMIC Residual Certificates
Remittance Date
REO Properties
Reserve Fund
RIC
Saxon Mortgage
Scheduled Principal Balance
Security Instrument
Seller
Senior Certificates
Series
Series REMIC
Service
Servicer
Servicer Custodial Account
Servicing Agreement
Single Family Loans Single Rate VRDI Certificate
SMMEA
Special Hazard Insurance Policy
Special Hazard Insurer
Special Servicer
Special Servicing Agreement
Special Tax Counsel
Standard Hazard Insurance Policies
Strip Certificates
Stripping Regulations
Subordinated Certificates
Superlien
Superpremium Certificates
Tax Administrator
Taxable Mortgage Pools
Teaser Certificates
Temporary Mark-to-Market Regulations
Thrift Institutions
TIN
Title I Loan Program
Title I Loans
TMP
Treasury
True Discount
Trust
Trustee
UBTI
UCC
Underwriters
VA Loans
Variable Rate Certificate
VRDI
WAM
Weighted Average Certificates
146
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
Registration Fee.................................. $________
Printing and Engraving............................ ________
Trustee's Fees.................................... ________
Legal Fees and Expenses........................... ________
Blue Sky Fees and Expenses........................ ________
Accountants' Fees and Expenses.................... ________
Rating Agency Fees................................ ________
Miscellaneous Fees................................
Total . . . .................................. $________
========
Item 15. Indemnification of Directors and Officers
Article 10 of the Virginia Stock Corporation Act provides in substance
that Virginia corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding. The Virginia Stock Corporation Act also provides
that Virginia corporations may purchase insurance on behalf of any such
director, officer, employee or agent.
Under certain sales agreements entered into by the Seller and various
transferors of mortgage-related collateral, such transferors are obligated to
indemnify the Seller against certain expenses and liabilities.
Reference is made to the Standard Terms to Underwriting Agreement filed
as an exhibit hereto for provisions relating to the indemnification of
directors, officers and controlling persons of the Seller against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 -- Form of Underwriting Agreement (including
Standard Terms).
3.1 -- Articles of Incorporation.
3.2 -- Bylaws.
4.1 -- Form of Agreement (including Forms of Certificates
and Standard Terms).
5.1* -- Opinion of [--------------------]with respect to
legality.
II-1
<PAGE>
8.1* -- Opinion of [--------------------]with respect to tax
matters.
24.1 -- Consent of [____________________] (included in its
opinion filed as Exhibit 5.1).
24.2 -- Consent of [____________________] (included in its
opinion filed as Exhibit 8.1).
99.1 -- Form of Certificate Guaranty Insurance Policy.
99.2 -- Form of Mortgage Pool Insurance Policy.
99.3 -- Form of Special Hazard Insurance Policy.
99.4 -- Form of Bankruptcy Bond.
*To be filed by amendment.
(b) Financial Statements
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change in such
information in the registration statement; provided, however, that (a)(i) and
(a)(ii) will not apply if the information required to be included in a
post-effective amendment thereby is contained in periodic reports filed pursuant
to Section 13
II-2
<PAGE>
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) To provide to the underwriters at the closing specified in
the underwriting agreements certificates in such denominations and registered in
such names as are required by the underwriters to permit prompt delivery to each
purchaser.
(f) That, insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 15 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(g) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of the registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(i) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of the registration statement as of the time it was declared effective.
II-3
<PAGE>
(h) That, for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Richmond, Commonwealth of
Virginia on July 12, 1996.
SAXON ASSET SECURITIES COMPANY
By: /s/ Andrew Sirkis
--------------------------------
Andrew Sirkis
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed on July 12, 1996
by the following persons in the capacities indicated.
Signature Title
--------- -----
Principal Executive
/s/ Andrew Sirkis Officer and Director
- --------------------------------
Andrew Sirkis
Principal Financial Officer
/s/ Robert Partlow and Controller
- --------------------------------
Robert Partlow
/s/ David L. Heavenridge Director
- --------------------------------
David L. Heavenridge
/s/ Charles E. Coudriet Director
- --------------------------------
Charles E. Coudriet
/s/ Hayden D. McMillian Director
- --------------------------------
Hayden D. McMillian
/s/ Bryan S. Reid Director
- --------------------------------
Bryan S. Reid
II-5
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement (including
Standard Terms).
3.1 -- Articles of Incorporation.
3.2 -- Bylaws.
4.1 -- Form of Agreement (including Forms of Certificates
and Standard Terms).
5.1* -- Opinion of [--------------------]with respect to
legality.
8.1* -- Opinion of [--------------------]with respect to tax
matters.
24.1 -- Consent of [____________________] (included in its
opinion filed as Exhibit 5.1).
24.2 -- Consent of [____________________] (included in its
opinion filed as Exhibit 8.1).
99.1 -- Form of Certificate Guaranty Insurance Policy.
99.2 -- Form of Mortgage Pool Insurance Policy.
99.3 -- Form of Special Hazard Insurance Policy.
99.4 -- Form of Bankruptcy Bond.
*To be filed by amendment.
EXHIBIT 1.1
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES
STANDARD TERMS TO UNDERWRITING AGREEMENT
(July 1996 Edition)
<PAGE>
PRELIMINARY STATEMENT
Saxon Asset Securities Company, a Virginia corporation (the "Company"),
proposes to issue Asset Backed Certificates (the "Certificates") in various
series (each, a "Series") in one or more offerings on terms determined at the
time of sale. The Certificates of each Series will be issued pursuant to a Trust
Agreement with respect to such Series among the Company, a mortgage banking
company, as master servicer (in such capacity, the "Master Servicer"), and a
bank or trust company, a trustee (in such capacity, the "Trustee"), which Trust
Agreement will incorporate by reference certain Standard Terms to Trust
Agreement identified therein (each such Trust Agreement with the Standard Terms
so incorporated, the "Trust Agreement").
The Certificates of each Series will evidence beneficial ownership
interests in one or more segregated pools of mortgage-related assets (the
"Mortgage Assets") and certain other assets transferred by the Company to one or
more trusts (collectively, a "Trust"). The Mortgage Assets included in each
Trust will consist of the mortgage loans (the "Mortgage Loans") or
mortgage-backed securities (the "Mortgage Certificates") identified in the
related Trust Agreement.
The Company will transfer the Mortgage Assets acquired by it to the related
Trust for each Series of Certificates in exchange for the Certificates of such
Series. Certain of the Mortgage Assets may have been acquired by the Company
from one or more Servicers, the Master Servicer, or one or more unaffiliated
sellers (each, in such capacity, a "Seller"), in each case pursuant to a sales
agreement (each, a "Sales Agreement") between the Company and the Seller of such
Mortgage Assets. The net proceeds to the Company from the sale of each Series of
Certificates principally will be used to pay the purchase price of the Mortgage
Assets acquired for the related Trust. The Mortgage Loans will be serviced
pursuant to separate servicing agreements (each, a "Servicing Agreement") with
one or more servicers (each, in such capacity, a "Servicer"), each of which must
be (i) approved by the Master Servicer and (ii) either (A) approved by and in
good standing with the Federal Home Loan Mortgage Corporation ("FHLMC") or the
Federal National Mortgage Association ("FNMA") or (B) an institution the
deposits of which are insured by the Federal Deposit Insurance Corporation
("FDIC").
The Certificates are more fully described in the Registration Statement (as
hereinafter defined). Each Series of Certificates, and each class of
Certificates within such Series, may vary, among other things, as to number and
types of classes, aggregate principal amount, stated maturity dates, interest
rates, timing of interest payments, redemption provisions, if any, and any other
variable terms set forth in the Trust Agreement and in the Certificates of such
Series.
The Company may, from time to time, enter into one or more underwriting
agreements (each, an "Underwriting Agreement"), each substantially in the form
of Exhibit A attached hereto, that provide for the sale of all or a portion of
the Certificates of a Series (such Certificates to be so purchased being herein
collectively referred to as the "Underwritten Certificates") to the
underwriter(s) named in the Underwriting Agreement (the "Underwriters"). The
standard provisions set forth herein are to be incorporated by reference in any
such Underwriting Agreement. An Underwriting Agreement, including the standard
provisions set forth herein incorporated therein by reference, is herein
referred to as the "Agreement." Unless otherwise defined herein, all capitalized
terms used herein shall have the meanings assigned to them in the Agreement and
if not defined therein shall have the meanings assigned to them in the Trust
Agreement.
The Underwriting Agreement relating to each offering of Underwritten
Certificates shall specify the exact or approximate principal amount of
Certificates to be issued and their respective interest rates or methods of
determining such interest rates, the price or prices at which the Certificates
are to be purchased by the Underwriters from the Company, the initial public
offering prices or the method by which the prices at which the Certificates are
to be sold will be determined, the names of the firms, if any, designated as
representatives of the Underwriters (the "Representatives"), the principal
amount of Certificates to be purchased by each Underwriter and the date, time
and manner of delivery of the Certificates and payment therefor. Each such
offering of Underwritten Certificates shall be governed by the Agreement, which
shall inure to the benefit of and be binding upon the Underwriters participating
in the offering of such Underwritten Certificates.
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If on the Closing Date (as hereinafter defined) for a Series of
Certificates the Mortgage Assets being transferred to the Trustee pursuant to
the Trust Agreement do not include Mortgage Loans, then all references in the
Agreement to Mortgage Loans and to any agreements, instruments or entities
related thereto shall be disregarded, and all representations and warranties,
opinions and other documents relating to the foregoing shall be deemed to be
deleted from the Agreement for purposes of such Series. If on the Closing Date
for a Series of Certificates the Mortgage Assets being transferred to the
Trustee pursuant to the Trust Agreement do not include Mortgage Certificates,
then all references in the Agreement to each type of Mortgage Certificate not
included and to any agreements, instruments or entities related thereto shall be
disregarded, and all representations and warranties, opinions and other
documents relating to the foregoing shall be deemed deleted from the Agreement
for purposes of such Series.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, each Underwriter that:
(i) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 for the
registration of the Certificates under the Securities Act of 1933, as
amended (the "Act") and has filed such amendments thereto and such
additional registration statements as may have been required prior to the
date hereof. Such registration statement, as amended at the date hereof,
meets the requirements set forth in Rule 415 under the Act and complies in
all other material respects with the Act and the rules and regulations
thereunder. The registration statement has been declared effective by the
Commission. The Company proposes to file with the Commission pursuant to
Rule 424 under the Act a supplement to the form of prospectus included in
such registration statement relating to the Certificates and the plan of
distribution thereof. Such registration statement, including the exhibits
thereto, as amended at the date hereof, and including all information, if
any, filed with the Commission pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act") and incorporated by reference
therein, is hereinafter called the "Registration Statement"; the prospectus
in the form most recently revised and filed with the Commission pursuant to
Rule 424 is hereinafter called the "Basic Prospectus"; and the form of
prospectus supplement specifically relating to the Certificates, in the
form in which it shall be first filed with the Commission pursuant to Rule
424 (including the Basic Prospectus as so supplemented and the information,
if any, filed with the Commission pursuant to the Exchange Act and
incorporated by reference therein) is hereinafter called the "Final
Prospectus." Any preliminary form of the Final Prospectus that has
heretofore been filed pursuant to Rule 424 or, prior to the effective date
of the Registration Statement, pursuant to Rule 402(a), 424(a) or 430A, is
hereinafter called a "Preliminary Final Prospectus."
(ii) As of the date of the Agreement, when the Final Prospectus is
first filed pursuant to Rule 424 under the Act, when, prior to the Closing
Date (as hereinafter defined), any amendment to the Registration Statement
becomes effective, when any supplement to the Final Prospectus is filed
with the Commission, and at the Closing Date, (A) the Registration
Statement, as amended as of any such time, and the Final Prospectus, as
amended or supplemented as of any such time, complies and will comply in
all material respects with the applicable requirements of the Act and the
rules and regulations thereunder and (B) the Registration Statement, as
amended as of any such time, does not contain and will not contain any
untrue statement of a material fact and does not omit and will not omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, and the Final Prospectus, as
amended or supplemented as of any such time, does not and will not include
an untrue statement of a material fact and does not omit and will not omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to the information contained in or omitted from the
Registration Statement or the Final Prospectus or any amendment thereof or
supplement thereto in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Underwriter, any
Credit Enhancer or any unaffiliated Servicer specifically for use in
connection with the preparation of the Registration Statement and the Final
Prospectus.
(iii) As of the date of the Agreement, when the Final Prospectus is
first filed pursuant to Rule 424 under the Act, when, prior to the Closing
Date, any amendment to the Registration Statement becomes effective, when
any supplement to the Final Prospectus is filed with the Commission, and at
the Closing Date, there has not and will not have been, to the knowledge of
the Company, (A) any request by the Commission for any further amendment of
the Registration Statement or the Final Prospectus or for any additional
information, (B) any issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation or threat of any proceeding for that purpose, or (C) any
notification with respect to the suspension of the qualification of the
2
Underwritten Certificates for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose.
(iv) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the Commonwealth of
Virginia with full corporate power and authority to own its properties and
conduct its business as now conducted by it and to enter into and perform
its obligations under the Agreement and the Sales Agreement, and has
qualified to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction that requires such qualification
wherein it owns or leases material properties, except where the failure to
so qualify would not have a material adverse effect on the Company.
(v) The execution and delivery by the Company of the Agreement, the
Sales Agreement, the Trust Agreement and the Certificates, and the transfer
of the Trust Estate to the Trustee pursuant to the Trust Agreement, are
within the corporate power of the Company and have been or will have been
duly authorized by all necessary corporate action on the part of the
Company, and neither the execution and delivery by the Company of such
agreements and instruments, nor the consummation by the Company of the
transactions therein contemplated, nor compliance by the Company with the
provisions thereof, will (A) violate the articles of incorporation or
bylaws of the Company, (B) result in a breach of, or constitute a default
under, any law, governmental rule or regulation, any judgment, decree or
order binding on the Company or its properties, or any provision of any
material indenture, mortgage, deed of trust, contract or other material
instrument to which the Company is a party or by which it is bound, or (C)
result in the creation or imposition of any lien, charge or encumbrance
upon any of its properties pursuant to the terms of any such material
indenture, mortgage, deed of trust, contract or other material instrument
except the lien created by the Trust Agreement.
(vi) The Agreement and each Sales Agreement have been duly executed
and delivered by the Company, and, as of the Closing Date, the Trust
Agreement will have been duly executed and delivered by the Company, and,
assuming the due authorization, execution and delivery by the other parties
thereto, each constitutes, or will constitute, a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and to
general principles of equity regardless of whether enforcement is sought in
a proceeding in equity or at law, and except that with respect to the
Agreement and each Sales Agreement the provisions relating to
indemnification and contribution may be unenforceable as against public
policy.
(vii) The Underwritten Certificates and the Trust Agreement will
conform in all material respects to the descriptions thereof contained in
the Final Prospectus, and the Underwritten Certificates, when duly and
validly executed, authenticated, issued and delivered as contemplated
hereby and by the Trust Agreement, will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and to
3
general principles of equity regardless of whether enforcement is sought in
a proceeding in equity or at law.
(viii) Since the date as of which information is given in the
Registration Statement and the Final Prospectus, there has not been any
material adverse change or development involving a prospective material
adverse change in the business, operations, financial condition, properties
or assets of the Company.
(ix) There are no actions, suits or proceedings against, or
investigations of, the Company pending, or, to the knowledge of the
Company, threatened, before any court, administrative agency or other
tribunal (A) asserting the invalidity of the Agreement, any Sales
Agreement, any Servicing Agreement, the Trust Agreement or the Underwritten
Certificates, (B)seeking to prevent the issuance of the Underwritten
Certificates or the consummation of any of the transactions contemplated by
the Agreement, any Sales Agreement, any Servicing Agreement or the Trust
Agreement, (C) that might materially and adversely affect the performance
by the Company of its obligations under the Agreement, any Sales Agreement,
the Trust Agreement or the Underwritten Certificates, or (D) seeking to
affect adversely the federal or state income tax attributes of the
Underwritten Certificates as described in the Final Prospectus.
(x) No filing or registration with, notice to, qualification of or
with, or consent, approval, authorization or order or other action of any
person, corporation or other organization or of any court, supervisory or
governmental authority or agency is required for the valid and proper
transfer of the Trust Estate to the Trustee pursuant to the Trust Agreement
or for the valid and proper authorization, issuance and sale of the
Certificates pursuant to the Agreement and the Trust Agreement except (A)
such as have been, or will have been prior to the Closing Date, obtained
under the Act, or state securities laws or Blue Sky laws, or from the
National Association of Securities Dealers, Inc. in connection with the
purchase and distribution of the Underwritten Certificates by the
Underwriters, or (B) any recordations of the assignment of Mortgage Loans
to the Trustee pursuant to the Trust Agreement that have not yet been
completed.
(xi) At or prior to the Closing Date, the Company will have
transferred to the Trustee pursuant to the Trust Agreement assets that had
an Asset Value (as defined in the Trust Agreement) of not less than the
initial principal amount of the Underwritten Certificates and upon (A) the
delivery to the Trustee of the Mortgage Certificates in certificated form
(the "Certificated Mortgage Certificates"), (B) the delivery of the
Mortgage Loans duly endorsed or assigned and the recording of the
assignment thereof, and (C) the registration in the name of the Trustee's
custodial bank, and the transfer to the Trustee's custody account, of the
Mortgage Certificates in book-entry form (the "Book-Entry Mortgage
Certificates") and compliance with all other legal requirements necessary
to perfect an ownership interest in such Book-Entry Mortgage Certificates,
the Trustee will be vested with the legal title that the transfer purports
to convey.
(xii) As of the Closing Date, the Company will own the Mortgage Assets
to be transferred to the Trustee pursuant to the Trust Agreement, free and
clear of any lien, mortgage, pledge, charge, security interest or other
encumbrance, except the lien of the Trust Agreement (which lien relates
solely to the Series of Certificates issued under the Trust Agreement and
to no other Series of Certificates).
(xiii) As of the Closing Date, the Mortgage Certificates constituting
part of the Trust Estate will have been duly and validly transferred to the
Trustee and (A) in the case of the Book-Entry Mortgage Certificates,
registered in the name of the Trustee's custodial bank and transferred to
the Trustee's custody account, and all other legal requirements necessary
to transfer an ownership interest therein will have been complied with, and
(B) in the case of the Certificated Mortgage Certificates, either duly and
validly registered in the name of the Trustee, its nominee or its agent, or
delivered to the Trustee for registration in the name of the Trustee, its
4
nominee or its agent, and all other steps required, other than the
registration of such Mortgage Certificates in the name of the Trustee, its
nominee or its agent, will have been taken in order to effect such
registration; and the Trustee will have acquired, when such registration is
effected, an ownership interest in all such Mortgage Certificates subject
to no prior lien, mortgage, security interest, pledge, charge or other
encumbrance.
(xiv) As of the Closing Date, the Mortgage Loans constituting part of
the Trust Estate with respect to the Underwritten Certificates will be duly
and validly transferred to the Trustee and, where required in order to
transfer an ownership interest in a Mortgage Loan, upon the recordation of
such assignments in the public records in which the related mortgage or
deed of trust shall have been recorded (which recordation shall be effected
by the Company unless the Underwriters shall have received an opinion of
counsel satisfactory to them, and at the expense of the Company, that such
recordation is not required to perfect the interest of the Trustee in the
related Mortgaged Premises), the Trustee will have acquired (assuming no
intervening recordation) an ownership interest in each such Mortgage Loan,
subject to no prior lien, mortgage, security interest, pledge, charge or
other encumbrance, except as permitted under the Trust Agreement.
(xv) Under generally accepted accounting principles, the Company will
report its transfer of the Mortgage Assets to the Trustee pursuant to the
Trust Agreement and the sale of the Certificates as a sale of its interest
in the Mortgage Assets. The Company has been advised by its independent
certified public accountants, that they concur with such treatment under
generally accepted accounting principles. For federal income tax purposes,
the Company will treat the transfer of the Mortgage Assets to the Trustee
pursuant to the Trust Agreement and the sale of the Certificates either as
a transaction in which it acts as the agent of one or more Sellers or as a
sale of its interest in the Mortgage Assets.
(xvi) As of the Closing Date, the cash and Eligible Investments
included in any accounts or funds constituting part of the Trust Estate
with respect to the Certificates will be duly and validly transferred to
the Trustee pursuant to the Trust Agreement, and the Trustee will either
own such assets or have acquired a duly and validly perfected security
interest in such assets subject to no prior lien, security interest,
pledge, charge or other encumbrance.
(xvii) Each Seller has been duly incorporated or otherwise formed and
is validly existing and, if a corporation, is in good standing under the
laws of the jurisdiction of its incorporation or formation and duly
qualified to do business under the laws of each jurisdiction that requires
such qualification wherein it owns or leases any material properties
(except where the failure so to qualify would not have a material adverse
effect on such Seller).
(xviii) At the time of the execution and delivery of a Sales Agreement
by a Seller, such execution and delivery by such Seller will be within the
legal power of such Seller and will have been duly authorized by all
necessary action on the part of such Seller, and neither the execution and
delivery of such Sales Agreement by such Seller, nor the consummation by
such Seller of the transactions therein contemplated, nor compliance with
the provisions thereof by such Seller, will (A) violate the articles of
incorporation, bylaws, partnership agreement or other organizational
agreement of such Seller, (B) result in a breach of, or constitute a
default under, any law, governmental rule or regulation, any judgment,
decree or order binding on such Seller or its properties, or any of the
provisions of any material indenture, mortgage, deed of trust, contract or
other material instrument to which such Seller is a party or by which it is
bound, or (C) result in the creation or imposition of any lien, charge or
encumbrance upon any of its properties pursuant to the terms of any such
material indenture, mortgage, deed of trust, contract or other material
instrument.
5
(xix) Each Sales Agreement, when executed and delivered as
contemplated thereby, will have been duly executed and delivered by the
Seller that is a party thereto, and such Sales Agreement will constitute,
when so executed and delivered, a legal, valid and binding agreement,
enforceable against such Seller in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and to general principles of equity
regardless of whether enforcement is sought in a proceeding in equity or at
law, and except that the provisions relating to indemnification and
contribution may be unenforceable as against public policy.
(xx) Under generally accepted accounting principles, each Seller will
report its transfer of the Mortgage Assets pursuant to the Sales Agreement
as a sale of its interest in the Mortgage Assets. Each Seller has been
advised by its independent certified public accountants that they concur
with such treatment under generally accepted accounting principles and, if
applicable, regulatory accounting principles. Each Seller also will so
report the transfer in all financial statements and reports to the
regulatory and supervisory agencies and authorities to which it reports, if
any. For federal income tax purposes, each Seller will treat the transfer
of the Mortgage Assets pursuant to the Sales Agreement as a sale of its
interest in the Mortgage Assets represented by the Certificates and an
exchange of the remaining interest in the Mortgage Assets for any
Certificates of any other class of the same Series retained by such Seller.
(xxi) At the Closing Date, each Mortgage Note and Security Instrument
will constitute a legal, valid and binding instrument, enforceable in
accordance with its terms subject to bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law. At the Closing
Date, each Mortgage Note and Security Instrument will meet the criteria for
selection described in the Final Prospectus.
(xxii) At the Closing Date, any agreement relating to credit
enhancement will have been duly and validly authorized, executed and
delivered by, and will constitute the legal, valid and binding obligation
of, the related Credit Enhancer, subject to bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law.
(xxiii) Unless otherwise specified in the Final Prospectus, each
Mortgage Loan was originated by an entity that met the requirements of
Section 3(a)(41) of the Exchange Act at the time of origination.
(xxiv) Each Servicer has been duly incorporated, is validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified to do business under the laws of each
jurisdiction that requires such qualification wherein it owns or leases any
material properties or conducts any material business or in which the
performance of its duties under its Servicing Agreement would require such
qualification (except where the failure so to qualify would not have a
material adverse effect on the Servicer's performance under the Servicing
Agreement); and unless otherwise specified in the Final Prospectus, each
Servicer is approved by the U.S. Department of Housing and Urban
Development and either (i) is approved by and in good standing with FHLMC
or FNMA or (ii) is an institution the deposits of which are insured by the
FDIC.
(xxv) At the time of the execution and delivery of a Servicing
Agreement by a Servicer, such execution and delivery by such Servicer will
be within the corporate power of such Servicer and will have been duly
authorized by all necessary corporate action on the part of such Servicer,
and neither the execution and delivery of such Servicing Agreement by such
Servicer, nor the consummation by such Servicer of the transactions therein
contemplated, nor compliance with the provisions thereof by such Servicer,
will (A) violate the articles of incorporation or bylaws of such Servicer,
(B) result in a breach of or constitute a default under, any law,
6
governmental rule or regulation, any judgment, decree or order binding on
such Servicer or its properties, or any of the provisions of any material
indenture, mortgage, deed of trust, contract or other material instrument
to which such Servicer is a party or by which it is bound or (C) result in
the creation or imposition of any lien, charge or encumbrance upon any of
its properties pursuant to the terms of any such material indenture,
mortgage, deed of trust, contract or other material instrument.
(xxvi) Each Servicing Agreement, when executed and delivered as
contemplated thereby, will have been duly executed and delivered by the
Servicer that is a party thereto, and such Servicing Agreement will
constitute a legal, valid and binding agreement, enforceable against such
Servicer in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law.
(xxvii) At the Closing Date, the Trust Agreement will have been duly
executed and delivered by the Master Servicer and will constitute a legal,
valid and binding agreement of the Master Servicer, enforceable against the
Master Servicer in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law.
(xxviii) At the Closing Date, each GNMA Certificate, FHLMC
Certificate, and FNMA Certificate will be issued and guaranteed by GNMA,
FHLMC, and FNMA, respectively, as described in the Final Prospectus.
(xxix) At the Closing Date, each Mortgage Certificate (other than a
GNMA Certificate, FHLMC Certificate, or FNMA Certificate) will have been
duly authorized, executed and delivered by the issuer of such Mortgage
Certificate and will constitute a legal, valid and binding instrument,
enforceable in accordance with its terms, subject to bankruptcy, insolvency
reorganization, moratorium or other laws affecting creditors' rights
generally and to general principles of equity regardless of whether
enforcement is sought in a proceeding in equity or at law.
(xxx) Unless otherwise noted in the Final Prospectus, each of the
Underwritten Certificates, when issued, will constitute a "mortgage related
security" as such term is defined in Section 3(a)(41) of the Exchange Act
for so long as such Certificate is rated in one of the two highest rating
categories by a nationally recognized statistical rating organization.
(xxxi) Any taxes, fees and other governmental charges in connection
with the execution, delivery and issuance of the Agreement and the Trust
Agreement and the execution, delivery and sale of the Certificates have
been or will be paid at or prior to the Closing Date.
(xxxii) The Company is not, and the issuance and sale of the
Certificates in the manner contemplated by the Final Prospectus will not
cause the Company to become, subject to registration or regulation as an
Investment Company or an affiliate of an Investment Company under the
Investment Company Act of 1940, as amended.
(xxxiii) Immediately prior to the delivery of the Underwritten
Certificates to the Underwriters, the Company will own the Underwritten
Certificates free and clear of any lien, adverse claim, pledge, encumbrance
or other security interest, and will not have assigned to any person any of
its right, title or interest in the Underwritten Certificates, and, upon
consummation of the transactions contemplated in the Agreement, the Company
will transfer all its right, title and interest in the Underwritten
Certificates to the Underwriters.
7
(xxxiv) At the Closing Date, the representations and warranties made
by the Company in the Trust Agreement will be true and correct in all
material respects.
The Company shall be deemed not to have made the representations and
warranties contained in clauses (xvii) through (xxvii), inclusive, of this
Section 1 with respect to, and to the extent of, representations and warranties
made to the Underwriters by any Seller, any Servicer, the Master Servicer or any
Credit Enhancer as to the matters covered in such clauses in a certificate,
opinion of counsel or agreement in form satisfactory to counsel for the
Underwriters delivered to the Underwriters on the Closing Date; provided,
however, that the foregoing shall in no way limit the rights of the Underwriters
to indemnification and contribution as otherwise provided in Section 8 hereof.
Any certificate signed by a Seller, the Master Servicer, a Servicer or a
Credit Enhancer and delivered to the Underwriters or to counsel for the
Underwriters in connection with an offering of the Certificates shall state that
it is a representation and warranty as to the matters covered thereby by such
Seller, the Master Servicer, such Servicer or such Credit Enhancer, as the case
may be, to each Underwriter to whom the representations and warranties in this
Section 1 are made.
2. Purchase and Sale. Subject to the terms and conditions and in reliance
upon the representations and warranties set forth herein, the Company agrees to
sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company, at the applicable purchase prices set
forth in the Agreement (plus accrued interest as therein set forth),
Underwritten Certificates in the aggregate approximate principal amounts,
notional amounts or percentage interests, as the case may be, of the various
classes of Certificates set forth in the Agreement or opposite such
Underwriter's name in an attachment to the Agreement.
3. Delivery and Payment. Delivery of and payment for the Underwritten
Certificates shall be made at the office, on the date and at the time specified
in the Agreement, which date and time may be postponed by agreement between the
Underwriters and the Company or as provided in Section 10 hereof (such date and
time of delivery and payment for the Underwritten Certificates being herein
called the "Closing Date"). Delivery of the Underwritten Certificates shall be
made to the Underwriters against payment by the Underwriters of the purchase
price thereof to or upon the order of the Company in the type of funds specified
in the Agreement. The Underwritten Certificates shall be registered in such
names and in such authorized denominations as the Underwriters may request not
less than two full business days in advance of the Closing Date.
The Company agrees to have the Underwritten Certificates available for
inspection, checking and packaging by the Underwriters in New York, New York (or
such other location within the continental United States requested by the
Underwriters), not later than 1:00 p.m. on the Business Day prior to the Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Underwritten Certificates for sale to the
public as set forth in the Final Prospectus.
5. Agreements.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) Substantially contemporaneously with the execution of the
Agreement, the Company will prepare the supplement to the Basic Prospectus
setting forth the principal amount of Certificates covered thereby and the
material terms thereof, the initial public offering price of the
Underwritten Certificates or the manner of offering such Certificates, the
price at which the Underwritten Certificates are to be purchased by the
8
Underwriters from the Company, the selling concessions and reallowance, if
any, and such other information as the Underwriters and the Company deem
appropriate in connection with the offering of the Underwritten
Certificates. The Company will not file any amendment to the Registration
Statement or supplement to the Basic Prospectus (including the supplement
relating to the Underwritten Certificates included in the Final Prospectus)
unless the Company has furnished the Underwriters a copy for their review
prior to filing and will not file any such proposed amendment or supplement
to which the Underwriters reasonably object. Subject to the foregoing
sentence, the Company will cause the Final Prospectus to be filed with the
Commission pursuant to Rule 424 under the Act and a report on Form 8-K will
be filed with the Commission within 15 days following the Closing Date
setting forth specific information concerning the Certificates and the
Mortgage Assets and including, as an exhibit, a copy of the Trust
Agreement. In addition, to the extent that any Underwriter provides
Computational Materials to the Company pursuant to Section 5(b) hereof, the
Company will file or cause to be filed with the Commission a report on Form
8-K containing such Computational Materials, as soon as reasonably
practicable after the date of the Underwriting Agreement. The Company will
promptly advise the Underwriters (A) when the Final Prospectus shall have
been filed with the Commission pursuant to Rule 424 and the Form 8-K
containing Computational Materials shall have been filed with the
Commission, (B) when any amendment to the Registration Statement shall have
become effective, (C) of any request by the Commission for any amendment of
the Registration Statement or the Final Prospectus or for any additional
information, (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that purpose, and (E) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Underwritten Certificates for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company will use its reasonable efforts to prevent the
issuance of any such stop order or suspension and, if issued, to obtain as
soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the Certificates is
required to be delivered under the Act, any event occurs as a result of
which in the opinion of counsel to the Company or the Underwriters, the
Final Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend
or supplement the Final Prospectus to comply with the Act or the rules and
regulations thereunder, the Company will promptly prepare and file with the
Commission, subject to paragraph (i) of this Section 5(a), an amendment or
supplement that will correct such statement or omission or an amendment
that will effect such compliance and, if such amendment or supplement is
required to be contained in a post-effective amendment of the Registration
Statement, will use its best efforts to cause such amendment of the
Registration Statement to be made effective as soon as possible and will
promptly file all reports and any definitive proxy or information
statements required to be filed by the Company pursuant to Sections 13, 14,
and 15 of the Exchange Act subsequent to the date of the Prospectus for so
long as the delivery of a Prospectus is required in connection with the
offering or sale of the Certificates; provided, however, that any such
amendment or update prepared more than nine months after the Closing Date
shall be at the expense of the Underwriters.
(iii) The Company will furnish to counsel for the Underwriters,
without charge, signed copies of the Registration Statement (including
exhibits thereto) and each amendment thereto that shall become effective on
or prior to the Closing Date, and to each Underwriter a conformed copy of
the Registration Statement (without exhibits thereto) and each such
amendment and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of any Final Prospectus
and any amendments thereof and supplements thereto as the Underwriters may
reasonably request.
(iv) The Company will apply the net proceeds from the sale of the
Underwritten Certificates in the manner set forth in the Final Prospectus.
9
(v) The Company will pay all the fees and disbursements of its counsel
and of independent accountants for the Company relating to legal review,
opinions of counsel for the Company, audits, review of unaudited
financials, cold comfort review or otherwise; the costs and expenses of
printing (or otherwise reproducing) and delivering the Agreement, the Trust
Agreement and the Certificates; the initial fees, costs and expenses of the
Trustee under the Trust Agreement and its counsel; the initial fees, costs
and expenses of any custodian of the Mortgage Assets under a custodian
agreement and such custodian's counsel; the costs and expenses incident to
the preparation, printing, distribution and filing of the Registration
Statement (including exhibits thereto), the Basic Prospectus and the Final
Prospectus, and all amendments of and supplements to the foregoing; and the
fees of rating agencies. Except as provided in Section 7 hereof, the
Underwriters shall be responsible for paying all costs and expenses
incurred by them in connection with their purchase and sale of the
Underwritten Certificates, including, without limitation, the fees and
expenses of counsel to the Underwriters.
(vi) The Company will use its reasonable efforts to arrange for the
qualification of the Underwritten Certificates for sale under the laws of
such jurisdictions as the Underwriter may reasonably designate in the
Underwriting Agreement, to maintain such qualifications in effect so long
as required for the distribution of the Certificates and to arrange for the
determination of the legality of the Certificates for purchase by
investors; provided, however, that the Company shall not be required to
qualify to do business in any jurisdiction where it is not now so qualified
or to take any action which would subject it to general or unlimited
service of process in any jurisdiction where it is not now so subject; and
provided further, that the Underwriter shall pay all costs and expenses
associated therewith.
(vii) So long as any Certificates are outstanding, the Company will
cause the Master Servicer or the Trustee to furnish to the Underwriter, as
soon as available, a copy of (A) the annual statement of compliance
delivered by the Master Servicer to the Trustee under the Trust Agreement,
(B) the annual independent public accountants' servicing report furnished
to the Trustee pursuant to the Trust Agreement, (C) each report, statement
or other document regarding the Certificates filed with the Commission
under the Exchange Act or mailed to the holders of the Certificates
pursuant to the Trust Agreement or otherwise, (D) any reports provided by
certified public accountants pursuant to the Trust Agreement regarding the
reports, statements or other documents included in (B) above, and (E) from
time to time, such other information concerning the Certificates as the
Underwriter may reasonably request and that may be furnished by the Company
or the Master Servicer without undue expense. In addition, the Company
shall make or cause the Trustee to make generally available to the Holders
of the Certificates as soon as practicable, but in any event not later than
sixteen months from the date of the Agreement, an earnings statement of the
issuer of the Certificates (which need not be audited) complying with
Section 11(a) of the Act and the rules and regulations of the Commission
(including at the option of the Company, Rule 158 under the Act).
(viii) Without the consent of the Underwriters, which shall not be
unreasonably withheld, the Company will not waive any of the conditions to
its obligations to purchase Mortgage Loans pursuant to a Sales Agreement.
(ix) Following the Closing Date, the Company will use its reasonable
efforts to take all action required to preserve and protect the ownership
interest of the Trustee in the Trust Estate during the term of the Trust
Agreement.
(b) Each Underwriter represents, warrants, covenants and agrees with
the Company that:
(i) (A) The information attached to the Underwriting Agreement as
Exhibit 1 constitutes all Computational Materials, as defined in the letter
referred to below, that are required to be filed with the Commission
pursuant to that certain letter of the staff of the Commission in response
to a No-Action Request from Kidder, Peabody & Co. and Kidder Structured
10
Asset Corporation (as made generally available to registrants, issuers and
underwriters by the Commission's response to the request of the Public
Securities Association dated May 27, 1994); (B) all Computational Materials
contain a legend substantially as follows (or in such other form as may be
agreed upon prior to the date of the Underwriting Agreement):
This information does not constitute either an offer to sell or a
solicitation of an offer to buy any of the securities referred to
herein. Information contained herein is confidential and provided for
information only, does not purport to be complete and should not be
relied upon in connection with any decision to purchase the
securities. This information supersedes any prior versions hereof and
will be deemed to be superseded by any subsequent versions including,
with respect to any description of the securities or the underlying
assets, the information contained in the final Prospectus and
accompanying Prospectus Supplement. Offers to sell and solicitations
of offers to buy the securities are made only by the final Prospectus
Supplement and the related Prospectus;
and (C) the Computational Materials contain no untrue statement of a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(ii) The Underwriter (at its own expense) further agrees to provide to
the Company any accountants' letters relating to the Computational
Materials, which accountants' letters shall be addressed to the Company.
(iii) The Underwriter (at its own expense) will make available to the
Company the Computational Materials in an electronic format specified by
the Company so as to permit the Company to file the Computational Materials
with the Commission pursuant to the Electronic Data Gathering, Analysis and
Retrieval system on a timely basis.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters hereunder to purchase the Underwritten
Certificates shall be subject to the following conditions:
(a) To the accuracy in all material respects on the date hereof and on the
Closing Date (as if made on such Closing Date) and as of the date of the
effectiveness of any amendment to the Registration Statement filed prior to the
Closing Date of the representations and warranties on the part of the Company
contained herein, and to the extent that the Company are deemed, pursuant to
Section 1 hereof, not to make the representations and warranties in clauses
(a)(xvii) through (xxvii) inclusive of Section 1 hereof, or portions thereof, to
the accuracy in all material respects of the representations and warranties
provided by the parties making such representations and warranties as of the
date thereof, on the Closing Date (as if made on such Closing Date) and as of
the date of the effectiveness of any amendment to the Registration Statement
filed prior to the Closing Date.
(b) The Registration Statement shall have become effective, and no stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and not withdrawn, and no proceedings
for that purpose shall have been instituted or threatened, and the Final
Prospectus shall have been filed or mailed for filing with the Commission in
accordance with Rule 424 under the Act, and all actions required to be taken and
all filings required to be made by the Company under the Act prior to the sale
of the Certificates shall have been duly taken or made.
(c) Certificates.
(i) The Company shall have delivered to the Underwriters a certificate
of the Company, signed by the President or any Vice President or Assistant
Vice President of the Company and dated the Closing Date, to the effect
11
that the signer of such certificate has carefully examined the Registration
Statement, the Final Prospectus, and the Agreement and that: (A) the
representations and warranties of the Company in the Agreement are true and
correct in all material respects at and as of the Closing Date with the
same effect as if made on the Closing Date; (B) the Company has complied in
all material respects with all the agreements and satisfied in all material
respects all the conditions on its part to be performed or satisfied at or
prior to the Closing Date; (C) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge, threatened;
(D) nothing has come to such officer's attention that would lead him or her
to believe that the Final Prospectus contains any untrue statement of a
material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; and (E) there has been no material adverse
change or development involving a prospective material adverse change in
the business, operations, financial condition, properties or assets of the
Company.
(ii) Each Seller shall have delivered to the Underwriters a
certificate of such Seller, signed by the President or any Vice President
or Assistant Vice President of such Seller and dated the Closing Date, to
the effect that the signer of such certificate has examined the Sales
Agreement to which such Seller is a party and that: (A) the representations
and warranties of the Seller in the Sales Agreement are true and correct in
all material respects at and as of the Closing Date with the same effect as
if made on the Closing Date; and (B) the Seller has complied in all
material respects with all the agreements and satisfied in all material
respects all the conditions on its part to be performed or satisfied at or
prior to the Closing Date.
(iii) The Master Servicer shall have delivered to the Underwriters a
certificate of the Master Servicer, signed by the President or any Vice
President or Assistant Vice President of the Master Servicer and dated the
Closing Date, to the effect that the signer of such certificate has
examined the Trust Agreement and that: (A) the representations and
warranties of the Master Servicer in the Trust Agreement are true and
correct in all material respects at and as of the Closing Date with the
same effect as if made on the Closing Date; and (B) the Master Servicer has
complied in all material respects with all the agreements and satisfied in
all material respects all the conditions on its part to be performed or
satisfied at or prior to the Closing Date.
(d) Accounting Comfort.
(i) The Underwriters shall have received a letter from a nationally
recognized independent accounting firm, dated the date of the Agreement and
delivered at such time, satisfactory in form and substance to the
Underwriters relating to statistical or financial information contained in
the Prospectus Supplement regarding the Mortgage Assets or the
Certificates, including any declination tables, yield tables, and modeling
assumptions.
(ii) The Underwriters shall have received from the Company's
independent certified public accountants, a letter dated the Closing Date
and satisfactory in form and substance to the Underwriters and counsel for
the Underwriters, reconfirming or updating the letter dated the date
hereof, to the further effect that they have performed certain procedures
as a result of which they have determined that [(i)] the Mortgage Loans
listed in Schedule I to the Trust Agreement (A) conform with the
description thereof in the Prospectus Supplement under the caption ["The
Mortgage Pool"] and (B) conform with the information set forth in the
Company's report on Form 8-K with respect to such Mortgage Loans, (ii) and
that a sampling of the Mortgage Loan files relating to the Mortgage Loans
conforms with the information contained on the mortgage loan data file tape
upon which the information in the Prospectus Supplement under the heading
12
["The Mortgage Pool"] was based, and (iii) covering such other matters
relating to the Trust as the Underwriters may reasonably request.
(iii) The Underwriters shall have received from the certified public
accountants of the Servicer or the Master Servicer, as applicable, a letter
or letters dated the date hereof and satisfactory in form and substance to
the Underwriters and counsel to the Underwriters to the effect that they
have performed certain specified procedures as a result of which they
determined that certain information of an accounting, financial and
statistical nature set forth in the Final Prospectus under the caption (A)
"Origination of Mortgage Loans" (or other caption relating to the Seller's
origination activities) agrees with the records of the Seller; (B)
"Servicing of Mortgage Loans" (or other caption relating to the Servicer's
servicing activities) agrees with the records of the Servicer; and (C)
"Master Servicer" (or other caption relating to the Master Servicer's
master servicing or servicing activities) agrees with the records of the
Master Servicer.
(iv) The Underwriters shall have received a certificate of an
accounting officer of the Company stating that the transfer of the Mortgage
Assets from the Seller to the Company pursuant to the Sales Agreement will
be classified as a sale of the Seller's interest in the Mortgage Assets
under generally accepted accounting principles and, if applicable, under
regulatory accounting principles.
(e) Opinions.
(i) The Underwriters shall have received from (A) the Company's
General Counsel, an opinion of counsel, dated the Closing Date and
satisfactory in form and substance to counsel for the Underwriters, as to
the corporate status and authorizations of the Company; and (B) opinions of
outside counsel to the Company, dated the Closing Date and reasonably
satisfactory in form and substance to counsel for the Underwriters, as to
(1) various matters relating to the issuance of the Certificates, including
[the granting to the Trustee of a valid perfected first priority security
interest in the Mortgage Assets, subject to customary qualifications and
exceptions]; and (2) the applicable federal income tax treatment of the
Certificates.
(ii) The Underwriters shall have received copies of any opinions of
counsel furnished to the Rating Agencies (upon which the Underwriters shall
be entitled to rely) with respect to the nonconsolidation of the Company
with its affiliates.
(iii) The Underwriters shall have received from reputable counsel an
opinion or opinions of counsel, dated the Closing Date and satisfactory in
form and substance to counsel for the Underwriters, as to the income tax
treatment of the Underwritten Certificates in those states specified in the
Underwriting Agreement.
(iv) The Underwriters shall have received from counsel for the
Underwriters such opinion or opinions, dated the Closing Date, with respect
to the validity of the Certificates, the Agreement, the Trust Agreement,
the Registration Statement, the Final Prospectus and such other related
matters as the Underwriters may reasonably require, and the Company shall
have furnished to such counsel such documents as they reasonably request
for the purpose of enabling them to pass upon such matters.
(v) The Underwriters shall have received from counsel to each Seller
an opinion, dated the Closing Date and satisfactory in form and substance
to counsel for the Underwriters, as to the due authorization, execution and
delivery of the Sales Agreement entered into by the Seller and its
enforceability against the Seller.
(vi) The Underwriters shall have received from counsel to the Master
Servicer an opinion, dated the Closing Date and satisfactory in form and
13
substance to counsel for the Underwriters, as to the due authorization,
execution and delivery of the Trust Agreement by the Master Servicer and
its enforceability against the Master Servicer.
(vii) The Underwriters shall have received from counsel to the Trustee
an opinion, dated the Closing Date and satisfactory in form and substance
to counsel for the Underwriters, as to the due authorization, execution and
delivery of the Trust Agreement by the Trustee and its enforceability
against the Trustee.
(viii) The Underwriters shall have received from counsel to any Credit
Enhancer an opinion, dated the Closing Date and satisfactory in form and
substance to counsel for the Underwriters, as to the due issuance and
enforceability of the policies or other credit enhancement issued by such
Credit Enhancer.
(f) The Underwritten Certificates shall have been assigned the ratings set
forth in the Underwriting Agreement, which shall be in one of the four highest
rating categories, by one or more "nationally recognized statistical rating
organizations," as that term is defined by the Commission for purposes of Rule
436(g)(2) under the Act, designated in the Underwriting Agreement and requested
by the Company to rate the Underwritten Certificates. On the Closing Date, (i)
such rating or ratings shall not have been rescinded and there shall not have
been any downgrading, or public notification of a possible downgrading or public
notice of a possible change, without indication of direction, and (ii) no
downgrading, or public notification of a possible downgrading or public
notification of a possible change, without indication of direction, shall have
occurred in the rating accorded any of the debt securities of any person,
including the Company, providing any form of credit enhancement for the
Certificates by any "nationally recognized statistical rating organization"
designated in the Underwriting Agreement.
(g) If applicable, and subject to the conditions set forth in the Trust
Agreement, any reserve fund to be established for the benefit of the
Certificateholders shall have been established by the Company with the Trustee
and any initial deposit thereto shall have been delivered to the Trustee for
deposit therein as contemplated by the Trust Agreement.
(h) On the Closing Date, there shall not have occurred any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company since the date of the Underwriting Agreement that the
Underwriter concludes in the reasonable judgment of the Underwriter materially
impairs the investment quality of the Underwritten Certificates so as to make it
impractical or inadvisable to proceed with the public offering or the delivery
of the Underwritten Certificates as contemplated by the Final Prospectus.
(i) All proceedings in connection with the transactions contemplated by the
Agreement and all documents incident hereto shall be reasonably satisfactory in
form and substance to the Underwriters and counsel for the Underwriters, and the
Underwriters and counsel for the Underwriters shall have received such
information, certificates and documents as they may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in the Agreement, if the
Company is in breach in any material respect of any covenants or agreements
contained herein or if any of the opinions and certificates mentioned above or
elsewhere in the Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters, the Agreement and all obligations of the Underwriters hereunder
may be canceled by the Underwriters at, or at any time prior to, the Closing
Date. Notice of such cancellation shall be given to the Company in writing or by
telephone or telegraph and confirmed in writing.
In the event that the Company is advised prior to the Closing Date that the
documentation for some of the Mortgage Loans is incomplete or defective and such
defects cannot be remedied prior to the Closing Date, the Company may, with the
14
consent of the Underwriters, nevertheless deliver the Mortgage Loans to the
Trustee with an amount equal to the principal amount of the incomplete or
defective Mortgage Loans as of the Cut-Off Date plus one month's interest on
each such Mortgage Loan at the Mortgage Interest Rate specified in the related
Mortgage Note (less the applicable Servicing Fee Rate). If the incomplete or
defective documentation for a Mortgage Loan is remedied prior to the first
Distribution Date, the amount deposited with the Trustee on account thereof
shall be returned to the Company. If the incomplete or defective documentation
for a Mortgage Loan is not remedied prior to the first Distribution Date, the
amount will be applied in payment of the Certificates and the Mortgage Loan
released to the Company.
7. Reimbursement of Underwriters' Expenses. If for any reason (other than a
default by the Underwriters in their obligations hereunder) the sale of the
Underwritten Certificates provided for herein is not consummated, the Company
will reimburse the Underwriters severally upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been reasonably incurred by them in connection with their investigation,
the preparation to market and the marketing of the Underwritten Certificates, or
in contemplation of the performance by them of their obligations hereunder.
8. Indemnification and Contribution.
(a) The Company hereby agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act as follows:
(i) against any and all losses, claims, expenses, damages or
liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, the Final Prospectus, or any amendment or supplement thereto, or
any related Preliminary Final Prospectus, or arise out of, or are based
upon, the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading; will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that (A) the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or omission, or alleged untrue statement or
omission, made in any of such documents in reliance upon and in conformity
with written information furnished to the Company by an Underwriter,
specifically for use therein, including, without limitation, any
Computational Materials, except to the extent that any untrue statement or
alleged untrue statement therein results (or is alleged to have resulted)
from an error in the written information concerning the characteristics of
the Mortgage Loans furnished by the Company to the Underwriters for use in
the preparation of any Computational Materials, which error was not
superseded or corrected by the delivery to the Underwriters of corrected
written or electronic information, or for which the Company provided
written notice of such error to the Underwriters prior to the confirmation
of the sale of the Certificates (any such uncorrected mortgage loan
information a "Mortgage Pool Error"), and (B) such indemnity with respect
to any Preliminary Final Prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) from whom the
person asserting any such loss, claim, damage or liability purchased the
Certificates which are the subject thereof if such person did not receive a
copy of the Final Prospectus (or the Final Prospectus as amended or
supplemented, excluding any documents incorporated therein by reference) at
or prior to the confirmation of the sale of such Certificates to such
person in any case where such delivery is required by the Act and the
untrue statement or omission of a material fact contained in such
Preliminary Final Prospectus was corrected in the Final Prospectus (or the
Final Prospectus as amended or supplemented, excluding any documents
incorporated therein by reference);
15
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, to the extent of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon any
untrue statement or omission, or any such alleged untrue statement or
omission, for which indemnification is provided by the Company under clause
(i) above, if such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever (including the fees and
disbursements of counsel chosen by any Underwriter or controlling person of
such Underwriter), reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any untrue statement or omission, for which
indemnification is provided by the Company under clause (i) above, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above.
This indemnity will be in addition to any liability that the Company may
otherwise have.
(b) Each Underwriter agrees to indemnify and hold harmless the Company, its
directors, its officers who have signed the Registration Statements and each
person, if any, who controls the Company within the meaning of the Act or the
Exchange Act, against any and all losses, claims, expenses, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities, (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, the Final Prospectus or any
amendment or supplement thereto, or any related Preliminary Final Prospectus, or
arise out of, or are based upon, the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter specifically for use
therein, including, without limitation, Computational Materials; and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action (except that no such
indemnity shall be available for any losses, claims, damages or liabilities, or
actions in respect thereof, resulting from any Mortgage Pool Error). This
indemnity agreement will be in addition to any liability that such Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability that it may have to any indemnified party otherwise than under the
Agreement. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
(at its own expense) the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party under this Section 8, such
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
(d) If recovery is not available under the foregoing indemnification
provisions of this Section 8, for any reason other than as specified therein,
the parties entitled to indemnification by the terms thereof shall be entitled
to contribution to the amount paid or payable by such indemnified party as a
16
result of the losses, claims, expenses, damages or liabilities referred to in
subsection (a) or (b) above, except to the extent that contribution is not
permitted under Section 11(f) of the Act. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters, the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any untrue statement or
omission, and any other equitable considerations appropriate under the
circumstances. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were to be determined by pro rata
or per capita allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method that does not take account of the
equitable considerations referred to in the second sentence of this subsection
(d). Notwithstanding the provisions of this subsection (d), no Underwriter or
person controlling such Underwriter shall be obligated to make a contribution
hereunder that in the aggregate exceeds the total public offering price of the
Certificates purchased by such Underwriter under the Agreement, less the
aggregate amount of any damages which such Underwriter and its controlling
persons have otherwise been required to pay by reason of such untrue statement
or alleged untrue statement or omission. The Underwriters' obligations to
contribute shall be several in proportion to their respective underwriting
obligations and not joint.
9. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Certificates of any Class agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under the
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions that the portion of the Certificates
of such Class set forth opposite their names in an attachment to the Agreement
bears to the aggregate amount of Certificates of such Class set forth opposite
the names of the remaining Underwriters) the Certificates of such Class that the
defaulting Underwriter or Underwriters agreed but failed to purchase; provided,
however, that in the event that the amount of Certificates of such Class that
the defaulting Underwriter or Underwriters agreed but failed to purchase shall
exceed 10% of the aggregate amount of Certificates of such Class as set forth in
the Final Prospectus, the remaining Underwriters shall have the right to
purchase all, but shall not be under any obligation to purchase any, of the
Certificates of such Class, and if such non-defaulting Underwriters do not
purchase all the Certificates of such Class, the Agreement will terminate
without liability to any non-defaulting Underwriter or the Company. In the event
of a default by any Underwriter as set forth in this Section 9, the Closing Date
for such Class of Certificates shall be postponed for such period, not exceeding
seven days, as the Underwriters shall determine in order that the required
changes in the Registration Statement and the Final Prospectus or in any other
documents or arrangements may be effected. Nothing contained in the Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the
Company and any non-defaulting Underwriter for damages occasioned by its default
hereunder.
10. Termination. The Agreement shall be subject to termination in the
absolute discretion of the Underwriters, by notice given to the Company prior to
delivery of and payment for all Underwritten Certificates if prior to such time
(i) trading in securities generally on the New York Stock Exchange shall have
been suspended or limited, or minimum prices shall have been established on such
Exchange, (ii) a banking moratorium shall have been declared by either federal
or New York State authorities, or (iii) there shall have occurred any outbreak
or material escalation of major hostilities, any declaration of war by Congress,
or any other substantial national or international calamity or crisis, the
effect of which on the financial markets of the United States is such as to make
it, in the judgment of the Underwriters, impracticable or inadvisable to market
the Certificates.
11. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and the Underwriters set forth in or made pursuant to the Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Underwritten Certificates. The provisions of this Section
11 and Sections 5(a)(v) and (vi), 7 and 8 hereof shall survive the termination
or cancellation of the Agreement.
17
12. Notices. All communications hereunder will be in writing and
effective only upon receipt and, if sent to the Underwriters, will be
mailed, delivered or telecopied and confirmed to it at the office or
offices set forth in the Underwriting Agreement; or, if sent to the
Company, will be mailed, delivered or telecopied and confirmed to it at
4880 Cox Road, Glen Allen, Virginia 23060, Attention: President.
13. Successors. The Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 8 hereof, and their
successors and assigns, and no other person will have any right or obligation
hereunder.
14. Applicable Law. The Agreement will be governed by and construed
in accordance with the laws of the jurisdiction specified in the Agreement.
The Agreement may be executed in any number of counterparts, each of which
shall for all purposes be deemed to be an original and all of which shall
together constitute but one and the same instrument.
15. Miscellaneous. Time shall be of the essence of the Agreement. The
Agreement supersedes all prior or contemporaneous agreements and understandings
relating to the subject matter hereof. Neither the Agreement nor any term hereof
may be changed, waived, discharged or terminated except by a writing signed by
the party against whom enforcement of such change, waiver, discharge or
termination is sought. The Agreement may be signed in any number of
counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.
18
Exhibit A
Asset Backed Certificates
--------------------------
UNDERWRITING AGREEMENT
Dated: [____________], 199[_]
To: [____________________]
Re: Underwriting Agreement Standard Provisions (June 1996 Edition) (the
"Agreement").
Series Designation: Series 199[_]-[_].
Underwriting Agreement: Subject to the terms and conditions set forth
and incorporated by reference herein, the Company hereby agrees to
issue and sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase from the Company the principal
amount of the Series 199[_]-[_] Certificates (the "Certificates") set
forth opposite its name on Annex A attached hereto at the purchase
prices and terms set forth below; provided, however, that the
obligations of the Underwriters are subject to receipt by the Company
of a [AAA] [AA] rating by [Rating Agency] with respect to the Class
[___] Certificates.
The Prospectus Supplement relating to the Certificates describes the
characteristics of the Mortgage Assets that will be transferred on the
Closing Date to the Trustee pursuant to the Trust Agreement. The
Company specifically covenants to transfer to the Trustee on the
Closing Date Mortgage Assets having the characteristics described in
the Prospectus Supplement relating to the Certificates; provided,
however, that the actual Mortgage Assets delivered on the Closing Date
may vary in nonmaterial respects from the description of the Mortgage
Assets in the Prospectus Supplement. It is understood that if any of
the Mortgage Assets proposed to be transferred is not delivered on the
Closing Date, the Company will deposit cash on an interim basis
pending such delivery with the Trustee in an amount equal to the Asset
Value (as defined in the Trust Agreement) of the Mortgage Assets not
delivered plus interest on that amount for the first interest period.
If any of such Mortgage Assets are not delivered, the cash deposited
with the Trustee will be applied to redeem Certificates. It is further
understood that the Asset Value of the Mortgage Assets to be
transferred on the Closing Date together with any cash deposited with
the Trustee will be not less than the principal amount of the
Certificates.
Registration Statement: References in this Agreement to the
Registration Statement will be deemed to include Registration
Statement No. 333-4127.
<PAGE>
Terms of the Certificates and Underwriting Compensation.
<TABLE>
<CAPTION>
Original
Stated Principal Interest Price to Underwriting
Class Maturity (1) Amount Rate Public(2) Discount
------------ --------- -------- ---------- -----------
<S> <C>
$ % % %
$ % % %
$ % % %
$ % % %
</TABLE>
(1) Assuming no prepayments on the Mortgage Assets.
(2) Plus accrued interest, if any, at the applicable
rate from [____________].
Certificate Rating: [___] by [____________________].
Mortgage Assets. The [Mortgage Loans] [Mortgage Certificates] to be
included in the Trust are as described in the Prospectus Supplement.
Distribution Dates: The [_____] day of each month (or, if such day is
not a Business Day, the next succeeding Business Day).
Purchase Price: Payment of the purchase price for the Certificates shall be
made to the Company [by certified or official bank check or in New York Clearing
House or similar next-day funds] [in Federal or similar immediately available
funds payable to the order of the Company].
Closing Date and Location: [_____________________].
Computational Materials: The Underwriters' Computational Materials,
if any, are attached hereto as Exhibit 1.
Applicable Law: The Agreement shall be governed and construed in
accordance with the laws of [____________].
The Underwriters named in Annex A attached hereto agree, severally and not
jointly, subject to the terms and provisions of the Agreement, a copy of which
is attached, and which is hereby incorporated by reference herein in its
entirety and made a part hereof to the same extent as if such provisions had
been set forth in full herein, to purchase the principal amount of the
Certificates set forth opposite their names in Annex A attached hereto.
Each Annex and Exhibit attached hereto is incorporated herein by
reference and made a part hereof.
[NAME]
By____________________________
Its____________________________
[NAME]
By____________________________
Its_____________________________
[NAME]
By____________________________
Its_____________________________
Acting on behalf of themselves and the other named Underwriters.
Accepted:
SAXON ASSET SECURITIES COMPANY
By____________________________
Its____________________________
<PAGE>
Annex A
UNDERWRITING
$ Principal Amount of Series
Class: Class: Class: Class:
[NAME]__________________________ $ $ $ $
[NAME]__________________________ $ $ $ $
[NAME]__________________________ $ $ $ $
<PAGE>
Exhibit 1
COMPUTATIONAL MATERIALS
EXHIBIT 3.1
SAXON ASSET SECURITIES COMPANY
ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is Saxon Asset Securities Company.
ARTICLE II
PURPOSE
2.1 Purposes. The purposes for which and any of which the
Corporation is formed are:
(a) To acquire, own, hold, sell, service, transfer, assign, pledge,
finance, refinance and otherwise deal with (1) one- to four-family or
multi-family mortgage loans secured by first, second or more junior liens on
residential properties, including, without limitation, mortgage loans insured by
the Federal Housing Administration and mortgage loans partially guaranteed by
the United States Department of Veterans Affairs, (2) mortgage pass-through
certificates issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation or another government agency or government-sponsored
agency, (3) privately-issued mortgage pass-through certificates or
mortgage-collateralized obligations, (4) home improvement mortgage loans secured
by first, second or more junior liens on residential properties, (5) loans
originated under the Title I credit insurance program created under the National
Housing Act of 1934 by the Federal Housing Administration, (6) home equity lines
of credit, (7) other "eligible assets" as defined in Rule 3a-7 of the Rules and
Regulations under the Investment Company Act of 1940, as amended, and (8)
participation interests in or securities based on or backed by any of the
foregoing (items (1) through (8) above, collectively, the "Assets");
(b) To transfer Assets and any related property from time to time to
one or more trusts (collectively, "Trusts") pursuant to one or more pooling and
servicing agreements, trust agreements or other similar agreements, to
authorize, issue, sell and deliver one or more series or classes of pass-through
1
certificates or other securities evidencing ownership interests in the Assets
and any related property held by one or more Trusts (collectively, "Pass-Through
Certificates") and to acquire, own, hold, sell, transfer, assign, pledge,
finance, refinance and otherwise deal with such pass-through certificates or
other securities;
(c) To authorize, issue, sell and deliver one or more series or
classes of bonds, notes or other evidences of indebtedness (collectively,
"Bonds") secured or collateralized by one or more pools of Assets and any
related property, or by pass-through certificates or other securities evidencing
ownership interests therein, issued under one or more indentures, trust
agreements or other similar agreements and, subsequent to the issuance of any
such Bonds, to sell the Assets and any related property securing or
collateralizing any series of Bonds, subject to the lien in favor of such Bonds,
to any limited-purpose entity (provided that each rating agency that has rated
such Bonds at the request of the Corporation shall have confirmed in writing
that such sale will not result in a lowering or withdrawal of such rating); and
(d) Subject to the limitations contained in Section 2.2 of this
Article II, to engage in any activity or exercise any power that is incidental
to or connected with, and necessary or convenient to accomplish, the foregoing
and that is not prohibited by law or required to be specifically set forth in
these Articles.
2.2 Limitations. The Corporation shall not perform any act in contravention
of any of the following clauses of this Section 2.2 without (i) the prior
written consent of each trustee under any pooling and servicing agreement, trust
agreement, indenture or other similar agreement (collectively, "Indentures")
pursuant to which Pass-Through Certificates or Bonds that are then outstanding
have been issued or (ii) a letter from each rating agency that has rated any
Pass-Through Certificates or Bonds (collectively, "Asset Backed Securities") at
the request of the Corporation that the act in question will not result in a
lowering or withdrawal of such rating.
(a) The Corporation shall not incur, assume or guaranty any
indebtedness except for such indebtedness as (A) may be incurred by the
Corporation in connection with the issuance of Bonds (B) provides for recourse
solely to the assets pledged to secure such indebtedness and no recourse to the
Corporation and does not constitute a claim against the Corporation in the event
its assets are insufficient to repay such indebtedness; (C) provides that any
2
such indebtedness by its terms is fully subordinated to any and all Bonds; (D)
provides that no action may be taken against assets pledged to secure such
indebtedness if and so long as such assets are also pledged to secure
outstanding Bonds senior to such indebtedness; and (E) provides that the holder
thereof may not cause the filing of a petition in bankruptcy or take any similar
action against the Corporation until at least 121 days after every indebtedness
of the Corporation evidenced by Bonds is paid in full.
(b) The Corporation shall not engage in any business or activity other
than as authorized in Section 2.1 of this Article II.
(c) The Corporation shall not consolidate or merge with or into any
other entity or convey or transfer its properties and assets substantially as an
entity to any other entity, unless:
(1) the entity (if other than the Corporation ) formed or
surviving such consolidation or merger or that acquires by conveyance
of transfer the properties and assets of the Corporation substantially
as an entity shall be organized and existing under the laws of the
United States of America or any State or the District of Columbia, and
shall expressly assume, by amendment or supplement to the Indentures,
executed and delivered to the appropriate trustees, in form
satisfactory to such trustees, the due and punctual payment of the
principal of and interest on all Bonds then outstanding under the
Indentures (to the extent that any series of Bonds provides recourse
solely to the Assets and any related property pledged to secure such
Bonds, such assumption of payments shall extend only to the extent of
such pledged Assets and related property) and the performance of every
covenant of the Indentures on the part of the Corporation to be
performed or observed;
(2) immediately after giving effect to such transaction, no
default or event of default under the Indentures shall have occurred
and be continuing;
(3) the Corporation shall have delivered to the trustees under
the Indentures an officer's certificate and an opinion of counsel each
3
stating that such consolidation, merger, conveyance or transfer and
such amendment or supplement are not prohibited under the terms of the
Indentures and that all conditions precedent provided for relating to
such transaction have been complied with; and
(4) the Corporation shall have received written confirmation from
each rating agency that has rated any Asset Backed Securities at the
request of the Corporation that such consolidation, merger, conveyance
or transfer or such amendment or supplement will not result in a
lowering or withdrawal of such rating
provided, however, that the provision of this Section 2.2(c) shall not
limit the ability of the Corporation to sell the Assets and any related property
securing or collateralizing an outstanding series of Bonds, subject to the lien
in favor of such Bonds, to a limited-purpose entity; provided that each rating
agency that has rated such Bonds at the request of the Corporation shall have
confirmed in writing that such sales will not result in a lowering or withdrawal
of such rating.
Upon any consolidation or merger, or any conveyance or transfer of the
properties and assets of the Corporation substantially as an entirety, in each
case as provided above, the entity formed by or surviving such consolidation or
merger (if other than the Corporation) or the entity to which such conveyance or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Corporation under the Indentures with the same
effect as if such entity had been an original party to the Indenture. In the
event of any such conveyance or transfer, the Corporation may be dissolved,
wound-up and liquidated at any time thereafter, and the Corporation thereafter
shall be released from its liabilities and its obligations under the Indentures.
(d) The Corporation shall not file a petition in bankruptcy without
the unanimous approval of the Board of Directors.
(e) The Corporation shall not amend, alter, change or repeal any
provision contained in this Article II while any Asset Backed Securities are
outstanding unless each rating agency that has rated any such Asset Backed
Securities at the request of the Corporation shall have confirmed in writing
that such amendment will not result in a lowering or withdrawal of such rating.
4
ARTICLE III
AUTHORIZED SHARES
3.1 Number and Designation. The number and designation of shares that the
Corporation shall have authority to issue and the par value per share are as
follows:
Class Number of Shares Par Value
Common 10,000 $1.00
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to (i) any shares of any class of the Corporation,
whether now or hereafter authorized, (ii) any warrants, rights or options to
purchase any such shares, or (iii) any obligations convertible into any such
shares or into warrants, rights or options to purchase any such shares.
3.3 Voting; Distributions. The holders of the Common Shares shall have
unlimited voting rights and are entitled to receive the net assets of the
Corporation upon the liquidation, dissolution or winding up of the affairs of
the Corporation.
ARTICLE IV
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the Corporation, which is
located in the City of Richmond, Virginia, is 901 East Byrd Street, Richmond,
Virginia 23219. The initial registered agent of the Corporation is Thomas F.
Farrell, II, whose business office is identical with the registered office and
who is a resident of Virginia and a member of the Virginia State Bar.
ARTICLE V
INDEMNIFICATION
5.1 Mandatory Indemnification. The Corporation (the term "Corporation"
as used in this Section 5.1 shall mean the Corporation only and no predecessor
entity or other legal entity) shall indemnify any individual who is, was or is
5
threatened to be made a party to a civil, criminal, administrative,
investigative or other proceeding (other than a proceeding by or in the right of
the Corporation or by or on behalf of its shareholders, or a proceeding in which
he or she was adjudged liable on the basis of having improperly received a
personal benefit) because such individual is or was a director or officer of the
Corporation or of any other legal entity controlled by the Corporation, or is or
was a fiduciary of any employee benefit plan established at the direction of the
Corporation, against all liabilities and reasonable expenses incurred by him or
her on account of the proceeding. Indemnification pursuant to this Section 5.1
shall be subject to the following conditions: (i) if the proceeding relates to
the performance of duties by the individual seeking indemnification, such
individual shall have conducted himself or herself in good faith and believed
that his or her conduct was in the best interests of the legal entity he or she
was serving or of its participants, if such legal entity was an employee benefit
plan; (ii) if the proceeding is a criminal proceeding, the individual seeking
indemnification shall have no reasonable cause to believe that his or her
conduct prior to the initiation of the proceeding was unlawful; and (iii) if the
proceeding is any other type of proceeding, the individual seeking
indemnification, prior to the initiation of the proceeding, shall have conducted
himself or herself in good faith and believed that his or her conduct was at
least not opposed to the best interests of the legal entity such individual was
serving or its participants, if such legal entity was an employee benefit plan.
Before any indemnification is paid a determination shall be made that
indemnification is permissible in the circumstances because the person seeking
indemnification has met the standard of conduct set forth above. Such
determination shall be made in the manner provided by Virginia law for
determining that indemnification of a director is permissible. Unless a
determination has been made that indemnification is not permissible, the
Corporation shall make advances and reimbursement for expenses incurred by any
of the persons named above upon receipt of an undertaking from him or her to
repay the same if it is ultimately determined that such individual is not
entitled to indemnification. The Corporation is authorized to contract in
advance to indemnify any of the persons named above to the extent it is required
to indemnify them pursuant to the provisions of this Section 5.1.
6
5.2 Miscellaneous. The rights of each person entitled to indemnification
under this Article shall inure to the benefit of such person's heirs, executors
and administrators. Indemnification pursuant to this Article shall not be
exclusive of any other right of indemnification to which any person may be
entitled, including indemnification pursuant to a valid contract,
indemnification by legal entities other than the Corporation and indemnification
under policies of insurance purchased and maintained by the Corporation or
others. However, no person shall be entitled to indemnification by the
Corporation to the extent such person is indemnified by another including an
insurer.
ARTICLE VI
LIMITATION OF LIABILITY
To the extent permitted by the Virginia Stock Corporation Act, as it
now exists or is hereafter amended, the liability to the Corporation or its
shareholders of an officer or director of the Corporation for monetary damages
arising out of a single transaction, occurrence or course of conduct shall be
limited to one dollar.
ARTICLE VII
DIRECTORS
At all times, at least one of the Corporation's Directors must be a person
who is not an officer, employee or owner of 10% or more of the outstanding stock
of the Corporation or an officer, employee or owner of 10% or more of the
outstanding stock of any affiliate of the Corporation.
Dated: May 3, 1996
7
EXHIBIT 3.2
SAXON ASSET SECURITIES COMPANY
BYLAWS
<PAGE>
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings. . . . . . . . . . . . . . . . . . . 1
1.2 Annual Meeting. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Record Dates. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Waiver of Notice; Attendance at Meeting . . . . . . . . . . . . 3
1.7 Quorum and Voting Requirements. . . . . . . . . . . . . . . . . 3
1.8 Action Without Meeting. . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
DIRECTORS
2.1 General Powers. . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Number, Term and Election . . . . . . . . . . . . . . . . . . . 4
2.3 Removal; Vacancies. . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Annual and Regular Meetings . . . . . . . . . . . . . . . . . . 5
2.5 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Waiver of Notice; Attendance at Meeting . . . . . . . . . . . . 6
2.8 Quorum; Voting. . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . . 7
2.10 Action Without Meeting. . . . . . . . . . . . . . . . . . . . . 7
2.11 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
OFFICERS
3.1 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Election; Term. . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Removal of Officers . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Duties of Officers. . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
SHARE CERTIFICATES
4.1 Form. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . .10
4.4 Lost or Destroyed Share Certificates. . . . . . . . . . . . . .10
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 Corporate Seal. . . . . . . . . . . . . . . . . . . . . . . . .10
5.2 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.3 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . .11
<PAGE>
SAXON ASSET SECURITIES COMPANY
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings. Meetings of shareholders shall be held at
such place, either within or without the Commonwealth of Virginia, and at such
time as may be provided in the notice of the meeting and approved by the
Chairman of the Board of Directors (the "Chairman"), the President or the Board
of Directors.
1.2 Annual Meeting. The annual meeting of shareholders shall be held on the
second Tuesday in July of each year or on such date as may be designated by
resolution of the Board of Directors from time to time for the purpose of
electing directors and conducting such other business as may properly come
before the meeting.
1.3 Special Meetings. Special meetings of the shareholders may be called by
the Chairman, the President or the Board of Directors and shall be called by the
Secretary upon demand of shareholders as required by law. Only business within
the purpose or purposes described in the notice for a special meeting of
shareholders may be conducted at the meeting.
1.4 Record Dates. The record date for determining shareholders entitled to
demand a special meeting is the date the first shareholder signs the demand that
the meeting be held.
Except as is provided in the preceding paragraph the Board of Directors may
fix, in advance, a record date to make a determination of shareholders for any
purpose, such date to be not more than 70 days before the meeting or action
requiring a determination of shareholders. If no such record date is set, then
the record date shall be the close of business on the day before the date on
which the first notice is given.
When a determination of shareholders entitled to notice of or to vote at
any meeting of shareholders has been made, such determination shall be effective
for any adjournment of the meeting unless the Board of Directors fixes a new
record date, which it shall do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
1.5 Notice of Meetings. Written notice stating the place, day and hour of
each meeting of shareholders and, in case of a special meeting, the purpose or
purposes for which the meeting is called shall be given not less than 10 nor
more than 60 days before the date of the meeting (except when a different time
1
is required in these Bylaws or by law) either personally or by mail, telephone,
telegraph, teletype, telecopy or other form of wire or wireless communication,
or by private courier to each shareholder of record entitled to vote at such
meeting and to such nonvoting shareholders as may be required by law. If mailed,
such notice shall be deemed to be effective when deposited in first class United
States mail with postage thereon prepaid and addressed to the shareholder at his
address as it appears on the share transfer books of the Corporation. If given
in any other manner, such notice shall be deemed to be effective (i) when given
personally or by telephone, (ii) when sent by telegraph, teletype, telecopy or
other form of wire or wireless communication or (iii) when given to a private
courier to be delivered.
If a meeting is adjourned to a different date, time or place, notice need
not be given if the new date, time or place is announced at the meeting before
adjournment. However, if a new record date for an adjourned meeting is fixed,
notice of the adjourned meeting shall be given to shareholders as of the new
record date unless a court provides otherwise.
1.6 Waiver of Notice; Attendance at Meeting. A shareholder may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time of the meeting that is the subject of such notice. The
waiver shall be in writing, be signed by the shareholder entitled to the notice
and be delivered to the Secretary for inclusion in the minutes or filing with
the corporate records.
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting unless the shareholder, at the
beginning of the meeting, objects to holding the meeting or transacting business
at the meeting and (ii) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice unless the shareholder objects to considering the matter when it
is presented.
1.7 Quorum and Voting Requirements. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action unless a greater number of affirmative
votes is required by law. Directors shall be elected by a plurality of the votes
2
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present. Less than a quorum may adjourn a meeting.
1.8 Action Without Meeting. Action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting and without action by
the Board of Directors if the action is taken by all the shareholders entitled
to vote on the action. The action shall be evidenced by one or more written
consents describing the action taken, signed by all the shareholders entitled to
vote on the action and delivered to the Secretary for inclusion in the minutes
or filing with the corporate records. Action taken by unanimous consent shall be
effective according to its terms when all consents are in the possession of the
Corporation unless the consent specifies a different effective date, in which
event the action taken shall be effective as of the date specified therein
provided that the consent states the date of execution by each shareholder. A
shareholder may withdraw a consent only by delivering a written notice of
withdrawal to the Corporation prior to the time that all consents are in the
possession of the Corporation.
If not otherwise fixed pursuant to the provisions of Section 1.4, the
record date for determining shareholders entitled to take action without a
meeting is the date the first shareholder signs the consent described in the
preceding paragraph.
ARTICLE II
DIRECTORS
2.1 General Powers. The Corporation shall have a Board of Directors. All
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 Number, Term and Election. The number of directors of the Corporation
shall be five (5). This number may be changed from time to time by amendment to
these Bylaws to increase or decrease by 30 percent or less the number of
directors last elected by the shareholders, but only the shareholders may
increase or decrease the number by more than 30 percent. A decrease in number
shall not shorten the term of any incumbent director. Each director shall hold
office until his death, resignation, retirement or removal or until his
successor is elected.
3
Except as provided in Section 2.3 of this Article, the directors (other
than initial directors) shall be elected by the holders of the common shares at
the annual meeting of shareholders and those persons who receive the greatest
number of votes shall be deemed elected even though they do not receive a
majority of the votes cast. No individual shall be named or elected as a
director without his prior consent. The Board of Directors shall appoint one
director to serve as Chairman. The Chairman shall serve as chairman of the
meetings of shareholders and the meetings of the Board of Directors.
2.3 Removal; Vacancies. The shareholders may remove one or more directors,
with or without cause, if the number of votes cast for such removal constitutes
a majority of the votes entitled to be cast at an election of directors. A
director may be removed by the shareholders only at a meeting called for the
purpose of removing him and the meeting notice must state that the purpose, or
one of the purposes of the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from the
removal of a director or an increase in the number of directors, may be filled
by (i) the shareholders, (ii) the Board of Directors or (iii) the affirmative
vote of a majority of the remaining directors though less than a quorum of the
Board of Directors and may, in the case of a resignation that will become
effective at a specified later date, be filled before the vacancy occurs, but
the new director may not take office until the vacancy occurs.
2.4 Annual and Regular Meetings. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of shareholders for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the Chairman, the President or the Board of
Directors shall designate from time to time. If no place is designated, regular
meetings shall be held at the principal office of the Corporation.
2.5 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman, the President or a majority of the directors of the
4
Corporation and shall be held at such times and at such places, within or
without the Commonwealth of Virginia, as the person or persons calling the
meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.6 Notice of Meetings. No notice need be given of regular meetings of
the Board of Directors.
Notices of special meetings of the Board of Directors shall be given to
each director in person or delivered to his residence or business address (or
such other place as he may have directed in writing) not less than twenty-four
(24) hours before the meeting by mail, messenger, telecopy, telegraph, or other
means of written communication or by telephoning such notice to him. Any such
notice shall set forth the time and place of the meeting and state the purpose
for which it is called.
2.7 Waiver of Notice; Attendance at Meeting. A director may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time stated in the notice and such waiver shall be equivalent
to the giving of such notice. Except as provided in the next paragraph of this
section, the waiver shall be in writing, signed by the director entitled to the
notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director, at the beginning of
the meeting or promptly upon his arrival, objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
2.8 Quorum; Voting. A majority of the number of directors fixed in these
Bylaws shall constitute a quorum for the transaction of business at a meeting of
the Board of Directors. If a quorum is present when a vote is taken, the
affirmative vote of a majority of the directors present is the act of the Board
of Directors. A director who is present at a meeting of the Board of Directors
or a committee of the Board of Directors when corporate action is taken is
deemed to have assented to the action taken unless (i) he objects, at the
beginning of the meeting or promptly upon his arrival, to holding it or
transacting specified business at the meeting or (ii) he votes against or
abstains from the action taken.
2.9 Telephonic Meetings. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by or conduct the
meeting through the use of any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
5
2.10 Action Without Meeting. Action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if the action
is taken by all members of the Board. The action shall be evidenced by one or
more written consents stating the action taken, signed by each director either
before or after the action is taken and included in the minutes or filed with
the corporate records. Action taken under this section shall be effective when
the last director signs the consent unless the consent specifies a different
effective date, in which event the action taken is effective as of the date
specified therein, provided the consent states the date of execution by each
director.
2.11 Compensation. The Board of Directors may fix the compensation of
directors and may provide for the payment of all expenses incurred by them in
attending meetings of the Board of Directors.
ARTICLE III
OFFICERS
3.1 Officers. The officers of the Corporation shall be a President and a
Secretary and, in the discretion of the Board of Directors, one or more
Vice-Presidents and such other officers as may be deemed necessary or advisable
to carry on the business of the Corporation. Any two or more offices may be held
by the same person.
3.2 Election; Term. Officers shall be elected at the annual meeting of the
Board of Directors and may be elected at such other time or times as the Board
of Directors shall determine. They shall hold office, unless removed, until the
next annual meeting of the Board of Directors or until their successors are
elected. Any officer may resign at any time upon written notice to the Board of
Directors and such resignation shall be effective when notice is delivered
unless the notice specifies a later effective date.
3.3 Removal of Officers. The Board of Directors may remove any officer
at any time, with or without cause.
3.4 Duties of Officers. The President shall be the Chief Executive Officer
of the Corporation. He and the other officers shall have such powers and duties
as generally pertain to their respective offices as well as such powers and
duties as may be delegated to them from time to time by the Board of Directors.
6
ARTICLE IV
SHARE CERTIFICATES
4.1 Form. Shares of the Corporation shall, when fully paid, be evidenced by
certificates containing such information as is required by law and approved by
the Board of Directors. Certificates shall be signed by the President and the
Secretary and may (but need not) be sealed with the seal of the Corporation. The
seal of the Corporation and any or all signatures on a share certificate may be
facsimile. If any officer who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer before such
certificate is issued it may be issued by the Corporation with the same effect
as if he were such officer on the date of issue.
4.2 Transfer. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing the
shares of the Corporation. Transfers of shares and of the certificates
representing such shares shall be made upon the books of the Corporation by
surrender of the certificates representing such shares accompanied by written
assignments given by the owners or their attorneys-in-fact.
4.3 Restrictions on Transfer. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted, a restriction is not
enforceable against a person without knowledge of the restriction.
4.4 Lost or Destroyed Share Certificates. The Corporation may issue a new
share certificate in the place of any certificate theretofore issued which is
alleged to have been lost or destroyed and may require the owner of such
certificate, or his legal representative, to give the Corporation a bond, with
or without surety, or such other agreement, undertaking or security as the Board
of Directors shall determine is appropriate, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
7
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 Corporate Seal. The corporate seal of the Corporation shall be circular
and shall have inscribed thereon, within and around the circumference "SAXON
ASSET SECURITIES COMPANY". In the center shall be the word "SEAL".
5.2 Fiscal Year. The fiscal year of the Corporation shall be
determined in the discretion of the Board of Directors, but in the absence of
any such determination it shall be the calendar year.
5.3 Amendments. These Bylaws may be amended or repealed, and new
Bylaws may be made at any regular or special meeting of the Board of Directors.
Bylaws made by the Board of Directors may be repealed or changed and new Bylaws
may be made by the shareholders, and the shareholders may prescribe that any
Bylaw made by them shall not be altered, amended or repealed by the Board of
Directors.
8
EXHIBIT 4.1
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES
SERIES 1996-[_]
TRUST AGREEMENT
dated as of [____________], 1996
among
SAXON ASSET SECURITIES COMPANY,
as Seller
[----------------------------],
as Master Servicer
and
[----------------------------],
as Trustee
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01. Standard Terms................................................1
Section 1.02. Defined Terms.................................................2
ARTICLE II
FORMATION OF TRUST; CONVEYANCE OF MORTGAGE LOANS
Section 2.01. Conveyance to the Trustee.....................................8
Section 2.02. Acceptance by the Trustee.....................................9
ARTICLE III
REMITTING TO CERTIFICATEHOLDERS
Section 3.01. Distributions to Certificateholders..........................10
Section 3.02. Certificate Guaranty Insurance Policy........................11
ARTICLE IV
THE CERTIFICATES
Section 4.01. The Certificates.............................................14
Section 4.02. Denominations................................................14
Section 4.03. Allocation of Realized Losses and Interest Shortfalls........14
[Section 4.04. Interest Fund...............................................5]
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Request for Opinions.........................................15
Section 5.02. Form of Certificates.........................................15
Section 5.03. Schedules and Exhibits.......................................16
Section 5.04. Governing Law................................................16
Section 5.05. REMIC Administration.........................................16
- i -
TRUST AGREEMENT
THIS TRUST AGREEMENT, dated as of [____________], 1996 (this
"Agreement"), is hereby executed by and among SAXON ASSET SECURITIES COMPANY, a
Virginia corporation ("SASCO"), [____________________________], a [__________]
corporation, as Master Servicer (in such capacity, the "Master Servicer"), and
[____________________________], a [__________] corporation, as Trustee (in such
capacity, the "Trustee"), under this Agreement and the Standard Terms to Trust
Agreement (________ 1996 Edition) (the "Standard Terms"), all the provisions of
which, unless otherwise specified herein, are incorporated herein and shall be a
part of this Agreement as if set forth herein in full (this Agreement with the
Standard Terms so incorporated, the "Trust Agreement").
PRELIMINARY STATEMENT
The Board of Directors of SASCO has duly authorized the formation
of a trust (the "Trust") to issue a series of asset backed certificates with an
aggregate initial Certificate Principal Balance of $[______________] to be known
as the Saxon Asset Securities Company, Asset Backed Certificates, Series
1996-[_] (the "Certificates"). The Certificates in the aggregate evidence the
entire beneficial ownership in the Trust. The Certificates consist of the
following [___] classes: the Class [___] Certificates (the "Class [___]
Certificates"), the Class [___] Certificates (the "Class [___] Certificates"),
the Class [___] Certificates (the "Class [___] Certificates"), the Class [___]
Certificates (the "Class [___] Certificates"), the Class [___] Certificates (the
"Class [___] Certificates") and the Class [R] Certificates (the "Class [R]
Certificates").
In accordance with Section 10.01 of the Standard Terms, the
Trustee will make an election to treat certain assets of the Trust as a real
estate mortgage investment conduit (the "REMIC") for federal income tax
purposes. The assets of the REMIC will consist of the Mortgage Loans listed on
Schedule I hereto and the Asset Proceeds Account. The "startup day" of the REMIC
for purposes of the REMIC Provisions will be the Closing Date.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations and warranties hereinafter set forth, SASCO, the
Master Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Standard Terms.
SASCO, the Master Servicer and the Trustee acknowledge that the
Standard Terms prescribe certain duties, responsibilities and obligations of
SASCO, the Master Servicer and the Trustee with respect to the Certificates.
SASCO, the Master Servicer and the Trustee agree to observe and perform such
duties, responsibilities and obligations and acknowledge that, except to the
extent inconsistent with the provisions of this Agreement, the Standard Terms
are and shall be a part of this Agreement to the same extent as if set forth
herein in full.
- 1 -
Section 1.02. Defined Terms.
Capitalized terms used but not defined in this Agreement shall
have the respective meanings assigned to them in Section 1.01 of the Standard
Terms. In addition, the following provisions shall govern the defined terms set
forth below for the Trust Agreement.
["Accounting Date": ______________________.]
["Available Distribution": _______________.]
["Book-Entry Certificates": The Class [___] and Class [__]
Certificates, except to the extent provided in Section 5.03 of the Standard
Terms.]
["Business Day": Any day that is not a Saturday, Sunday, holiday,
or other day on which commercial banking institutions in _______, _________ or
the city and state in which the Trustee's Corporate Trust Office is located are
authorized or obligated by law or executive order to be closed, provided,
however, that with respect to Section 3.02 hereof (regarding the Certificate
Guaranty Insurance Policy), "Business Day" shall mean any day that is not a
Saturday, Sunday, holiday, or other day on which commercial banking institutions
in _______, _________ are authorized or obligated by law or executive order to
be closed.]
["Certificate": Any of the Class [__], Class [__], Class [__],
Class [__], Class [__], or Class [R] Certificates."]
["Certificate Guaranty Insurance Policy": The irrevocable
_____________ Insurance Policy No. _____________, including any endorsements
thereto, issued by the Certificate Guaranty Insurer with respect to the Senior
Certificates in the form attached hereto as Exhibit _____.
["Certificate Guaranty Insurer": ____________________, a
_____________ insurance company organized and created under the laws of the
State of _________________, and any successor thereto.]
["Certificate Guaranty Insurer Contact Person": As defined in
Section 3.02(g) of this Agreement.]
["Certificate Guaranty Insurer Default": The existence and
continuation of any of the following:
(a) a Certificate Guaranty Insurer Payment Default under the
Certificate Guaranty Insurance Policy; or
(b) (i) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Certificate
Guaranty Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency,
rehabilitation, reorganization or other similar law or (B) a
decree or order adjudging the Certificate Guaranty Insurer
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, rehabilitation, arrangement, adjustment
or composition of or in respect to the Certificate Guaranty
Insurer under any applicable United States federal or state law,
or appointing a custodian, receiver, liquidator, rehabilitator,
assignee, trustee, sequestrator or other similar official of the
Certificate Guaranty Insurer or of any substantial part of its
property, or ordering the winding-up or liquidation of its
affairs
- 2 -
and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of
60 consecutive days; or
(ii) the commencement by the Certificate Guaranty Insurer of a
voluntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated
a bankrupt or insolvent, or the consent of the Certificate
Guaranty Insurer to the entry of a decree or order for relief in
respect of the Certificate Guaranty Insurer in an involuntary
case or proceeding under any applicable United State federal or
state bankruptcy or insolvency case or proceeding against the
Certificate Guaranty Insurer, or the filing by the Certificate
Guaranty Insurer of a petition or answer or consent seeking
reorganization or relief under any applicable United States
federal or state law, or the consent by the Certificate Guaranty
Insurer to the filing of such petition or to the appointment of
or the taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the
Certificate Guaranty Insurer or of any substantial part of its
property, or the failure of the Certificate Guaranty Insurer to
pay its debts generally as they become due, or the admission by
the Certificate Guarantee Insurer in writing of its inability to
pay its debts generally as they become due, or the taking of
corporate action by the Certificate Guaranty Insurer in
furtherance of any such action.
["Certificate Guaranty Insurer Payment Default": The failure by
the Certificate Guaranty Insurer to make a Guaranteed Distribution or any other
payment required under the terms of the Certificate Guaranty Insurance Policy.]
"Closing Date": [____________, 199__].
"Credit Enhancement": [The Certificate Guaranty Insurance
Policy].
"Credit Enhancement Fee": [With respect to the Certificate
Guaranty Insurance Policy and each Distribution Date, an amount equal to
one-twelfth of [____]% multiplied by the Certificate Principal Balance of the
Senior Certificates immediately prior to such Distribution Date].
["Custodian": _____________________________.]
"Cut-Off Date": [____________, 199__].
["Distribution Date": The [__] day of any month, or the next
Business Day if the [__] day is not a Business Day, commencing in the month
following the Closing Date.]
["Distribution Deficiency": On each Distribution Date, the amount
by which the Guaranteed Distribution on the Senior Certificates exceeds the
portion of the Available Distribution allocable to the Senior Certificates
pursuant to Section 3.01 of this Agreement.]
["Due Period": _______________.]
"Final Scheduled Distribution Date": With respect to each Class
of Certificates, the date so designated in the table in Section 4.01 of this
Agreement.
["Fiscal Agent": As defined in the Certificate Guaranty Insurance
Policy.]
- 3 -
["Fiscal Year": ______________.]
["Fitch": Fitch Investors Service, L.P., and its successors (One
State Street Plaza, New York, New York 10004).]
"Fraud Loss Limit": The initial Fraud Loss Limit is
$[____________]. As of any Distribution Date prior to the first anniversary of
the Cut-Off Date, the Fraud Loss Limit will equal the initial Fraud Loss Limit
less the aggregate amount of Fraud Losses allocated on previous Distribution
Dates. As of any Distribution Date on or after the first anniversary of the
Cut-Off Date to the Distribution Date immediately preceding the [__] anniversary
of the Cut-Off Date, the Fraud Loss Limit will equal (i) the lesser of (A) [__]%
of the aggregate Scheduled Principal Balance of the Mortgage Loans as of the
most recent anniversary of the Cut-Off Date and (B) the Fraud Loss Limit
immediately prior to the most recent anniversary of the Cut-Off Date minus (ii)
the aggregate amount of Fraud Losses allocated since the most recent anniversary
of the Cut-Off Date. On the [__] anniversary of the Cut-Off Date and thereafter,
the Fraud Loss Limit will be zero.
["Guaranteed Distribution": As defined in the Certificate
Guaranty Insurance Policy.]
["Guide": ______________.]
["Interest Fund": An Eligible Account established for the purpose
of making interest payments on Mortgage Loans for which the Trust is not due any
Monthly Payments until after [______ __, 1996].
"Master Servicer": [____________________], a [__________]
corporation, and its successors, as administrator of the Trust.
"Master Servicer Advance Amount": [$__________].
"Master Servicer Month End Interest Limitation:" [With respect to
each Distribution Date, the sum of (i) one-twelfth of [______%] per annum
multiplied by the aggregate Scheduled Principal Balance of the Mortgage Loans
not received by [____________________] on the first day of the Due Period
preceding such Distribution Date and (ii) net interest earnings on the Master
Servicer Custodial Account payable with respect to such Distribution Date.]
["Master Servicer Remittance Date": ______________.]
["Master Servicer Reporting Date": ______________.]
["Master Servicing Fee": ______________]
"Master Servicing Fee Rate": [______% per annum].
["Moody's": Moody's Investors Service, Inc., and its successors
(99 Church Street, New York, New York 10007).]
"Mortgagor Bankruptcy Loss Limit": [________________.]
["Net Rate": ______________.]
["Notice of Claim": The notice to be delivered pursuant to
Section 3.02(a) of this Agreement by the Trustee to the Certificate Guaranty
Insurer with respect to any Distribution Date as to
- 4 -
which there will be a Distribution Deficiency, which notice shall be in the form
attached to the Certificate Guaranty Insurance Policy.]
"Pass-Through Rate": [With respect to each Class of Certificates,
the interest rate, if any, shown or described in the table in Section 4.01 of
this Agreement.]
["Policy Payments Account": An Eligible Account established
pursuant to Section 3.02(b) of this Agreement. The Policy Payments Account shall
not be an asset of the Trust or the REMIC, but shall be for the benefit of the
holders of the Senior Certificates. The owner of the Policy Payments Account
shall be the Certificate Guaranty Insurer and, to the extent provided in the
REMIC Provisions, any amounts transferred by the REMIC to the Policy Payments
Account shall be treated as amounts distributed by the REMIC to the Certificate
Guaranty Insurer.]
["Prepayment Period": ______________.]
["Public Subordinated Certificates": The Class [__]
Certificates.]
"Rating Agency": Each of [Fitch], [Moody's] and [S&P] (or, if any
such agency or a successor is no longer in existence, such other nationally
recognized statistical rating agency, or other comparable Person, designated by
SASCO, notice of which designation shall be given to the Trustee and the Master
Servicer).
["Record Date": ______________.]
["Redemption Date": ____ __, 1996.]
"Regular Certificates": Any of the Class [___], Class [___],
Class [___], Class [___] or Class [___] Certificates, which represent the
"regular interests" in the REMIC for purposes of the REMIC Provisions.
["Remittance Date": ______________.]
"Residual Certificates": The Class [R] Certificates, which
represent the "residual interest" in the REMIC for purposes of the REMIC
Provisions.
["S&P": Standard & Poor's Ratings Services, and its successors
(26 Broadway, New York, New York 10004).]
["Sales Agreement": The Sales Agreement, dated _____ __, 1996, by
and between SASCO and Saxon Mortgage regarding the sale of the Mortgage Loans.]
"Sales/Servicing Agreement": [Each of the Sales/Servicing
Agreements listed on Schedule II hereto. Each Sales/Servicing Agreement shall be
deemed to be a "Servicing Agreement" for purposes of the Standard Terms. Each
Sales/Servicing Agreement, together with the Sales Agreement, shall be deemed to
be a "Sales Agreement" for purposes of the Standard Terms.]
["Scheduled Principal Balance": ______________.]
"Senior Certificates": [The Class [___] Certificates.]
"Senior Percentage": [With respect to any Distribution Date, the
percentage obtained by dividing the aggregate Certificate Principal Balance of
the Senior Certificates immediately prior to such
- 5 -
Distribution Date by the aggregate Scheduled Principal Balance of the Mortgage
Loans as of the immediately preceding Distribution Date (which percentage may
not exceed 100%).]
"Senior Prepayment Percentage": [With respect to each
Distribution Date:
(a) the percentage indicated below, except as provided in clause (b)
below:
Distribution Date Senior Prepayment Percentage
[---------------] [--------------------------]
[_______________] [the applicable Senior
Percentage, plus __% of the
difference between 100% and
the applicable Senior
Percentage]
provided, however, that:
(i) the reduction of the Senior Prepayment Percentage under the
foregoing provisions is subject to satisfaction of each of the following
conditions:
(x) over the immediately preceding [__] months, the
average Scheduled Principal Balance of Mortgage Loans delinquent
[__] or more days, (including Mortgage Loans in foreclosure and
Mortgage Loans the Mortgaged Premises of which have become REO
Property) does not exceed [__]% of the average aggregate
Scheduled Principal balance of all Mortgage Loans (including, for
this purpose, any Mortgage Loans in foreclosure and REO
Property); and
(y) aggregate Realized Losses on the Mortgage Loans as of
the Accounting Date preceding the following Distribution Dates do
not exceed the following percentages of the aggregate initial
principal amount of the Subordinated Certificates:
Distribution Date Percentage
[---------------] [--]%
and
(ii) the Senior Prepayment Percentage on any Distribution Date
will once again be 100% if the Senior Percentage for such Distribution
Date exceeds the initial Senior Percentage.
(b) Notwithstanding anything to the contrary set forth in clause (a)
above, the Senior Prepayment Percentage for a Distribution Date will equal (i)
the sum of (x) the Senior Percentage for such Distribution Date and (y) [__]% of
the Subordinated Percentage for such Distribution Date, if such Distribution
Date is prior to ____ __, 199_, and (ii) the Senior Percentage for such
Distribution Date, if such Distribution Date is on or after ____ __, 199_, if,
in either case, the following conditions are satisfied on such Distribution
Date:
(i) the Subordinated Percentage prior to giving effect to any
distributions on such Distribution Date equals or exceeds twice the
initial Subordinated Percentage;
(ii) the condition set forth in clause (a)(i)(x) above is met;
and
- 6 -
(iii) aggregate Realized Losses on the Mortgage Loans as of the
Accounting Date preceding such Distribution Date do not exceed [__]% of
the aggregate initial principal amount of the Subordinated
Certificates.]
"Senior Principal Distribution Amount": [With respect to any
Distribution Date, the sum of the following:
(a) the then applicable Senior Percentage multiplied by the
principal portion of all Monthly Payments on the Mortgage Loans due during the
related Due Period;
(b) the then applicable Senior Prepayment Percentage multiplied
by the sum of (i) all full and partial principal prepayments made by the
respective Borrowers on the Mortgage Loans during the related Prepayment Period,
(ii) all other unscheduled collections, including Insurance Proceeds and
Liquidation Proceeds (other than with respect to any Mortgage Loan that was
finally liquidated during such Prepayment Period), representing or allocable to
recoveries of principal on such Mortgage Loans during such Prepayment Period and
(iii) the principal portion of all proceeds of the purchase (or, in the case of
a substitution, amounts representing a principal adjustment) of any Mortgage
Loan actually received by the Trust during such preceding Prepayment Period; and
(c) with respect to Liquidation Proceeds allocable to the
principal of any Mortgage Loan that was finally liquidated during the related
Prepayment Period, the lesser of (i) the then applicable Senior Prepayment
Percentage multiplied by such Liquidation Proceeds and (ii) the then applicable
Senior Percentage multiplied by the remaining Scheduled Principal Balance of
such Mortgage Loan at the time of its liquidation.]
["Servicing Fee": ______________.]
"Servicing Fee Rate": [______% per annum.]
"Special Hazard Loss Limit": [______________________.]
"State": [______________________.]
"Subordinated Certificates": [The Class [___], Class [___], Class
[___] and Class [___] Certificates.]
"Subordinated Percentage": [With respect to any Distribution
Date, the percentage obtained by dividing the aggregate Certificate Principal
Balance of the Subordinated Certificates immediately prior to such Distribution
Date by the aggregate Scheduled Principal Balance of the Mortgage Loans as of
the immediately preceding Distribution Date (which percentage will equal both
(i) 100% minus the Senior Percentage and (ii) the sum of the respective Class
Percentages for the Subordinated Certificates).]
"Subordinated Prepayment Percentage": [With respect to any
Distribution Date, the percentage equal to 100% minus the Senior Prepayment
Percentage with respect to such Distribution Date (except that on any
Distribution Date after the aggregate Certificate Principal Balance of the
Senior Certificates has been reduced to zero, the Subordinated Prepayment
Percentage will equal 100%).]
"Subordinated Principal Distribution Amount": [With respect to
any Distribution Date, the sum of the following:
(a) the then applicable Subordinated Percentage multiplied by the
principal portion of all Monthly Payments on the Mortgage Loans due during the
related Due Period;
- 7 -
(b) the then applicable Subordinated Prepayment Percentage
multiplied by the sum of (i) all full and partial principal prepayments made by
the respective Borrowers on the Mortgage Loans during the related Prepayment
Period, (ii) all other unscheduled collections, including Insurance Proceeds and
Liquidation Proceeds (other than with respect to any Mortgage Loan that was
finally liquidated during such Prepayment Period), representing or allocable to
recoveries of principal on such Mortgage Loans during such Prepayment Period and
(iii) the principal portion of all proceeds of the purchase (or, in the case of
a substitution, amounts representing a principal adjustment) of any Mortgage
Loan actually received by the Trust during such Prepayment Period; and
(c) with respect to Liquidation Proceeds allocable to the
principal of any Mortgage Loan that was finally liquidated during the related
Prepayment Period, the lesser of (i) such Liquidation Proceeds minus the portion
thereof allocated to the Senior Certificates pursuant to subsection (c) of the
definition of Senior Principal Distribution Amount and (ii) the then applicable
Subordinated Percentage multiplied by the remaining Scheduled Principal Balance
of such Mortgage Loan at the time of its liquidation.]
"Trust Estate": As defined in Section 2.01 of this Agreement.
"Trustee": [____________________], a [__________] corporation,
its successor in interest or any successor trustee appointed in accordance with
the Trust Agreement.
["Trustee Fee": ______________.]
"Trustee Fee Rate": [______% per annum.]
"Trustee Mortgage Loan File": For each Cooperative Loan with
respect to which the related cooperative dwelling unit is located in
_________________, the file containing the following documents:
________________________; for each Cooperative Loan with respect to which the
related cooperative dwelling unit is located in _________________, the file
containing the following documents:
- ------------------------.]
["Underwriter": _______________________.]
["Voting Rights": ____________________.]
ARTICLE II
FORMATION OF TRUST; CONVEYANCE OF MORTGAGE LOANS
Section 2.01. Conveyance to the Trustee.
(a) To provide for the distribution of the principal of and
interest on the Certificates in accordance with their terms, the distribution of
all other sums distributable under the Trust Agreement with respect to the
Certificates and the performance of the covenants contained in the Trust
Agreement, SASCO hereby bargains, sells, conveys, assigns and transfers to the
Trustee, in trust, without recourse and for the exclusive benefit of the
Certificateholders, all of SASCO's right, title and interest in and to any and
all benefits accruing to SASCO from: (i) the Mortgage Loans listed on Schedule I
hereto, which SASCO is causing to be delivered to the Trustee (or the Custodian)
herewith (and all Qualified Substitute Mortgage Loans substituted therefor as
provided by Section 2.03 of the Standard Terms and pursuant to the terms of the
Sales Agreement), together with the related Trustee Mortgage Loan Files and
SASCO's interest in any Collateral that secured a Mortgage Loan but that is
acquired by foreclosure or deed-in-lieu of foreclosure after the Closing Date,
and all Monthly Payments due after [____ __, 1996] [(or after [___
- 8 -
__, 1996] in the case of Mortgage Loans listed on Schedule III hereto)] and all
curtailments or other principal prepayments received with respect to the
Mortgage Loans paid by the Borrower on or after [____ __, 1996] (except for any
prepayments received after the Cut-Off Date but reflected in the aggregate
Scheduled Principal Balance of the Mortgage Loans as of the Cut-Off Date) and
proceeds of the conversion, voluntary or involuntary, of the foregoing; (ii) the
Sales/Servicing Agreements; (iii) the Sales Agreement, except that SASCO does
not assign to the Trustee any of its rights under Sections 9 and 12 of the Sales
Agreement; (iv) the Asset Proceeds Account, whether in the form of cash,
instruments, securities or other properties; and (v) all proceeds of any of the
foregoing (including, but not limited to, all proceeds of any mortgage
insurance, hazard insurance, or title insurance policy relating to the Mortgage
Loans, cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables, which at any time
constitute all or part or are included in the proceeds of any of the foregoing)
to pay the Certificates as specified herein (items (i) through (v) above,
collectively, the "Trust Estate").
[SASCO hereby assigns to the Master Servicer all right, title and
interest of SASCO in and to (i) the Interest Fund and all amounts as are
deposited and maintained therein from time to time pursuant to the Trust
Agreement and (ii) all proceeds of the foregoing of every kind and nature
whatsoever, including, but not limited to, proceeds of proceeds and the
conversion, voluntary or involuntary, of any of the foregoing into cash or other
liquidated property. The Master Servicer hereby pledges to the Trust and grants
to the Trustee, on behalf of the Certificateholders, a first priority security
interest in and to (i) the Interest Fund and all amounts as are deposited and
maintained therein from time to time pursuant to the Trust Agreement, excluding,
however, any earnings thereon, which are payable to the Master Servicer, and
(ii) all proceeds of the foregoing of every kind and nature whatsoever,
including, but not limited to, proceeds of proceeds and the conversion,
voluntary or involuntary, of any of the foregoing into cash or other liquidated
property in trust, subject to the limitation set forth above with respect to
earnings, to have and to hold in trust to secure the Certificates. The Trustee
acknowledges this grant and agrees to hold the pledged property in accordance
with the terms hereof.]
The Trustee acknowledges the sales, assignments and pledges
created by the foregoing paragraph[s], accepts the trust hereunder in accordance
with the provisions hereof and agrees to perform the duties set forth herein or
required by the Standard Terms to the end that the interests of the
Certificateholders may be adequately and effectively protected.
[(b) The Trustee agrees that it will hold the Certificate
Guaranty Insurance Policy in trust and that it will hold any proceeds of any
claim made upon such Policy solely for the use and benefit of the Holders of the
Senior Certificates in accordance with the terms of the Trust Agreement and of
such Policy.]
Section 2.02. Acceptance by the Trustee.
By its execution of this Agreement, the Trustee acknowledges and
declares that it holds and will hold or has agreed to hold all documents
delivered to it from time to time with respect to the Mortgage Loans and all
assets included in the Trust Estate in trust for the exclusive use and benefit
of all present and future Certificateholders.
- 9 -
ARTICLE III
REMITTING TO CERTIFICATEHOLDERS
Section 3.01. Distributions to Certificateholders.
(a) On each Distribution Date, the Trustee shall withdraw the
Available Distribution from the Asset Proceeds Account and shall distribute such
amount in the following order of priority:
(i) first, to the holders of the Senior Certificates, an
amount equal to interest accrued through the preceding Accounting Date
at the applicable Pass-Through Rate on the Certificate Principal Balance
of such Certificates immediately prior to such Distribution Date
(adjusted for the allocation of Interest Shortfalls as provided in
Section 4.03 of this Agreement), plus any amounts distributable as
interest on such Certificates on any prior Distribution Date to the
extent not previously distributed;
(ii) second, to the holders of the Subordinated
Certificates pro rata (based on the respective current interest
entitlement of each Class of Subordinated Certificates) interest in an
amount equal to interest accrued through the related Accounting Date at
the applicable Pass- Through Rate on the Certificate Principal Balance
of each such Class immediately prior to such Distribution Date (adjusted
for the allocation of Interest Shortfalls as provided in Section 4.03 of
this Agreement), plus any amounts distributable as interest on each such
Class on any prior Distribution Date to the extent not previously
distributed;
(iii) third, to the holders of the Senior Certificates, the
Senior Principal Distribution Amount until the Certificate Principal
Balance of such Certificates has been reduced to zero;
(iv) fourth, to the holders of the Class [___], Class
[___], Class [___] and Class [___] Certificates, in that order,
principal in an amount up to each such Class's pro rata share (based on
the respective Certificate Principal Balance of each such Class) of the
Subordinated Principal Distribution Amount until the Certificate
Principal Balance of each such Class has been reduced to zero; provided,
however, that in the event that the Class Percentage of any Class of
Subordinated Certificates is less than the initial Class Percentage of
such Class, distributions of principal made pursuant to clauses (b) and
(c) of the definition of Subordinated Principal Distribution Amount
shall be allocated pro rata (based on the respective Certificate
Principal Balance of each Class of Subordinated Certificates), in the
order prescribed above, only to those Classes of Subordinated
Certificates having Class Percentages equal to or greater than their
initial Class Percentages as of the applicable Distribution Date.
(b) On any Distribution Date or upon termination of the Trust,
any amounts remaining undistributed with respect to the Mortgage Loans following
the distributions specified above and payment of all administrative expenses
associated with the Trust shall be distributed to the holders of the Class [R]
Certificates.
(c) If, and for so long as, the Book-Entry Certificates are
registered in the name of a Clearing Agency or its nominee, the Trustee shall
make all distributions or allocations on such Certificates on each Distribution
Date by wire transfer of immediately available funds to the Clearing Agency or
its nominee. If the Book-Entry Certificates are not registered in the name of a
Clearing Agency or its nominee, all distributions or allocations made with
respect to each Class of Book-Entry Certificates on a Distribution Date shall be
allocated among the outstanding Certificates of such Class based on the
Certificate Principal Balance of each Certificate in such Class. Payments to the
Certificateholders on any Distribution Date will be made to the
Certificateholders of record on the related Record Date. If the Certificates are
not Book-Entry Certificates, the Trustee shall make all distributions or
allocations on such
- 10 -
Certificates on each Distribution Date either (i) by check mailed to the address
of each Certificateholder as it appears in the Certificate Register on the
related Record Date or (ii) by wire transfer of immediately available funds to
the account of a Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder shall have so notified the
Trustee in writing by the related Record Date and such Certificateholder is the
registered owner of Certificates for which the aggregate initial principal
amount is equal to or in excess of [$1,000,000] with respect to the Class [___]
Certificates and the Class [___] Certificates. The Trustee may charge the
related Certificateholder a fee for any payment made by wire transfer.
(d) All distributions or allocations of amounts in the Asset
Proceeds Account [and the Interest Fund], as well as the amount of all payments
made by the Trustee on each Certificate issued hereunder, shall be based on
written instructions of the Master Servicer.
Section 3.02. Certificate Guaranty Insurance Policy.
(a) If a Distribution Deficiency will exist with respect to a
Distribution Date, the Master Servicer must notify the Trustee by telecopy prior
to 12:00 noon, _____________ time, on the third Business Day prior to such
Distribution Date of the amount of such deficiency. If, by the close of business
on the third Business Day prior to any Distribution Date, the Trustee
determines, based upon the timely receipt by the Trustee of the notice required
pursuant to the foregoing sentence, that a Distribution Deficiency will exist
with respect to such Distribution Date, the Trustee shall (i) give notice of the
amount of such deficiency to the Certificate Guaranty Insurer [and the Fiscal
Agent] on such third Business Day by telephone or telecopy and (ii) deliver a
Notice of Claim to the Certificate Guaranty Insurer [and the Fiscal Agent] by
12:00 noon, ______________ time on the following Business Day. Following Receipt
(as defined in Section 3.02(l) below) by the Certificate Guaranty Insurer of an
appropriate notice of a claim under the Certificate Guaranty Insurance Policy,
payment of such claim will be made by the Certificate Guaranty Insurer on the
later to occur of (i) 12:00 noon, _____________ time, on the second Business Day
following the Business Day of Receipt of such notice and (ii) 12:00 noon,
_____________ time, on the date on which the related distribution is due.
(b) At the time of the execution and delivery of this Agreement,
the Trustee shall establish a separate, special purpose trust account (referred
to herein as the "Policy Payments Account") for the benefit of the Holders of
the Senior Certificates and over which the Trustee shall have exclusive control
and sole right of withdrawal during the period that the Senior Certificates are
outstanding. The Trustee shall deposit any amount paid under the Certificate
Guaranty Insurance Policy initially into the Policy Payments Account, thereafter
transfer such amount to the Asset Proceeds Account, and then distribute such
amount to the Holders of the Senior Certificates solely for the purpose of
payment of the Guaranteed Distribution to such Holders. Amounts paid under the
Certificate Guaranty Insurance Policy may not be applied to satisfy any costs,
expenses, or liabilities of the Trustee or the Trust Estate. Amounts paid under
the Certificate Guaranty Insurance Policy shall be disbursed by the Trustee to
the Holders of the Senior Certificates in the same manner as principal and
interest on the Senior Certificates are disbursed to such Holders under Section
3.01 of this Agreement. It shall not be necessary for amounts paid under the
Certificate Guaranty Insurance Policy to be paid to the Holders of the Senior
Certificates by checks or wire transfers separate from the checks or wire
transfers used to pay principal and interest to such Holders under Section 3.01
of this Agreement. However, the amount of any distribution to be paid from funds
transferred from the Policy Payments Account shall be noted as provided in
Section 3.02(c) below and in the statement to be furnished to the Holders of the
Senior Certificates pursuant to Section 4.01 of the Standard terms. Funds held
in the Policy Payments Account shall not be invested by the Trustee.
- 11 -
On any Distribution Date with respect to which a claim has been
made under the Certificate Guaranty Insurance Policy, funds received by the
Trustee as a result of such claim in an amount equal to the Distribution
Deficiency shall be withdrawn from the Policy Payments Account, deposited into
the Asset Proceeds Account, and applied by the Trustee to the payment in full of
the Distribution Deficiency. Any funds deposited into the Policy Payments
Account in respect of a Distribution Date that remain therein on the first
Business Day following such Distribution Date after all required distributions
have been made to the Holders of the Senior Certificates shall be remitted in
immediately available funds to the Certificate Guaranty Insurer by the end of
such Business Day pursuant to the instructions of such Insurer.
(c) The Trustee shall keep complete and accurate records of: (i)
all funds remitted to it by the Certificate Guaranty Insurer and deposited into
the Policy Payments Account, (ii) the allocation of such funds to pay principal
and interest to the Holders of the Senior Certificates and (iii) the amounts of
all Realized Interest Shortfalls and Realized Losses that are allocated to the
Senior Certificates but paid to the Holders of such Certificates from moneys
received under the Certificate Guaranty Insurance Policy. The Certificate
Guaranty Insurer shall have the right to inspect such records at reasonable
times upon one Business Day's prior notice to the Trustee.
(d) In the event that the Trustee has received a certified copy
of an order of the appropriate court that any scheduled distribution in
reduction of the principal balance of or interest on a Senior Certificate has
been voided in whole or in part as a preference payment under applicable
bankruptcy law, the Trustee shall: (i) notify the Certificate Guaranty Insurer
[and the Fiscal Agent] of such order, (ii) comply with the provisions of the
Certificate Guaranty Insurance Policy to obtain payment from the Certificate
Guaranty Insurer of such voided scheduled distribution and (iii) at the time it
provides notice to the Certificate Guaranty Insurer of such order, notify the
Holders of the Senior Certificates by mail that, in the event that any Holder's
scheduled distribution is to recovered, such Holder will be entitled to payment
pursuant to the terms of the Certificate Guaranty Insurance Policy, a copy of
which shall be made available through the Trustee, the Certificate Guaranty
Insurer [or the Fiscal Agent], and (iv) furnish to the Certificate Guaranty
Insurer [and the Fiscal Agent] its records evidencing the distributions of
principal and interest that have been made on the Senior Certificates by the
Trustee and subsequently recovered from the Holders of such Certificates and the
dates on which such distributions were made.
(e) The Certificate Guaranty Insurer is entitled to exercise the
Voting Rights of the Holders of the Senior Certificates without the consent of
such Holders, and such Holders may exercise such rights only with the prior
consent of the Certificate Guaranty Insurer. Notwithstanding anything herein to
the contrary, for purposes of determining the Certificate Guaranty Insurer's
voting rights with respect to the Senior Certificates, any payment with respect
to principal and interest on the Senior Certificates that is made with funds
received pursuant to the terms of the Certificate Guaranty Insurance Policy
shall not be considered a payment of the Senior Certificates from the Trust
Estate. The Trustee shall promptly notify the Certificate Guaranty Insurer [and
the Fiscal Agent] of any proceeding or the institution of any action seeking the
avoidance as a preferential transfer under applicable bankruptcy, insolvency,
receivership or similar law (a "Preference Claim") of any distribution made with
respect to the Senior Certificates as to which it has actual knowledge. Each
Holder of a Senior Certificate, by its purchase of such Certificate, and the
Trustee hereby agree that, for so long as no Certificate Guaranty Insurer
Payment Default exists, the Certificate Guaranty Insurer may at any time during
the continuation of any proceeding relating to a Preference Claim direct all
matters relating to such Preference Claim, including, without limitation, (i)
the direction of any appeal of any order relating to such Preference Claim and
(ii) the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition, and without limitation of the foregoing, the Certificate
Guaranty Insurer shall be subrogated to the rights of the Trustee and each
Holder of a Senior Certificate in the conduct of any Preference Claim,
- 12 -
including, without limitation, all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with such
Preference Claim.
(f) The Trustee acknowledges, and each Holder of a Senior
Certificate by its acceptance of such Certificate, agrees that, without any
further action on the part of the Certificate Guaranty Insurer, such Insurer
shall be subrogated to the rights of the Holders of the Senior Certificates to
amounts distributable to such Holders in respect of Realized Interest Shortfalls
and Realized Losses to the extent of amounts previously paid under the
Certificate Guaranty Insurance Policy and not previously recovered by the
Certificate Guaranty Insurer pursuant to this Section 3.02(f). The Holders of
the Senior Certificates, by acceptance of such Certificates, assign their rights
as Holders of such Certificates to the Certificate Guaranty Insurer to the
extent of such Insurer's interest with respect to amounts paid under the
Certificate Guaranty Insurance Policy.
(g) The [Seller/Master Servicer] shall, from time to time,
designate a person who shall be available to the Certificate Guaranty Insurer to
provide such Insurer with reasonable access to information regarding the
Mortgage Loans. The initial Certificate Guaranty Insurer Contact Person shall be
___________________, the ________________ of the Master Servicer.
(h) The Trustee shall surrender the Certificate Guaranty
Insurance Policy to the Certificate Guaranty Insurer for cancellation upon the
expiration of the term of such Policy as provided in such Policy.
(i) For so long as no Certificate Guaranty Insurer Default
exists, the Certificate Guaranty Insurer shall be treated by the Seller and the
Trustee as if the Certificate Guaranty Insurer were the Holder of all of the
Senior Certificates for the purpose of the giving of any consent, the making of
any direction, or the exercise of any voting or other control rights otherwise
given to the Holders of the Senior Certificates under the terms of the Trust
Agreement.
(j) All notices, statements, reports, certificates or opinions
required by the Trust Agreement to be sent to any other party thereto or to any
of the Certificateholders shall be sent also to the Certificate Guaranty Insurer
in accordance with the provisions of Section 11.05 of the Standard Terms at the
following address: ______________________________, Attention: __________
(telecopy number ( ) ), or such other address or telecopy number as may
hereafter be furnished to each party to the Trust Agreement in writing by the
Certificate Guaranty Insurer].
(k) The Certificate Guaranty Insurer shall be a third party
beneficiary of the Trust Agreement, entitled to enforce the provisions thereof
as if a party thereto.
(l) With respect to this Section 3.02, the terms "Receipt" and
"Received" shall mean actual delivery to the Certificate Guaranty Insurer [and
the Fiscal Agent] at or prior to 12:00 noon, _____________ time, on a Business
Day. Delivery either on a day that is not a Business Day or after 12:00 noon,
_____________ time, on a Business Day shall be deemed to be Received on the next
succeeding Business Day. If any notice or certificate given under the
Certificate Guaranty Insurance Policy by the Trustee is not in proper form, or
is not properly completed, executed, or delivered, it shall be deemed not to
have been Received, and the Certificate Guaranty Insurer [or its Fiscal Agent]
shall promptly so advise the Trustee on the next Business Day and the Trustee
may submit an amended notice or certificate.
(m) Notwithstanding any to the contrary contained in Section
11.01 of the Standard Terms, no amendment to the Trust Agreement may be made
without the consent of the Certificate Guaranty Insurer if such amendment might
adversely affect in any material way the rights or obligations of the
Certificate Guaranty Insurer.
- 13 -
ARTICLE IV
THE CERTIFICATES
Section 4.01. The Certificates.
The Certificates shall be designated generally as the Asset
Backed Certificates, Series 1996-[_]. The aggregate principal amount of
Certificates that may be executed and delivered under this Agreement is limited
to $[____________], except for Certificates executed and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Certificates pursuant to Sections 5.04 or 5.06 of the Standard Terms. The
following table sets forth the Classes of Certificates and the Pass-Through
Rate, the initial Certificate Principal Balance, and the Final Scheduled
Distribution Date for each such Class:
Pass-Through Initial Certificate Final Scheduled
Class Rate Principal Balance Distribution Date
[---] [----]% $[------------] [---------------]
[---] [----]% $[------------] [---------------]
[---] [----]% $[------------] [---------------]
[---] [----]% $[------------] [---------------]
[---] [----]% $[------------] [---------------]
[R] (1) (1) [_______________]
(1) The Class [R] Certificates have no stated principal balance or
Pass-Through Rate and are not entitled to any scheduled distributions of
principal or interest.
Section 4.02. Denominations.
The Book-Entry Certificates shall be registered as one or more
certificates in the name of the Clearing Agency or its nominee. Beneficial
interests in the Book-Entry Certificates shall be held by the Beneficial Owners
thereof through the book-entry facilities of the Clearing Agency as described
herein, in minimum denominations of $25,000 and integral multiples of $1,000 in
excess thereof, except that one Certificate from each Class of Book-Entry
Certificates may be issued in a different denomination and, if so issued, shall
be held in certificated, fully-registered form. All other Classes of
Certificates shall be issued in certificated, fully-registered form. The Class
[___], Class [__], and Class [___] Certificates shall be issued in minimum
denominations of $[______] and integral multiples of $[_____] in excess thereof,
except that one Certificate from each such Class may be issued in a different
denomination evidencing the remainder of the aggregate initial Certificate
Principal Balance of such Class. The Class [R] Certificates shall be issued in
minimum Percentage Interests of 25% and integral multiples of 1% in excess
thereof, except that two Class [R] Certificates may be issued in different
denominations.
Section 4.03. Allocation of Realized Losses and Interest
Shortfalls.
(a) Realized Losses on the Mortgage Loans shall be allocated to
the Certificates as follows: (i) first, to the Class [___] Certificates until
the Certificate Principal Balance of such Class has been reduced to zero; (ii)
second, to the Class [___] Certificates until the Certificate Principal Balance
of such Class has been reduced to zero; (iii) third, to the Class [___]
Certificates until the Certificate Principal Balance of such Class has been
reduced to zero; (iv) fourth, to the Class [___] Certificates until the
Certificate Principal Balance of such Class has been reduced to zero; and (v)
finally, to the Class [___] Certificates, until the Certificate Principal
Balance of such Class has been reduced to zero. In addition, notwithstanding the
loss allocation priorities specified above, Special Hazard Losses on the
Mortgage Loans in excess of the Special Hazard Loss Limit, Mortgagor Bankruptcy
Losses on the Mortgage Loans
- 14 -
in excess of the Mortgagor Bankruptcy Loss Limit and Fraud Losses on the
Mortgage Loans in excess of the Fraud Loss Limit shall be allocated pro rata to
all Classes of Certificates in proportion to their Certificate Principal
Balances.
(b) Interest Shortfalls shall be allocated to reduce the amount
of interest distributable on each Class of Certificates on each Distribution
Date in proportion to the amount of interest that such Class would have been
entitled to receive on such Distribution Date absent such Interest Shortfalls.
[Section 4.04. Interest Fund.
An Interest Fund shall be established by the Trustee. The
Interest Fund shall initially consist of cash in the amount of $[__________]
representing 30 days interest at the Mortgage Interest Rate (less the Servicing
Fee Rate) for each Mortgage Loan for which no payment is due to SASCO or its
assignee until after [______ __, 1996], as identified on Schedule I hereto. The
Interest Fund shall be an Eligible Account and, as soon as practicable after the
Closing Date, the Trustee shall invest any monies on deposit in the Interest
Fund in Permitted Investments at the direction of the Master Servicer. On the
Business Day preceding the [________] 1996 Distribution Date, the Trustee shall
withdraw the entire amount from the Interest Fund (excluding any earnings
thereon) and deposit such amount into the Asset Proceeds Account. Such entire
amount shall be used to make distributions of interest on such Distribution Date
and to cover applicable administrative costs (which do not include the Servicing
Fees) relating to the Mortgage Loans with no payments due to SASCO on [______
__, 1996]. Any earnings on the Interest Fund shall be payable on such date to
the Master Servicer.]
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Request for Opinions.
(a) SASCO and the Master Servicer hereby request and authorize
[____________________], as their counsel in this transaction, to issue on behalf
of SASCO and the Master Servicer such legal opinions to the Trustee and each
Rating Agency as may be (i) required by any and all documents, certificates or
agreements executed in connection with the Trust, or (ii) requested by the
Trustee, any Rating Agency or their respective counsels.
(b) The Trustee hereby requests and authorizes its counsel to
issue on behalf of the Trustee such legal opinions to SASCO, the Master Servicer
and each Rating Agency as may be required by any and all documents, certificates
or agreements executed in connection with the establishment of the Trust and the
issuance of the Certificates.
Section 5.02. Form of Certificates.
The Class [___] Certificates shall be substantially in the form
of Exhibit [___] hereto. The Class [___] Certificates shall be substantially in
the form of Exhibit [___] hereto. The Class [___] Certificates shall be
substantially in the form of Exhibit [___] hereto.
The Class [___] Certificates shall be substantially in the form of
Exhibit [___] hereto. The Class [___] Certificates shall be substantially in the
form of Exhibit [___] hereto. The Class [R] Certificates shall be substantially
in the form of Exhibit [R] hereto. All Certificates shall be dated the date of
their execution.
- 15 -
Section 5.03. Schedules and Exhibits.
Each of the Schedules and Exhibits attached hereto or referenced
herein is incorporated herein by reference as contemplated by the Standard
Terms.
Section 5.04. Governing Law.
In accordance with Section 11.04 of the Standard Terms, this
Agreement shall be construed in accordance with and governed by the laws of the
State of [_____________________].
Section 5.05. REMIC Administration.
For purposes of the REMIC Provisions, the Regular Certificates
shall be designated as the "regular interests" in the REMIC and the Residual
Certificates shall be designated as the "residual interest" in the REMIC.
- 16 -
IN WITNESS WHEREOF, SASCO, the Master Servicer and the Trustee
have caused this Agreement to be duly executed by their respective officers
thereunto duly authorized and their respective signatures duly attested all as
of the [___] day of [________], 1996.
SAXON ASSET SECURITIES COMPANY
By_____________________________
Name:
Title:
[MASTER SERVICER]
By_____________________________
Name:
Title:
[TRUSTEE]
not in its individual capacity
but solely as trustee under the
Trust Agreement
By_____________________________
Name:
Title:
- 17 -
COMMONWEALTH OF VIRGINIA )
) ss.:
CITY OF RICHMOND )
The foregoing instrument was acknowledged before me in the City of
Richmond, Virginia, this [____] day of [________], 1996, by
[____________________], [____________________] of Saxon Asset Securities
Company, a Virginia corporation, on behalf of the corporation.
Notary Public
My Commission expires:
- 18 -
COMMONWEALTH OF VIRGINIA )
) ss.:
CITY OF RICHMOND )
The foregoing instrument was acknowledged before me in the City of
Richmond, Virginia, this [____] day of [________], 1996, by
[____________________], [____________________] of [____________________], a
[__________] corporation, on behalf of the corporation.
Notary Public
My Commission expires:
- 19 -
COMMONWEALTH OF VIRGINIA )
) ss.:
CITY OF RICHMOND )
The foregoing instrument was acknowledged before me in the City of
Richmond, Virginia, this [____] day of [________], 1996, by
[____________________], [____________________] of [____________________], a
[__________] banking corporation, on behalf of the corporation.
Notary Public
My Commission expires:
- 20 -
List of Schedules and Exhibits
Schedule I: The Mortgage Loans
Schedule II: Sales/Servicing Agreements
Schedule III: Mortgage Loans with Cut-Off Dates After
[______ __, 199_]
Exhibit [___]: Form of Class [___] Certificate
Exhibit [___]: Form of Class [___] Certificate
Exhibit [___]: Form of Class [___] Certificate
Exhibit [___]: Form of Class [___] Certificate
Exhibit [___]: Form of Class [___] Certificate
Exhibit [R]: Form of Class [R] Certificate
Exhibit [___]: Certificate Guaranty Insurance Policy
- 21 -
Schedule I
Mortgage Loans
- 22 -
Schedule II
Sales/Servicing Agreements
- 23 -
Schedule III
Mortgage Loans with Cut-Off Dates After [_____________], 199[_]
- 24 -
EXHIBIT [ ]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO SELLER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 1996-[_]
CLASS [ ] SENIOR CERTIFICATE
THE PRINCIPAL OF THIS CLASS [ ] CERTIFICATE IS SUBJECT TO PREPAYMENT FROM TIME
TO TIME WITHOUT SURRENDER OF OR NOTATION ON THIS CERTIFICATE. ACCORDINGLY, THE
CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE LESS THAN THAT SET
FORTH BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS CLASS [ ] CERTIFICATE REPRESENTS A REMIC REGULAR INTEREST FOR FEDERAL
INCOME TAX PURPOSES.
SERIES 1996-[ ] APPROXIMATE AGGREGATE INITIAL
PRINCIPAL BALANCE OF THE CLASS
[ ] CERTIFICATES AS OF THE
CLOSING DATE: $[_____________]
PASS-THROUGH RATE APPROXIMATE AGGREGATE
PER ANNUM: [___]% SCHEDULED PRINCIPAL BALANCE AS
OF THE CUT-OFF DATE OF
MORTGAGE LOANS HELD BY THE
TRUST: $[___________________]
DENOMINATION: $[ ]
DATE OF TRUST AGREEMENT:
AS OF [_______], 1996
CLOSING DATE: MASTER SERVICER:
[______], 1996 [---------------------------]
FIRST DISTRIBUTION DATE: TRUSTEE:
[______], 1996 [---------------------------]
NO. ___ CUSIP NO. [_________________]
1
ASSET BACKED CERTIFICATES, SERIES 1996-[ ]
CLASS [ ] SENIOR CERTIFICATE
evidencing a beneficial ownership interest in a Trust consisting primarily of a
pool of Single Family Loans and Cooperative Loans (collectively, the "Mortgage
Loans") formed and sold by
SAXON ASSET SECURITIES COMPANY
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN SAXON ASSET
SECURITIES COMPANY, THE MASTER SERVICER, ANY SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
THIS CERTIFIES THAT:
is the registered owner of the Percentage Interest evidenced by this Certificate
in the Class [ ] Certificates issued by the Trust (the "Trust") created pursuant
to a trust agreement, dated as specified above (the "Trust Agreement"), among
Saxon Asset Securities Company (herein called "SASCO," which term includes any
successor entity under the Trust Agreement"), the Master Servicer and the
Trustee, a summary of certain of the pertinent provisions of which is set forth
herein. The Trust consists primarily of a pool of Mortgage Loans. To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Trust Agreement. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which Trust Agreement
the Holder of this Certificate, by virtue of the acceptance hereof, assents and
by which such Holder is bound.
Distributions of principal and of interest on this Certificate will be made
out of the Available Distribution, to the extent and subject to the limitations
set forth in the Trust Agreement, on the [25th] day of each month or, if such
[25th] day is not a Business Day, the next succeeding Business Day (each a
"Distribution Date"), commencing on the first Distribution Date specified above,
to the Person in whose name this Certificate is registered at the close of
business on the last Business Day of the month immediately preceding the month
of such distribution (the "Record Date"). All sums distributable on this
Certificate are payable in the coin or currency of the United States of America
as at the time of payment is legal tender for the payment of public and private
debts.
Interest on this Certificate will accrue [(based on a 360-day year of
twelve 30-day months)] from the first day of the month preceding the month in
which a Distribution Date occurs through the Accounting Date for such
Distribution Date on the Certificate Principal Balance of this Certificate
immediately prior to each Distribution Date at a per annum rate (the
"PassThrough Rate") of [ ]%. Principal of this Certificate will be paid in
accordance with the terms of the Trust Agreement. Principal and interest
allocated to this Certificate on any Distribution Date will be an amount equal
to this Certificate's pro rata share of the aggregate Available Distribution to
be distributed on this Class of Certificates as of such Distribution Date, with
a final distribution to be made upon retirement of this Certificate as set forth
in the Trust Agreement.
[This Certificate was issued on [________ __, 1996] at a price equal to (i)
[___________]% of its original principal amount plus (ii) accrued interest at
closing equal to [____________]% of its original principal amount. Based on that
issue price, this Certificate was issued with original issue discount ("OID")
for federal income tax purposes in an amount equal to [_____________]% of its
original principal amount. The monthly yield to maturity of this Certificate
expressed on an annual basis is approximately [___]% and the amount of OID
allocable to the short first accrual period ([________ __, 1996 through
[________ __, 1996) as a percentage of the original principal amount of this
Certificate is approximately [_____________]%. The stated interest rate on this
Certificate is [___]% per annum. In computing both the monthly yield to maturity
and the OID amounts specified above, SASCO has used (i) a method embodying an
2
economic accrual of income, (ii) a prepayment assumption of [___% ___] (as
defined in the Prospectus) and (iii) [a 30 days per month/360 days per year
accounting convention]. The actual yield to maturity and OID amounts may differ
from the projected amounts.]
This Certificate is one of a duly authorized issue of Certificates
designated as Asset Backed Certificates, Series 1996-[ ] (herein called the
"Certificates"), and represents a Percentage Interest in the Class [ ]
Certificates equal to the quotient, expressed as a percentage, obtained by
dividing the denomination of this Certificate specified on the face hereof by
the aggregate initial principal amount of the Class [ ] Certificates. The
Certificates are issued in six Classes designated as specifically set forth in
the Trust Agreement. The Certificates will evidence in the aggregate 100% of the
beneficial ownership of the Trust.
Principal and interest losses on the Mortgage Loans, to the extent not
covered by mortgage insurance policies or other credit enhancement, will be
allocated on the applicable Distribution Date to Holders of the Certificates in
the manner set forth in the Trust Agreement. The Subordinated Certificates will
be subordinated to the Senior Certificates with respect to certain Realized
Losses and certain interest shortfalls on the Mortgage Loans as provided in the
Trust Agreement. All losses on the Mortgage Loans allocated to any Class of
Certificates will be allocated pro rata among the outstanding Certificates of
such Class, as described in the Trust Agreement.
The Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth in
the Trust Agreement. As provided in the Trust Agreement, withdrawals from the
Asset Proceeds Account and related accounts shall be made from time to time for
purposes other than distributions to Holders of the Certificates, such purposes
including reimbursement of Advances made, or certain expenses incurred, with
respect to the Mortgage Loans and administration of the Trust.
So long as this Certificate is registered in the name of a Clearing Agency
or its nominee, the Trustee will make payments of principal and of interest on
this Certificate by wire transfers of immediately available funds to the
Clearing Agency or its nominee. Otherwise, all distributions under the Trust
Agreement will be made by or on behalf of the Trustee either (i) by check mailed
to the address of the Holder as it appears on the Certificate Register on the
related Record Date or (ii) upon request to the Trustee in writing by the Record
Date immediately prior to the Distribution Date of any Holder of Certificates of
this Class having an aggregate initial principal amount equal to or in excess of
[$1,000,000], by wire transfer of immediately available funds to the account of
such Holder. A fee may be charged by the Trustee to a Certificateholder for any
payment made by wire transfer. Notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Trustee of a pendency
of such distribution and only upon presentation and surrender of this
Certificate at its principal Corporate Trust Office or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Trust Agreement.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of SASCO
and the Trustee and the rights of the Holders of the Certificates under the
Trust Agreement at any time by SASCO, the Master Servicer and the Trustee with
consent to the Holders of Certificates entitled to at least 66% of the Voting
Rights. Any such consent by the Holder of this Certificate shall be conclusive
and binding on such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Trust Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the Holders of any of the
Certificates.
As provided in the Trust Agreement and subject to any limitations on
transfer of this Certificate by a Clearing Agency or its nominee and certain
limitations set forth in the Trust Agreement, the transfer of this Certificate
is registerable in the Certificate Register upon surrender of this Certificate
for registration of transfer at the principal Corporate Trust Office of the
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Trustee or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Trust Agreement, duly endorsed
by or accompanied by an assignment in the form below or other written instrument
of transfer in form satisfactory to the Trustee and the Certificate Registrar
and duly executed by the Holder hereof or such Holder's attorney duly authorized
in writing, and thereupon one or more new Certificates of the same Class in the
same aggregate principal balance will be issued to the designated transferee or
transferees.
Subject to the terms of the Trust Agreement, the Certificates of this Class
will be registered as one or more certificates held by a Clearing Agency or its
nominee and beneficial interests will be held by Beneficial Owners through the
book-entry facilities of such Clearing Agency or its nominee in minimum
denominations of $[25,000] and integral multiples of $[1,000] in excess thereof,
except that one Certificate of this Class may be issued in a different
denomination and, if so issued, will be held in certificated, fully-registered
form.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, this Certificate is exchangeable for a new Certificate of the
same Class in the same denomination. No service charge will be made for any such
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
SASCO, the Master Servicer, the Trustee and the Certificate Registrar and
any agent of SASCO, the Master Servicer, the Trustee or the Certificate
Registrar may treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and none of SASCO, the Master Servicer, the
Trustee, the Certificate Registrar or any such agent shall be affected by notice
to the contrary.
Pursuant to the terms of the Trust Agreement, either SASCO or the Holders
of the majority of the Percentage Interest in the Class [R] Certificates, at
their respective options, subject to the limitations imposed by the Trust
Agreement, may redeem the Certificates, in whole but not in part, on any
Distribution Date on or after the earlier of (i) the Distribution Date on which,
after taking into account payments of principal to be made on such Distribution
Date, the aggregate Certificate Principal Balance of the Certificates is equal
to or less than 10% of the initial aggregate Certificate Principal Balance of
the Certificates and (ii) the Redemption Date. In the event that the
Certificates are redeemed, the purchase price distributable with respect to each
Class of such Certificates will be 100% of the then Certificate Principal
Balance of such Class, plus interest thereon through the Accounting Date
preceding the Distribution Date on which the Certificates are redeemed, net of
unreimbursed Advances and any previously unrealized losses with respect to real
property owned by the Trust, Realized Interest Shortfall and Shortfall allocable
to such Class on the Distribution Date on which the Certificates are redeemed.
Upon redemption and at the option of the redeeming party, (i) the REMIC may be
terminated, thereby causing the sale of the Mortgage Loans and other related
assets of the Trust and the retirement of the Certificates or (ii) the
Certificates may be held or resold by the redeeming party. Notice of optional
redemption of the Certificates will be mailed to the Holders according to the
procedures set out in the Trust Agreement. The REMIC also may be terminated and
the Certificates retired on any Distribution Date upon the Master Servicer's
determination, based upon an Opinion of Counsel, that the REMIC status of the
REMIC has been lost or that a substantial risk exists that such status will be
lost for the then current taxable year. Upon the termination of the REMIC,
payment of all amounts due on the Certificates and payment of all administrative
expenses associated with the REMIC, any remaining assets of the REMIC shall be
sold and the proceeds therefrom shall be distributed pro rata to the Holders of
the Class [R] Certificates, as set forth in the Trust Agreement.
Unless the certificate of authentication hereon has been executed by the
Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE AND THE TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF [_______________].
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The Trustee has executed this Certificate on behalf of the Trust not in its
individual capacity but solely as Trustee under the Trust Agreement, and the
Trustee shall be liable hereunder only in respect of the assets of the Trust.
Capitalized terms used and not defined herein have the meaning given them
in the Trust Agreement.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
Dated:
[---------------------------]
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS TRUSTEE
BY:
------------------------
Authorized Officer
[SEAL]
ATTEST:
------------------------------
Authorized Officer
CERTIFICATE OF AUTHENTICATION
THIS IS THE CLASS [ ] CERTIFICATE REFERRED TO IN THE WITHIN-MENTIONED TRUST
AGREEMENT.
[-----------------------]
AS CERTIFICATE REGISTRAR
BY:__________________________,
Authorized Signatory
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ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM .. as tenants in common UNIT GIFT MIN ACT -....Custodian....
TEN ENT.. as tenants by the (Cus) (Minors)
entireties Under Uniform Gifts to Minors Act
JT TEN... as joint tenants with .....................................
rights of survivor- [State]
ship and not as Tenants
in Common
Additional abbreviations may also be used though not in the above list.
6
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- -----------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE___________________________________________________________________
- -----------------------------------------------------------------------------
(Please print or typewrite name and address of assignee)
the within Certificate and does hereby irrevocably constitute and appoint
_________________________ (Attorney) to transfer the said Certificate in the
Certificate Register of the within-named Trust, with full power of substitution
in the premises.
Dated: _______________
----------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Certificate in every
particular without alteration or
enlargement or any change whatever.
- --------------------------------------
SIGNATURE GUARANTEED: The signature
must be guaranteed by a commercial bank
or trust company or by a member firm
of the New York Stock Exchange or
another national securities exchange.
Notarized or witnessed signatures
are not acceptable.
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DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds, to _________________, for the account of ____________, account
number _______________, or, if mailed by check, to _____________. Applicable
reports and statements should be mailed to ___________. This information is
provided by _____________________, the assignee named above, or
_____________________, as its agent.
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EXHIBIT [ ]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO SELLER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 1996-[_]
CLASS [ ] SUBORDINATED CERTIFICATE
THIS CLASS [ ] CERTIFICATE IS SUBORDINATED TO THE EXTENT DESCRIBED HEREIN AND IN
THE TRUST AGREEMENT REFERENCED HEREIN.
THE PRINCIPAL OF THIS CLASS [ ] CERTIFICATE IS SUBJECT TO PREPAYMENT FROM TIME
TO TIME WITHOUT SURRENDER OF OR NOTATION ON THIS CERTIFICATE. ACCORDINGLY, THE
CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE LESS THAN THAT SET
FORTH BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS CLASS [ ] CERTIFICATE REPRESENTS A REMIC REGULAR INTEREST FOR FEDERAL
INCOME TAX PURPOSES.
SERIES 1996-[ ] APPROXIMATE AGGREGATE INITIAL
PRINCIPAL BALANCE OF THE CLASS
[ ] CERTIFICATES AS OF THE
CLOSING DATE: $[_____________]
PASS-THROUGH RATE APPROXIMATE AGGREGATE
PER ANNUM: [___]% SCHEDULED PRINCIPAL BALANCE AS
OF THE CUT-OFF DATE OF
MORTGAGE LOANS HELD BY THE
TRUST: $[___________________]
DENOMINATION: $[ ]
DATE OF TRUST AGREEMENT: MASTER SERVICER:
AS OF [_______], 1996 [---------------------------]
CLOSING DATE:
[______], 1996
FIRST DISTRIBUTION DATE: TRUSTEE:
[______], 1996 [---------------------------]
NO. ___ CUSIP NO. [_________________]
1
ASSET BACKED CERTIFICATES, SERIES 1996-[ ]
CLASS [ ] SUBORDINATED CERTIFICATE
evidencing a beneficial ownership interest in a Trust consisting primarily of a
pool of Single Family Loans and Cooperative Loans (collectively, the "Mortgage
Loans") formed and sold by
SAXON ASSET SECURITIES COMPANY
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN SAXON ASSET
SECURITIES COMPANY, THE MASTER SERVICER, ANY SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
THIS CERTIFIES THAT:
is the registered owner of the Percentage Interest evidenced by this Certificate
in the Class [ ] Certificates issued by the Trust (the "Trust") created pursuant
to a trust agreement, dated as specified above (the "Trust Agreement"), among
Saxon Asset Securities Company (herein called "SASCO," which term includes any
successor entity under the Trust Agreement"), the Master Servicer and the
Trustee, a summary of certain of the pertinent provisions of which is set forth
herein. The Trust consists primarily of a pool of Mortgage Loans. To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Trust Agreement. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which Trust Agreement
the Holder of this Certificate, by virtue of the acceptance hereof, assents and
by which such Holder is bound.
Distributions of principal and of interest on this Certificate will be made
out of the Available Distribution, to the extent and subject to the limitations
set forth in the Trust Agreement, on the [25th] day of each month or, if such
[25th] day is not a Business Day, the next succeeding Business Day (each a
"Distribution Date"), commencing on the first Distribution Date specified above,
to the Person in whose name this Certificate is registered at the close of
business on the last Business Day of the month immediately preceding the month
of such distribution (the "Record Date"). All sums distributable on this
Certificate are payable in the coin or currency of the United States of America
as at the time of payment is legal tender for the payment of public and private
debts.
Interest on this Certificate will accrue [(based on a 360-day year of
twelve 30-day months)] from the first day of the month preceding the month in
which a Distribution Date occurs through the Accounting Date for such
Distribution Date on the Certificate Principal Balance of this Certificate
immediately prior to each Distribution Date at a per annum rate (the
"PassThrough Rate") of [ ]%. Principal of this Certificate will be paid in
accordance with the terms of the Trust Agreement. Principal and interest
allocated to this Certificate on any Distribution Date will be an amount equal
to this Certificate's pro rata share of the aggregate Available Distribution to
be distributed on this Class of Certificates as of such Distribution Date, with
a final distribution to be made upon retirement of this Certificate as set forth
in the Trust Agreement.
[This Certificate was issued on [________ __, 1996] at a price equal to (i)
[___________]% of its original principal amount plus (ii) accrued interest at
closing equal to [____________]% of its original principal amount. Based on that
issue price, this Certificate was issued with original issue discount ("OID")
for federal income tax purposes in an amount equal to [_____________]% of its
original principal amount. The monthly yield to maturity of this Certificate
expressed on an annual basis is approximately [___]% and the amount of OID
allocable to the short first accrual period ([________ __, 1996 through
[________ __, 1996) as a percentage of the original principal amount of this
Certificate is approximately [_____________]%. The stated interest rate on this
Certificate is [___]% per annum. In computing both the monthly yield to maturity
and the OID amounts specified above, SASCO has used (i) a method embodying an
2
economic accrual of income, (ii) a prepayment assumption of [___% ___] (as
defined in the Prospectus) and (iii) [a 30 days per month/360 days per year
accounting convention]. The actual yield to maturity and OID amounts may differ
from the projected amounts.]
This Certificate is one of a duly authorized issue of Certificates
designated as Asset Backed Certificates, Series 1996-[ ] (herein called the
"Certificates"), and represents a Percentage Interest in the Class [ ]
Certificates equal to the quotient, expressed as a percentage, obtained by
dividing the denomination of this Certificate specified on the face hereof by
the aggregate initial principal amount of the Class [ ] Certificates. The
Certificates are issued in six Classes designated as specifically set forth in
the Trust Agreement. The Certificates will evidence in the aggregate 100% of the
beneficial ownership of the Trust.
Principal and interest losses on the Mortgage Loans, to the extent not
covered by mortgage insurance policies or other credit enhancement, will be
allocated on the applicable Distribution Date to Holders of the Certificates in
the manner set forth in the Trust Agreement. The Subordinated Certificates will
be subordinated to the Senior Certificates with respect to certain Realized
Losses and certain interest shortfalls on the Mortgage Loans as provided in the
Trust Agreement. All losses on the Mortgage Loans allocated to any Class of
Certificates will be allocated pro rata among the outstanding Certificates of
such Class, as described in the Trust Agreement.
The Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth in
the Trust Agreement. As provided in the Trust Agreement, withdrawals from the
Asset Proceeds Account and related accounts shall be made from time to time for
purposes other than distributions to Holders of the Certificates, such purposes
including reimbursement of Advances made, or certain expenses incurred, with
respect to the Mortgage Loans and administration of the Trust.
So long as this Certificate is registered in the name of a Clearing Agency
or its nominee, the Trustee will make payments of principal and of interest on
this Certificate by wire transfers of immediately available funds to the
Clearing Agency or its nominee. Otherwise, all distributions under the Trust
Agreement will be made by or on behalf of the Trustee either (i) by check mailed
to the address of the Holder as it appears on the Certificate Register on the
related Record Date or (ii) upon request to the Trustee in writing by the Record
Date immediately prior to the Distribution Date of any Holder of Certificates of
this Class having an aggregate initial principal amount equal to or in excess of
[$1,000,000], by wire transfer of immediately available funds to the account of
such Holder. A fee may be charged by the Trustee to a Certificateholder for any
payment made by wire transfer. Notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Trustee of a pendency
of such distribution and only upon presentation and surrender of this
Certificate at its principal Corporate Trust Office or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Trust Agreement.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of SASCO
and the Trustee and the rights of the Holders of the Certificates under the
Trust Agreement at any time by SASCO, the Master Servicer and the Trustee with
consent to the Holders of Certificates entitled to at least 66% of the Voting
Rights. Any such consent by the Holder of this Certificate shall be conclusive
and binding on such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Trust Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the Holders of any of the
Certificates.
As provided in the Trust Agreement and subject to any limitations on
transfer of this Certificate by a Clearing Agency or its nominee and certain
limitations set forth in the Trust Agreement, the transfer of this Certificate
is registerable in the Certificate Register upon surrender of this Certificate
3
for registration of transfer at the principal Corporate Trust Office of the
Trustee or such other offices or agencies appointed by the Trustee for that
purpose and such other locations provided in the Trust Agreement, duly endorsed
by or accompanied by an assignment in the form below or other written instrument
of transfer in form satisfactory to the Trustee and the Certificate Registrar
and duly executed by the Holder hereof or such Holder's attorney duly authorized
in writing, and thereupon one or more new Certificates of the same Class in the
same aggregate principal balance will be issued to the designated transferee or
transferees.
This Class [ ] Certificate is not offered for sale, and is not
transferable, to Plan Investors (as defined in the Trust Agreement). Each Holder
of this Class [ ] Certificate, by virtue of its receipt of this Class [ ]
Certificate, will be deemed to have represented that it is not a Plan Investor.
Any transfer of any legal or beneficial interest in this Class [ ] Certificate,
directly or indirectly, to a Plan Investor shall be void ab initio. Any
purported transferee of this Class [ ] Certifiate that is a Plan Investor shall
be deemed to hold this Class [ ] Certificate in constructive trust for the last
transferor of this Class [ ] Certificate that was not a Plan Investor, and such
tranferor shall be restored as the owner of this Class [ ] Certificate as
completely as if no transfer(s) had ever occurred.
Subject to the terms of the Trust Agreement, the Certificates of this Class
will be registered as one or more certificates held by a Clearing Agency or its
nominee and beneficial interests will be held by Beneficial Owners through the
book-entry facilities of such Clearing Agency or its nominee in minimum
denominations of $[25,000] and integral multiples of $[1,000] in excess thereof,
except that one Certificate of this Class may be issued in a different
denomination and, if so issued, will be held in certificated, fully-registered
form.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, this Certificate is exchangeable for a new Certificate of the
same Class in the same denomination. No service charge will be made for any such
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
SASCO, the Master Servicer, the Trustee and the Certificate Registrar and
any agent of SASCO, the Master Servicer, the Trustee or the Certificate
Registrar may treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and none of SASCO, the Master Servicer, the
Trustee, the Certificate Registrar or any such agent shall be affected by notice
to the contrary.
Pursuant to the terms of the Trust Agreement, either SASCO or the Holders
of the majority of the Percentage Interest in the Class [R] Certificates, at
their respective options, subject to the limitations imposed by the Trust
Agreement, may redeem the Certificates, in whole but not in part, on any
Distribution Date on or after the earlier of (i) the Distribution Date on which,
after taking into account payments of principal to be made on such Distribution
Date, the aggregate Certificate Principal Balance of the Certificates is equal
to or less than 10% of the initial aggregate Certificate Principal Balance of
the Certificates and (ii) the Redemption Date. In the event that the
Certificates are redeemed, the purchase price distributable with respect to each
Class of such Certificates will be 100% of the then Certificate Principal
Balance of such Class, plus interest thereon through the Accounting Date
preceding the Distribution Date on which the Certificates are redeemed, net of
unreimbursed Advances and any previously unrealized losses with respect to real
property owned by the Trust, Realized Interest Shortfall and Shortfall allocable
to such Class on the Distribution Date on which the Certificates are redeemed.
Upon redemption and at the option of the redeeming party, (i) the REMIC may be
terminated, thereby causing the sale of the Mortgage Loans and other related
assets of the Trust and the retirement of the Certificates or (ii) the
Certificates may be held or resold by the redeeming party. Notice of optional
redemption of the Certificates will be mailed to the Holders according to the
procedures set out in the Trust Agreement. The REMIC also may be terminated and
the Certificates retired on any Distribution Date upon the Master Servicer's
determination, based upon an Opinion of Counsel, that the REMIC status of the
REMIC has been lost or that a substantial risk exists that such status will be
lost for the then current taxable year. Upon the termination of the REMIC,
payment of all amounts due on the Certificates and payment of all administrative
expenses associated with the REMIC, any remaining assets of the REMIC shall be
sold and the proceeds therefrom shall be distributed pro rata to the Holders of
the Class [R] Certificates, as set forth in the Trust Agreement.
4
Unless the certificate of authentication hereon has been executed by the
Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE AND THE TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF [_______________].
The Trustee has executed this Certificate on behalf of the Trust not in its
individual capacity but solely as Trustee under the Trust Agreement, and the
Trustee shall be liable hereunder only in respect of the assets of the Trust.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
Dated:
[---------------------------]
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS TRUSTEE
BY:
------------------------
Authorized Officer
[SEAL]
ATTEST:
------------------------------
Authorized Officer
CERTIFICATE OF AUTHENTICATION
THIS IS THE CLASS [ ] CERTIFICATE REFERRED TO IN THE WITHIN-MENTIONED TRUST
AGREEMENT.
[-----------------------]
AS CERTIFICATE REGISTRAR
BY:__________________________,
Authorized Signatory
5
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM .. as tenants in common UNIT GIFT MIN ACT -....Custodian....
TEN ENT.. as tenants by the (Cus) (Minors)
entireties Under Uniform Gifts to
Minors Act
JT TEN... as joint tenants with ....................................
rights of survivor- [State]
ship and not as Tenants
in Common
Additional abbreviations may also be used though not in the above list.
6
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________ PLEASE INSERT SOCIAL
SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE________________________________________________________
- ---------------------------------------------------------------------------
(Please print or typewrite name and address of assignee)
the within Certificate and does hereby irrevocably constitute and appoint
_________________________ (Attorney) to transfer the said Certificate in the
Certificate Register of the within-named Trust, with full power of substitution
in the premises.
Dated: _______________ --------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Certificate in every
particular without alteration or
enlargement or any change whatever.
- --------------------------------------
SIGNATURE GUARANTEED: The signature
must be guaranteed by a commercial bank
or trust company or by a member firm
of the New York Stock Exchange or
another national securities exchange.
Notarized or witnessed signatures
are not acceptable.
7
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds, to _________________, for the account of ____________, account
number _______________, or, if mailed by check, to _____________. Applicable
reports and statements should be mailed to ___________. This information is
provided by _____________________, the assignee named above, or
_____________________, as its agent.
8
EXHIBIT [ ]
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 1996-[_]
CLASS [ ] SUBORDINATED CERTIFICATE
THIS CLASS [ ] CERTIFICATE IS SUBORDINATED TO THE EXTENT DESCRIBED HEREIN AND IN
THE TRUST AGREEMENT REFERENCED HEREIN.
THE PRINCIPAL OF THIS CLASS [ ] CERTIFICATE IS SUBJECT TO PREPAYMENT FROM TIME
TO TIME WITHOUT SURRENDER OF OR NOTATION ON THIS CERTIFICATE. ACCORDINGLY, THE
CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE LESS THAN THAT SET
FORTH BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS CLASS [ ] CERTIFICATE REPRESENTS A REMIC REGULAR INTEREST FOR FEDERAL
INCOME TAX PURPOSES.
SERIES 1996-[ ] APPROXIMATE AGGREGATE INITIAL
PRINCIPAL BALANCE OF THE CLASS
[ ] CERTIFICATES AS OF THE
CLOSING DATE: $[_____________]
PASS-THROUGH RATE APPROXIMATE AGGREGATE
PER ANNUM: [___]% SCHEDULED PRINCIPAL BALANCE AS
OF THE CUT-OFF DATE OF
MORTGAGE LOANS HELD BY THE
TRUST: $[___________________]
DENOMINATION: $[ ]
DATE OF TRUST AGREEMENT:
AS OF [_______], 1996
CLOSING DATE: MASTER SERVICER:
[______], 1996 [---------------------------]
FIRST DISTRIBUTION DATE: TRUSTEE:
[______], 1996 [---------------------------]
NO. ___ CUSIP NO. [_________________]
1
ASSET BACKED CERTIFICATES, SERIES 1996-[ ]
CLASS [ ] SUBORDINATED CERTIFICATE
evidencing a beneficial ownership interest in a Trust consisting primarily of a
pool of Single Family Loans and Cooperative Loans (collectively, the "Mortgage
Loans") formed and sold by
SAXON ASSET SECURITIES COMPANY
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN SAXON ASSET
SECURITIES COMPANY, THE MASTER SERVICER, ANY SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
THIS CERTIFIES THAT:
is the registered owner of the Percentage Interest evidenced by this Certificate
in the Class [ ] Certificates issued by the Trust (the "Trust") created pursuant
to a trust agreement, dated as specified above (the "Trust Agreement"), among
Saxon Asset Securities Company (herein called "SASCO," which term includes any
successor entity under the Trust Agreement"), the Master Servicer and the
Trustee, a summary of certain of the pertinent provisions of which is set forth
herein. The Trust consists primarily of a pool of Mortgage Loans. To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Trust Agreement. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which Trust Agreement
the Holder of this Certificate, by virtue of the acceptance hereof, assents and
by which such Holder is bound.
Distributions of principal and of interest on this Certificate will be made
out of the Available Distribution, to the extent and subject to the limitations
set forth in the Trust Agreement, on the [25th] day of each month or, if such
[25th] day is not a Business Day, the next succeeding Business Day (each a
"Distribution Date"), commencing on the first Distribution Date specified above,
to the Person in whose name this Certificate is registered at the close of
business on the last Business Day of the month immediately preceding the month
of such distribution (the "Record Date"). All sums distributable on this
Certificate are payable in the coin or currency of the United States of America
as at the time of payment is legal tender for the payment of public and private
debts.
Interest on this Certificate will accrue [(based on a 360-day year of
twelve 30-day months)] from the first day of the month preceding the month in
which a Distribution Date occurs through the Accounting Date for such
Distribution Date on the Certificate Principal Balance of this Certificate
immediately prior to each Distribution Date at a per annum rate (the
"PassThrough Rate") of [ ]%. Principal of this Certificate will be paid in
accordance with the terms of the Trust Agreement. Principal and interest
allocated to this Certificate on any Distribution Date will be an amount equal
to this Certificate's pro rata share of the aggregate Available Distribution to
be distributed on this Class of Certificates as of such Distribution Date, with
a final distribution to be made upon retirement of this Certificate as set forth
in the Trust Agreement.
[This Certificate was issued on [________ __, 1996] at a price equal to (i)
[___________]% of its original principal amount plus (ii) accrued interest at
closing equal to [____________]% of its original principal amount. Based on that
issue price, this Certificate was issued with original issue discount ("OID")
for federal income tax purposes in an amount equal to [_____________]% of its
original principal amount. The monthly yield to maturity of this Certificate
expressed on an annual basis is approximately [___]% and the amount of OID
allocable to the short first accrual period ([________ __, 1996 through
[________ __, 1996) as a percentage of the original principal amount of this
Certificate is approximately [_____________]%. The stated interest rate on this
Certificate is [___]% per annum. In computing both the monthly yield to maturity
and the OID amounts specified above, SASCO has used (i) a method embodying an
2
economic accrual of income, (ii) a prepayment assumption of [___% ___] (as
defined in the Prospectus) and (iii) [a 30 days per month/360 days per year
accounting convention]. The actual yield to maturity and OID amounts may differ
from the projected amounts.]
This Certificate is one of a duly authorized issue of Certificates
designated as Asset Backed Certificates, Series 1996-[ ] (herein called the
"Certificates"), and represents a Percentage Interest in the Class [ ]
Certificates equal to the quotient, expressed as a percentage, obtained by
dividing the denomination of this Certificate specified on the face hereof by
the aggregate initial principal amount of the Class [ ] Certificates. The
Certificates are issued in six Classes designated as specifically set forth in
the Trust Agreement. The Certificates will evidence in the aggregate 100% of the
beneficial ownership of the Trust.
Principal and interest losses on the Mortgage Loans, to the extent not
covered by mortgage insurance policies or other credit enhancement, will be
allocated on the applicable Distribution Date to Holders of the Certificates in
the manner set forth in the Trust Agreement. The Subordinated Certificates will
be subordinated to the Senior Certificates with respect to certain Realized
Losses and certain interest shortfalls on the Mortgage Loans as provided in the
Trust Agreement. All losses on the Mortgage Loans allocated to any Class of
Certificates will be allocated pro rata among the outstanding Certificates of
such Class, as described in the Trust Agreement.
The Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth in
the Trust Agreement. As provided in the Trust Agreement, withdrawals from the
Asset Proceeds Account and related accounts shall be made from time to time for
purposes other than distributions to Holders of the Certificates, such purposes
including reimbursement of Advances made, or certain expenses incurred, with
respect to the Mortgage Loans and administration of the Trust.
All distributions on this Class [ ] Certificate under the Trust Agreement
will be made by or on behalf of the Trustee either (i) by check mailed to the
address of the Holder as it appears on the Certificate Register on the related
Record Date or (ii) upon request to the Trustee in writing by the Record Date
immediately prior to the Distribution Date of any Holder of Certificates of this
Class having an aggregate initial principal amount equal to or in excess of
[$1,000,000], by wire transfer of immediately available funds to the account of
such Holder. A fee may be charged by the Trustee to a Certificateholder for any
payment made by wire transfer. Notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Trustee of a pendency
of such distribution and only upon presentation and surrender of this
Certificate at its principal Corporate Trust Office or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Trust Agreement.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of SASCO
and the Trustee and the rights of the Holders of the Certificates under the
Trust Agreement at any time by SASCO, the Master Servicer and the Trustee with
consent to the Holders of Certificates entitled to at least 66% of the Voting
Rights. Any such consent by the Holder of this Certificate shall be conclusive
and binding on such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Trust Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the Holders of any of the
Certificates.
As provided in the Trust Agreement and subject to certain limitations set
forth therein, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the principal Corporate Trust Office of the Trustee or such other
3
offices or agencies appointed by the Trustee for that purpose and such other
locations provided in the Trust Agreement, duly endorsed by or accompanied by an
assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar and duly executed by
the Holder hereof or such Holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of the same Class in the same aggregate
principal balance will be issued to the designated transferee or transferees.
The Certificates of this Class [ ] are issuable in fully-registered,
certificated form without coupons in minimum denominations of $[______] and
increments of $[_____] in excess thereof, except that one Certificate of this
Class may be issued in a different denomination if necessary to represent the
remainder of the aggregate initial principal amount of the Certificates of this
Class.
As a condition to any purchase of this Class [ ] Certificate, the
prospective purchaser of this Class [ ] Certificate must provide the Trustee and
the Master Servicer with a properly completed Benefit Plan Affidavit, together
with a Benefit Plan Opinion if required in order to comply with such Benefit
Plan Affidavit. Any transfer of any legal or beneficial interest in this Class [
] Certificate, directly or indirectly, in violation of the restrictions on the
transfer of this Certificate outlined above and in the Trust Agreement shall be
void ab initio. If this Class [ ] Certificate is transferred in violation of the
restrictions on the transfer of this Certificate outlined above and in the Trust
Agreement, the purported transferee shall be deemed to hold this Class [ ]
Certificate in constructive trust for the transferor, and such tranferor shall
be restored as the owner of this Class [ ] Certificate as completely as if no
transfer had ever occurred.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, this Certificate is exchangeable for a new Certificate of the
same Class in the same denomination. No service charge will be made for any such
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
SASCO, the Master Servicer, the Trustee and the Certificate Registrar and
any agent of SASCO, the Master Servicer, the Trustee or the Certificate
Registrar may treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and none of SASCO, the Master Servicer, the
Trustee, the Certificate Registrar or any such agent shall be affected by notice
to the contrary.
Pursuant to the terms of the Trust Agreement, either SASCO or the Holders
of the majority of the Percentage Interest in the Class [R] Certificates, at
their respective options, subject to the limitations imposed by the Trust
Agreement, may redeem the Certificates, in whole but not in part, on any
Distribution Date on or after the earlier of (i) the Distribution Date on which,
after taking into account payments of principal to be made on such Distribution
Date, the aggregate Certificate Principal Balance of the Certificates is equal
to or less than 10% of the initial aggregate Certificate Principal Balance of
the Certificates and (ii) the Redemption Date. In the event that the
Certificates are redeemed, the purchase price distributable with respect to each
Class of such Certificates will be 100% of the then Certificate Principal
Balance of such Class, plus interest thereon through the Accounting Date
preceding the Distribution Date on which the Certificates are redeemed, net of
unreimbursed Advances and any previously unrealized losses with respect to real
property owned by the Trust, Realized Interest Shortfall and Shortfall allocable
to such Class on the Distribution Date on which the Certificates are redeemed.
Upon redemption and at the option of the redeeming party, (i) the REMIC may be
terminated, thereby causing the sale of the Mortgage Loans and other related
assets of the Trust and the retirement of the Certificates or (ii) the
Certificates may be held or resold by the redeeming party. Notice of optional
redemption of the Certificates will be mailed to the Holders according to the
procedures set out in the Trust Agreement. The REMIC also may be terminated and
the Certificates retired on any Distribution Date upon the Master Servicer's
determination, based upon an Opinion of Counsel, that the REMIC status of the
REMIC has been lost or that a substantial risk exists that such status will be
lost for the then current taxable year. Upon the termination of the REMIC,
payment of all amounts due on the Certificates and payment of all administrative
expenses associated with the REMIC, any remaining assets of the REMIC shall be
sold and the proceeds therefrom shall be distributed pro rata to the Holders of
the Class [R] Certificates, as set forth in the Trust Agreement.
4
Unless the certificate of authentication hereon has been executed by the
Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE AND THE TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF [_______________].
The Trustee has executed this Certificate on behalf of the Trust not in its
individual capacity but solely as Trustee under the Trust Agreement, and the
Trustee shall be liable hereunder only in respect of the assets of the Trust.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
Dated:
[---------------------------]
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS TRUSTEE
BY:
------------------------
Authorized Officer
[SEAL]
ATTEST:
------------------------------
Authorized Officer
CERTIFICATE OF AUTHENTICATION
THIS IS THE CLASS [ ] CERTIFICATE REFERRED TO IN THE WITHIN-MENTIONED TRUST
AGREEMENT.
[-----------------------]
AS CERTIFICATE REGISTRAR
BY:__________________________,
Authorized Signatory
5
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM .. as tenants in common UNIT GIFT MIN ACT -....Custodian....
TEN ENT.. as tenants by the (Cus) (Minors)
entireties Under Uniform Gifts to Minors Act
JT TEN... as joint tenants with
....................................
rights of survivor- [State]
ship and not as Tenants
in Common
Additional abbreviations may also be used though not in the above list.
6
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________ PLEASE INSERT SOCIAL
SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE________________________________________________________
- ---------------------------------------------------------------------------
(Please print or typewrite name and address of assignee)
the within Certificate and does hereby irrevocably constitute and appoint
_________________________ (Attorney) to transfer the said Certificate in the
Certificate Register of the within-named Trust, with full power of substitution
in the premises.
Dated: _______________ --------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Certificate in every
particular without alteration or
enlargement or any change whatever.
- --------------------------------------
SIGNATURE GUARANTEED: The signature
must be guaranteed by a commercial bank
or trust company or by a member firm
of the New York Stock Exchange or
another national securities exchange.
Notarized or witnessed signatures
are not acceptable.
7
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds, to _________________, for the account of ____________, account
number _______________, or, if mailed by check, to _____________. Applicable
reports and statements should be mailed to ___________. This information is
provided by _____________________, the assignee named above, or
_____________________, as its agent.
8
EXHIBIT [ ]
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 1996-[_]
CLASS [ ] SUBORDINATED CERTIFICATE
THIS CLASS [ ] CERTIFICATE IS SUBORDINATED TO THE EXTENT DESCRIBED HEREIN AND IN
THE TRUST AGREEMENT REFERENCED HEREIN.
THE PRINCIPAL OF THIS CLASS [ ] CERTIFICATE IS SUBJECT TO PREPAYMENT FROM TIME
TO TIME WITHOUT SURRENDER OF OR NOTATION ON THIS CERTIFICATE. ACCORDINGLY, THE
CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE LESS THAN THAT SET
FORTH BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS CLASS [ ] CERTIFICATE REPRESENTS A REMIC REGULAR INTEREST FOR FEDERAL
INCOME TAX PURPOSES.
SERIES 1996-[ ] APPROXIMATE AGGREGATE INITIAL
PRINCIPAL BALANCE OF THE CLASS
[ ] CERTIFICATES AS OF THE
CLOSING DATE: $[_____________]
PASS-THROUGH RATE APPROXIMATE AGGREGATE
PER ANNUM: [___]% SCHEDULED PRINCIPAL BALANCE AS
OF THE CUT-OFF DATE OF
MORTGAGE LOANS HELD BY THE
TRUST: $[___________________]
DENOMINATION: $[ ]
DATE OF TRUST AGREEMENT:
AS OF [_______], 1996
CLOSING DATE: MASTER SERVICER:
[______], 1996 [---------------------------]
FIRST DISTRIBUTION DATE: TRUSTEE:
[______], 1996 [---------------------------]
NO. ___ CUSIP NO. [_________________]
1
ASSET BACKED CERTIFICATES, SERIES 1996-[ ]
CLASS [ ] SUBORDINATED CERTIFICATE
evidencing a beneficial ownership interest in a Trust consisting primarily of a
pool of Single Family Loans and Cooperative Loans (collectively, the "Mortgage
Loans") formed and sold by
SAXON ASSET SECURITIES COMPANY
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN SAXON ASSET
SECURITIES COMPANY, THE MASTER SERVICER, ANY SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
THIS CERTIFIES THAT:
is the registered owner of the Percentage Interest evidenced by this Certificate
in the Class [ ] Certificates issued by the Trust (the "Trust") created pursuant
to a trust agreement, dated as specified above (the "Trust Agreement"), among
Saxon Asset Securities Company (herein called "SASCO," which term includes any
successor entity under the Trust Agreement"), the Master Servicer and the
Trustee, a summary of certain of the pertinent provisions of which is set forth
herein. The Trust consists primarily of a pool of Mortgage Loans. To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Trust Agreement. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which Trust Agreement
the Holder of this Certificate, by virtue of the acceptance hereof, assents and
by which such Holder is bound.
Distributions of principal and of interest on this Certificate will be made
out of the Available Distribution, to the extent and subject to the limitations
set forth in the Trust Agreement, on the [25th] day of each month or, if such
[25th] day is not a Business Day, the next succeeding Business Day (each a
"Distribution Date"), commencing on the first Distribution Date specified above,
to the Person in whose name this Certificate is registered at the close of
business on the last Business Day of the month immediately preceding the month
of such distribution (the "Record Date"). All sums distributable on this
Certificate are payable in the coin or currency of the United States of America
as at the time of payment is legal tender for the payment of public and private
debts.
Interest on this Certificate will accrue [(based on a 360-day year of
twelve 30-day months)] from the first day of the month preceding the month in
which a Distribution Date occurs through the Accounting Date for such
Distribution Date on the Certificate Principal Balance of this Certificate
immediately prior to each Distribution Date at a per annum rate (the
"PassThrough Rate") of [ ]%. Principal of this Certificate will be paid in
accordance with the terms of the Trust Agreement. Principal and interest
allocated to this Certificate on any Distribution Date will be an amount equal
to this Certificate's pro rata share of the aggregate Available Distribution to
be distributed on this Class of Certificates as of such Distribution Date, with
a final distribution to be made upon retirement of this Certificate as set forth
in the Trust Agreement.
[This Certificate was issued on [________ __, 1996] at a price equal to (i)
[___________]% of its original principal amount plus (ii) accrued interest at
closing equal to [____________]% of its original principal amount. Based on that
issue price, this Certificate was issued with original issue discount ("OID")
for federal income tax purposes in an amount equal to [_____________]% of its
original principal amount. The monthly yield to maturity of this Certificate
expressed on an annual basis is approximately [___]% and the amount of OID
allocable to the short first accrual period ([________ __, 1996 through
[________ __, 1996) as a percentage of the original principal amount of this
Certificate is approximately [_____________]%. The stated interest rate on this
Certificate is [___]% per annum. In computing both the monthly yield to maturity
and the OID amounts specified above, SASCO has used (i) a method embodying an
2
economic accrual of income, (ii) a prepayment assumption of [___% ___] (as
defined in the Prospectus) and (iii) [a 30 days per month/360 days per year
accounting convention]. The actual yield to maturity and OID amounts may differ
from the projected amounts.]
This Certificate is one of a duly authorized issue of Certificates
designated as Asset Backed Certificates, Series 1996-[ ] (herein called the
"Certificates"), and represents a Percentage Interest in the Class [ ]
Certificates equal to the quotient, expressed as a percentage, obtained by
dividing the denomination of this Certificate specified on the face hereof by
the aggregate initial principal amount of the Class [ ] Certificates. The
Certificates are issued in six Classes designated as specifically set forth in
the Trust Agreement. The Certificates will evidence in the aggregate 100% of the
beneficial ownership of the Trust.
Principal and interest losses on the Mortgage Loans, to the extent not
covered by mortgage insurance policies or other credit enhancement, will be
allocated on the applicable Distribution Date to Holders of the Certificates in
the manner set forth in the Trust Agreement. The Subordinated Certificates will
be subordinated to the Senior Certificates with respect to certain Realized
Losses and certain interest shortfalls on the Mortgage Loans as provided in the
Trust Agreement. All losses on the Mortgage Loans allocated to any Class of
Certificates will be allocated pro rata among the outstanding Certificates of
such Class, as described in the Trust Agreement.
The Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth in
the Trust Agreement. As provided in the Trust Agreement, withdrawals from the
Asset Proceeds Account and related accounts shall be made from time to time for
purposes other than distributions to Holders of the Certificates, such purposes
including reimbursement of Advances made, or certain expenses incurred, with
respect to the Mortgage Loans and administration of the Trust.
All distributions on this Class [ ] Certificate under the Trust Agreement
will be made by or on behalf of the Trustee either (i) by check mailed to the
address of the Holder as it appears on the Certificate Register on the related
Record Date or (ii) upon request to the Trustee in writing by the Record Date
immediately prior to the Distribution Date of any Holder of Certificates of this
Class having an aggregate initial principal amount equal to or in excess of
[$1,000,000], by wire transfer of immediately available funds to the account of
such Holder. A fee may be charged by the Trustee to a Certificateholder for any
payment made by wire transfer. Notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Trustee of a pendency
of such distribution and only upon presentation and surrender of this
Certificate at its principal Corporate Trust Office or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Trust Agreement.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of SASCO
and the Trustee and the rights of the Holders of the Certificates under the
Trust Agreement at any time by SASCO, the Master Servicer and the Trustee with
consent to the Holders of Certificates entitled to at least 66% of the Voting
Rights. Any such consent by the Holder of this Certificate shall be conclusive
and binding on such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Trust Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the Holders of any of the
Certificates.
As provided in the Trust Agreement and subject to certain limitations set
forth therein, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the principal Corporate Trust Office of the Trustee or such other
offices or agencies appointed by the Trustee for that purpose and such other
locations provided in the Trust Agreement, duly endorsed by or accompanied by an
assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar and duly executed by
the Holder hereof or such Holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of the same Class in the same aggregate
principal balance will be issued to the designated transferee or transferees.
The Certificates of this Class [ ] are issuable in fully-registered,
certificated form without coupons in minimum denominations of $[______] and
increments of $[_____] in excess thereof, except that one Certificate of this
Class may be issued in a different denomination if necessary to represent the
remainder of the aggregate initial principal amount of the Certificates of this
Class.
As a condition to any purchase of this Class [ ] Certificate, the
prospective purchaser of this Class [ ] Certificate must provide the Trustee and
the Master Servicer with a properly completed Benefit Plan Affidavit, together
with a Benefit Plan Opinion if required in order to comply with such Benefit
3
Plan Affidavit. Any transfer of any legal or beneficial interest in this Class [
] Certificate, directly or indirectly, in violation of the restrictions on the
transfer of this Certificate outlined above and in the Trust Agreement shall be
void ab initio. If this Class [ ] Certificate is transferred in violation of the
restrictions on the transfer of this Certificate outlined above and in the Trust
Agreement, the purported transferee shall be deemed to hold this Class [ ]
Certificate in constructive trust for the transferor, and such tranferor shall
be restored as the owner of this Class [ ] Certificate as completely as if no
transfer had ever occurred.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, this Certificate is exchangeable for a new Certificate of the
same Class in the same denomination. No service charge will be made for any such
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
SASCO, the Master Servicer, the Trustee and the Certificate Registrar and
any agent of SASCO, the Master Servicer, the Trustee or the Certificate
Registrar may treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and none of SASCO, the Master Servicer, the
Trustee, the Certificate Registrar or any such agent shall be affected by notice
to the contrary.
Pursuant to the terms of the Trust Agreement, either SASCO or the Holders
of the majority of the Percentage Interest in the Class [R] Certificates, at
their respective options, subject to the limitations imposed by the Trust
Agreement, may redeem the Certificates, in whole but not in part, on any
Distribution Date on or after the earlier of (i) the Distribution Date on which,
after taking into account payments of principal to be made on such Distribution
Date, the aggregate Certificate Principal Balance of the Certificates is equal
to or less than 10% of the initial aggregate Certificate Principal Balance of
the Certificates and (ii) the Redemption Date. In the event that the
Certificates are redeemed, the purchase price distributable with respect to each
Class of such Certificates will be 100% of the then Certificate Principal
Balance of such Class, plus interest thereon through the Accounting Date
preceding the Distribution Date on which the Certificates are redeemed, net of
unreimbursed Advances and any previously unrealized losses with respect to real
property owned by the Trust, Realized Interest Shortfall and Shortfall allocable
to such Class on the Distribution Date on which the Certificates are redeemed.
Upon redemption and at the option of the redeeming party, (i) the REMIC may be
terminated, thereby causing the sale of the Mortgage Loans and other related
assets of the Trust and the retirement of the Certificates or (ii) the
Certificates may be held or resold by the redeeming party. Notice of optional
redemption of the Certificates will be mailed to the Holders according to the
procedures set out in the Trust Agreement. The REMIC also may be terminated and
the Certificates retired on any Distribution Date upon the Master Servicer's
determination, based upon an Opinion of Counsel, that the REMIC status of the
REMIC has been lost or that a substantial risk exists that such status will be
lost for the then current taxable year. Upon the termination of the REMIC,
payment of all amounts due on the Certificates and payment of all administrative
expenses associated with the REMIC, any remaining assets of the REMIC shall be
sold and the proceeds therefrom shall be distributed pro rata to the Holders of
the Class [R] Certificates, as set forth in the Trust Agreement.
4
Unless the certificate of authentication hereon has been executed by the
Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE AND THE TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF [_______________].
The Trustee has executed this Certificate on behalf of the Trust not in its
individual capacity but solely as Trustee under the Trust Agreement, and the
Trustee shall be liable hereunder only in respect of the assets of the Trust.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
Dated:
[---------------------------]
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS TRUSTEE
BY:
------------------------
Authorized Officer
[SEAL]
ATTEST:
------------------------------
Authorized Officer
CERTIFICATE OF AUTHENTICATION
THIS IS THE CLASS [ ] CERTIFICATE REFERRED TO IN THE WITHIN-MENTIONED TRUST
AGREEMENT.
[-----------------------]
AS CERTIFICATE REGISTRAR
BY:__________________________,
Authorized Signatory
5
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM .. as tenants in common UNIT GIFT MIN ACT -....Custodian....
TEN ENT.. as tenants by the (Cus) (Minors)
entireties Under Uniform Gifts to Minors Act
JT TEN... as joint tenants with
....................................
rights of survivor- [State]
ship and not as Tenants
in Common
Additional abbreviations may also be used though not in the above list.
6
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________ PLEASE INSERT SOCIAL
SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE________________________________________________________
- ---------------------------------------------------------------------------
(Please print or typewrite name and address of assignee)
the within Certificate and does hereby irrevocably constitute and appoint
_________________________ (Attorney) to transfer the said Certificate in the
Certificate Register of the within-named Trust, with full power of substitution
in the premises.
Dated: _______________ --------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Certificate in every
particular without alteration or
enlargement or any change whatever.
- --------------------------------------
SIGNATURE GUARANTEED: The signature
must be guaranteed by a commercial bank
or trust company or by a member firm
of the New York Stock Exchange or
another national securities exchange.
Notarized or witnessed signatures
are not acceptable.
7
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds, to _________________, for the account of ____________, account
number _______________, or, if mailed by check, to _____________. Applicable
reports and statements should be mailed to ___________. This information is
provided by _____________________, the assignee named above, or
_____________________, as its agent.
8
EXHIBIT [ ]
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 1996-[_]
CLASS [ ] SUBORDINATED CERTIFICATE
THIS CLASS [ ] CERTIFICATE IS SUBORDINATED TO THE EXTENT DESCRIBED HEREIN AND IN
THE TRUST AGREEMENT REFERENCED HEREIN.
THE PRINCIPAL OF THIS CLASS [ ] CERTIFICATE IS SUBJECT TO PREPAYMENT FROM TIME
TO TIME WITHOUT SURRENDER OF OR NOTATION ON THIS CERTIFICATE. ACCORDINGLY, THE
CERTIFICATE PRINCIPAL BALANCE OF THIS CERTIFICATE MAY BE LESS THAN THAT SET
FORTH BELOW. ANYONE ACQUIRING THIS CERTIFICATE MAY ASCERTAIN ITS CURRENT
CERTIFICATE PRINCIPAL BALANCE BY INQUIRY OF THE TRUSTEE.
THIS CLASS [ ] CERTIFICATE REPRESENTS A REMIC REGULAR INTEREST FOR FEDERAL
INCOME TAX PURPOSES.
SERIES 1996-[ ] APPROXIMATE AGGREGATE INITIAL
PRINCIPAL BALANCE OF THE CLASS
[ ] CERTIFICATES AS OF THE
CLOSING DATE: $[_____________]
PASS-THROUGH RATE APPROXIMATE AGGREGATE
PER ANNUM: [___]% SCHEDULED PRINCIPAL BALANCE AS
OF THE CUT-OFF DATE OF
MORTGAGE LOANS HELD BY THE
TRUST: $[___________________]
DENOMINATION: $[ ]
DATE OF TRUST AGREEMENT:
AS OF [_______], 1996
CLOSING DATE: MASTER SERVICER:
[______], 1996 [---------------------------]
FIRST DISTRIBUTION DATE: TRUSTEE:
[______], 1996 [---------------------------]
NO. ___ CUSIP NO. [_________________]
1
ASSET BACKED CERTIFICATES, SERIES 1996-[ ]
CLASS [ ] SUBORDINATED CERTIFICATE
evidencing a beneficial ownership interest in a Trust consisting primarily of a
pool of Single Family Loans and Cooperative Loans (collectively, the "Mortgage
Loans") formed and sold by
SAXON ASSET SECURITIES COMPANY
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN SAXON ASSET
SECURITIES COMPANY, THE MASTER SERVICER, ANY SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
THIS CERTIFIES THAT:
is the registered owner of the Percentage Interest evidenced by this Certificate
in the Class [ ] Certificates issued by the Trust (the "Trust") created pursuant
to a trust agreement, dated as specified above (the "Trust Agreement"), among
Saxon Asset Securities Company (herein called "SASCO," which term includes any
successor entity under the Trust Agreement"), the Master Servicer and the
Trustee, a summary of certain of the pertinent provisions of which is set forth
herein. The Trust consists primarily of a pool of Mortgage Loans. To the extent
not defined herein, the capitalized terms used herein have the meanings assigned
in the Trust Agreement. This Certificate is issued under and is subject to the
terms, provisions and conditions of the Trust Agreement to which Trust Agreement
the Holder of this Certificate, by virtue of the acceptance hereof, assents and
by which such Holder is bound.
Distributions of principal and of interest on this Certificate will be made
out of the Available Distribution, to the extent and subject to the limitations
set forth in the Trust Agreement, on the [25th] day of each month or, if such
[25th] day is not a Business Day, the next succeeding Business Day (each a
"Distribution Date"), commencing on the first Distribution Date specified above,
to the Person in whose name this Certificate is registered at the close of
business on the last Business Day of the month immediately preceding the month
of such distribution (the "Record Date"). All sums distributable on this
Certificate are payable in the coin or currency of the United States of America
as at the time of payment is legal tender for the payment of public and private
debts.
Interest on this Certificate will accrue [(based on a 360-day year of
twelve 30-day months)] from the first day of the month preceding the month in
which a Distribution Date occurs through the Accounting Date for such
Distribution Date on the Certificate Principal Balance of this Certificate
immediately prior to each Distribution Date at a per annum rate (the
"PassThrough Rate") of [ ]%. Principal of this Certificate will be paid in
accordance with the terms of the Trust Agreement. Principal and interest
allocated to this Certificate on any Distribution Date will be an amount equal
to this Certificate's pro rata share of the aggregate Available Distribution to
be distributed on this Class of Certificates as of such Distribution Date, with
a final distribution to be made upon retirement of this Certificate as set forth
in the Trust Agreement.
[This Certificate was issued on [________ __, 1996] at a price equal to (i)
[___________]% of its original principal amount plus (ii) accrued interest at
closing equal to [____________]% of its original principal amount. Based on that
issue price, this Certificate was issued with original issue discount ("OID")
for federal income tax purposes in an amount equal to [_____________]% of its
original principal amount. The monthly yield to maturity of this Certificate
expressed on an annual basis is approximately [___]% and the amount of OID
allocable to the short first accrual period ([________ __, 1996 through
[________ __, 1996) as a percentage of the original principal amount of this
Certificate is approximately [_____________]%. The stated interest rate on this
Certificate is [___]% per annum. In computing both the monthly yield to maturity
and the OID amounts specified above, SASCO has used (i) a method embodying an
2
economic accrual of income, (ii) a prepayment assumption of [___% ___] (as
defined in the Prospectus) and (iii) [a 30 days per month/360 days per year
accounting convention]. The actual yield to maturity and OID amounts may differ
from the projected amounts.]
This Certificate is one of a duly authorized issue of Certificates
designated as Asset Backed Certificates, Series 1996-[ ] (herein called the
"Certificates"), and represents a Percentage Interest in the Class [ ]
Certificates equal to the quotient, expressed as a percentage, obtained by
dividing the denomination of this Certificate specified on the face hereof by
the aggregate initial principal amount of the Class [ ] Certificates. The
Certificates are issued in six Classes designated as specifically set forth in
the Trust Agreement. The Certificates will evidence in the aggregate 100% of the
beneficial ownership of the Trust.
Principal and interest losses on the Mortgage Loans, to the extent not
covered by mortgage insurance policies or other credit enhancement, will be
allocated on the applicable Distribution Date to Holders of the Certificates in
the manner set forth in the Trust Agreement. The Subordinated Certificates will
be subordinated to the Senior Certificates with respect to certain Realized
Losses and certain interest shortfalls on the Mortgage Loans as provided in the
Trust Agreement. All losses on the Mortgage Loans allocated to any Class of
Certificates will be allocated pro rata among the outstanding Certificates of
such Class, as described in the Trust Agreement.
The Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth in
the Trust Agreement. As provided in the Trust Agreement, withdrawals from the
Asset Proceeds Account and related accounts shall be made from time to time for
purposes other than distributions to Holders of the Certificates, such purposes
including reimbursement of Advances made, or certain expenses incurred, with
respect to the Mortgage Loans and administration of the Trust.
All distributions on this Class [ ] Certificate under the Trust Agreement
will be made by or on behalf of the Trustee either (i) by check mailed to the
address of the Holder as it appears on the Certificate Register on the related
Record Date or (ii) upon request to the Trustee in writing by the Record Date
immediately prior to the Distribution Date of any Holder of Certificates of this
Class having an aggregate initial principal amount equal to or in excess of
[$1,000,000], by wire transfer of immediately available funds to the account of
such Holder. A fee may be charged by the Trustee to a Certificateholder for any
payment made by wire transfer. Notwithstanding the above, the final distribution
on this Certificate will be made after due notice by the Trustee of a pendency
of such distribution and only upon presentation and surrender of this
Certificate at its principal Corporate Trust Office or such other offices or
agencies appointed by the Trustee for that purpose and such other locations
provided in the Trust Agreement.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of SASCO
and the Trustee and the rights of the Holders of the Certificates under the
Trust Agreement at any time by SASCO, the Master Servicer and the Trustee with
consent to the Holders of Certificates entitled to at least 66% of the Voting
Rights. Any such consent by the Holder of this Certificate shall be conclusive
and binding on such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent is made upon this
Certificate. The Trust Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the Holders of any of the
Certificates.
As provided in the Trust Agreement and subject to certain limitations set
forth therein, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the principal Corporate Trust Office of the Trustee or such other
3
offices or agencies appointed by the Trustee for that purpose and such other
locations provided in the Trust Agreement, duly endorsed by or accompanied by an
assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar and duly executed by
the Holder hereof or such Holder's attorney duly authorized in writing, and
thereupon one or more new Certificates of the same Class in the same aggregate
principal balance will be issued to the designated transferee or transferees.
The Certificates of this Class [ ] are issuable in fully-registered,
certificated form without coupons in minimum denominations of $[______] and
increments of $[_____] in excess thereof, except that one Certificate of this
Class may be issued in a different denomination if necessary to represent the
remainder of the aggregate initial principal amount of the Certificates of this
Class.
As a condition to any purchase of this Class [ ] Certificate, the
prospective purchaser of this Class [ ] Certificate must provide the Trustee and
the Master Servicer with a properly completed Benefit Plan Affidavit, together
with a Benefit Plan Opinion if required in order to comply with such Benefit
Plan Affidavit. Any transfer of any legal or beneficial interest in this Class [
] Certificate, directly or indirectly, in violation of the restrictions on the
transfer of this Certificate outlined above and in the Trust Agreement shall be
void ab initio. If this Class [ ] Certificate is transferred in violation of the
restrictions on the transfer of this Certificate outlined above and in the Trust
Agreement, the purported transferee shall be deemed to hold this Class [ ]
Certificate in constructive trust for the transferor, and such tranferor shall
be restored as the owner of this Class [ ] Certificate as completely as if no
transfer had ever occurred.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, this Certificate is exchangeable for a new Certificate of the
same Class in the same denomination. No service charge will be made for any such
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Certificates.
SASCO, the Master Servicer, the Trustee and the Certificate Registrar and
any agent of SASCO, the Master Servicer, the Trustee or the Certificate
Registrar may treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and none of SASCO, the Master Servicer, the
Trustee, the Certificate Registrar or any such agent shall be affected by notice
to the contrary.
Pursuant to the terms of the Trust Agreement, either SASCO or the Holders
of the majority of the Percentage Interest in the Class [R] Certificates, at
their respective options, subject to the limitations imposed by the Trust
Agreement, may redeem the Certificates, in whole but not in part, on any
Distribution Date on or after the earlier of (i) the Distribution Date on which,
after taking into account payments of principal to be made on such Distribution
Date, the aggregate Certificate Principal Balance of the Certificates is equal
to or less than 10% of the initial aggregate Certificate Principal Balance of
the Certificates and (ii) the Redemption Date. In the event that the
Certificates are redeemed, the purchase price distributable with respect to each
Class of such Certificates will be 100% of the then Certificate Principal
Balance of such Class, plus interest thereon through the Accounting Date
preceding the Distribution Date on which the Certificates are redeemed, net of
unreimbursed Advances and any previously unrealized losses with respect to real
property owned by the Trust, Realized Interest Shortfall and Shortfall allocable
to such Class on the Distribution Date on which the Certificates are redeemed.
Upon redemption and at the option of the redeeming party, (i) the REMIC may be
terminated, thereby causing the sale of the Mortgage Loans and other related
assets of the Trust and the retirement of the Certificates or (ii) the
Certificates may be held or resold by the redeeming party. Notice of optional
redemption of the Certificates will be mailed to the Holders according to the
procedures set out in the Trust Agreement. The REMIC also may be terminated and
the Certificates retired on any Distribution Date upon the Master Servicer's
determination, based upon an Opinion of Counsel, that the REMIC status of the
REMIC has been lost or that a substantial risk exists that such status will be
lost for the then current taxable year. Upon the termination of the REMIC,
payment of all amounts due on the Certificates and payment of all administrative
expenses associated with the REMIC, any remaining assets of the REMIC shall be
sold and the proceeds therefrom shall be distributed pro rata to the Holders of
the Class [R] Certificates, as set forth in the Trust Agreement.
4
Unless the certificate of authentication hereon has been executed by the
Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE AND THE TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF [_______________].
The Trustee has executed this Certificate on behalf of the Trust not in its
individual capacity but solely as Trustee under the Trust Agreement, and the
Trustee shall be liable hereunder only in respect of the assets of the Trust.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
Dated:
[---------------------------]
NOT IN ITS INDIVIDUAL CAPACITY
BUT SOLELY AS TRUSTEE
BY:
------------------------
Authorized Officer
[SEAL]
ATTEST:
------------------------------
Authorized Officer
CERTIFICATE OF AUTHENTICATION
THIS IS THE CLASS [ ] CERTIFICATE REFERRED TO IN THE WITHIN-MENTIONED TRUST
AGREEMENT.
[-----------------------]
AS CERTIFICATE REGISTRAR
BY:__________________________,
Authorized Signatory
5
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM .. as tenants in common UNIT GIFT MIN ACT -....Custodian....
TEN ENT.. as tenants by the (Cus) (Minors)
entireties Under Uniform Gifts to Minors Act
JT TEN... as joint tenants with
....................................
rights of survivor- [State]
ship and not as Tenants
in Common
Additional abbreviations may also be used though not in the above list.
6
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________ PLEASE INSERT SOCIAL
SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE________________________________________________________
- ---------------------------------------------------------------------------
(Please print or typewrite name and address of assignee)
the within Certificate and does hereby irrevocably constitute and appoint
_________________________ (Attorney) to transfer the said Certificate in the
Certificate Register of the within-named Trust, with full power of substitution
in the premises.
Dated: _______________ --------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Certificate in every
particular without alteration or
enlargement or any change whatever.
- --------------------------------------
SIGNATURE GUARANTEED: The signature
must be guaranteed by a commercial bank
or trust company or by a member firm
of the New York Stock Exchange or
another national securities exchange.
Notarized or witnessed signatures
are not acceptable.
7
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds, to _________________, for the account of ____________, account
number _______________, or, if mailed by check, to _____________. Applicable
reports and statements should be mailed to ___________. This information is
provided by _____________________, the assignee named above, or
_____________________, as its agent.
8
EXHIBIT [R]
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 1996-[_]
CLASS [R] RESIDUAL CERTIFICATE
THIS CLASS [R] CERTIFICATE MAY NOT BE TRANSFERRED TO A DISQUALIFIED
ORGANIZATION, WHICH GENERALLY INCLUDES ANY ENTITY THAT WOULD BE EXEMPT FROM
FEDERAL INCOME TAXATION (INCLUDING THE TAX ON UNRELATED BUSINESS TAXABLE INCOME)
ON INCOME DERIVED FROM THIS CLASS [R] CERTIFICATE. IN ADDITION, NO TRANSFER OF
LESS THAN THE ENTIRE INTEREST IN THIS CLASS [R] CERTIFICATE MAY BE MADE UNLESS
(1) THE INTEREST TRANSFERRED IS AN UNDIVIDED INTEREST OR (2) THE TRANSFEROR OR
THE TRANSFEREE HAS PROVIDED THE MASTER SERVICER AND THE TRUSTEE WITH AN OPINION
OF COUNSEL THAT SUCH TRANSFER WILL NOT JEOPARDIZE THE REMIC STATUS OF THE
RELATED REMIC. ANY TRANSFEREE OF THIS CLASS [R] CERTIFICATE MUST DELIVER TO THE
TRUSTEE AND THE MASTER SERVICER (I) A RESIDUAL TRANSFEREE AGREEMENT RELATING TO
VARIOUS TAX MATTERS, (II) A BENEFIT PLAN AFFIDAVIT RELATING TO VARIOUS ERISA
MATTERS, AND (III) A DISQUALIFIED ORGANIZATION AFFIDAVIT RELATING TO VARIOUS TAX
MATTERS.
THIS CLASS [R] CERTIFICATE REPRESENTS A RESIDUAL INTEREST IN A REMIC FOR FEDERAL
INCOME TAX PURPOSES.
SERIES 1996-[_] APPROXIMATE AGGREGATE
SCHEDULED PRINCIPAL BALANCE
AS OF THE CUT-OFF DATE OF
THE MORTGAGE LOANS HELD BY
THE TRUST:
$[---------------]
PERCENTAGE INTEREST: __%
DATE OF TRUST AGREEMENT: MASTER SERVICER:
AS OF [___________________], 1996 [--------------------------]
CLOSING DATE: TRUSTEE:
[-------------------], 1996 [--------------------------]
FIRST DISTRIBUTION DATE;
[-------------------], 1996
NO. ___________
1
ASSET BACKED CERTIFICATES, SERIES 1996-[_]
CLASS [R] RESIDUAL CERTIFICATE
evidencing a beneficial ownership interest in a Trust consisting primarily of a
pool of Single Family Loans and Cooperative Loans (collectively, the "Mortgage
Loans") formed and sold by
SAXON ASSET SECURITIES COMPANY
THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN SAXON ASSET
SECURITIES COMPANY, THE MASTER SERVICER, ANY SERVICER, THE TRUSTEE OR ANY OF
THEIR AFFILIATES. NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
THIS CERTIFIES THAT:
is the registered owner of the Percentage Interest evidenced by this Certificate
in the Class [R] Certificates (the "Class [R] Certificates") issued by the Trust
(the "Trust") created pursuant to a trust agreement, dated as specified above
(the "Trust Agreement"), among Saxon Asset Securities Company ("SASCO," which
term includes any successor entity under the Trust Agreement), the Master
Servicer and the Trustee, a summary of certain of the pertinent provisions of
which is set forth herein. The Trust consists primarily of a pool of Mortgage
Loans. This Certificate is issued under and is subject to the terms, provisions
and conditions of the Trust Agreement, to which Trust Agreement the Holder of
this Certificate, by virtue of the acceptance hereof, assents and by which such
Holder is bound.
The Holder of this Class [R] Certificate is not entitled to any scheduled
distributions of principal or interest.
This Certificate is one of a duly authorized issue of Certificates
designated as Asset Backed Certificates, Series 1996-[_] (herein called the
"Certificates"), and representing the Percentage Interest in the Class [R]
Certificates specified on the face hereof. The Certificates are issued in six
classes designated as specifically set forth in the Trust Agreement. The
Certificates will evidence in the aggregate 100% of the beneficial ownership of
the Trust.
Principal and interest losses on the Mortgage Loans, to the extent not
covered by mortgage insurance policies or other credit enhancement, will be
allocated among the Certificates on the applicable Distribution Date in the
manner set forth in the Trust Agreement. All losses on the Mortgage Loans
allocated to any Class of Certificates will be allocated pro rata among the
outstanding Certificates of such Class, as described in the Trust Agreement.
The Certificates are limited in right of payment to certain collections and
recoveries respecting the Mortgage Loans, all as more specifically set forth in
the Trust Agreement. As provided in the Trust Agreement, withdrawals from the
Asset Proceeds Account and related accounts shall be made from time to time for
purposes other than distributions to Holders, such purposes including
reimbursement of Advances made, or certain expenses incurred, with respect to
the Mortgage Loans and administration of the Trust.
Distributions on this Certificate, if any, will be made by or on behalf of
the Trustee either (i) by check mailed to the address of the Person entitled
thereto, as such name and address shall appear on the Certificate Register or
(ii) by wire transfer of immediately available funds, upon request to the
Trustee in writing by the Record Date immediately prior to the related
Distribution Date by the Holder of this Certificate. Notwithstanding the above,
the final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the Trustee's principal Corporate Trust Office
or such other offices or agencies appointed by the Trustee for that purpose and
such other locations provided in the Trust Agreement.
2
An election will be made to treat certain assets of the Trust as a real
estate mortgage investment conduit (the "REMIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). Assuming that such election is made properly
and that certain qualification requirements concerning the assets of the Trust
and the Certificates are met, the Holder of this Class [R] Certificate will be
treated for federal income tax purposes as the beneficial owner of a "residual
interest" in the REMIC. Accordingly, the Holder of this Class [R] Certificate
will be taxed on its pro rata share of the REMIC's taxable income or net loss.
The requirement that the Holder of this Class [R] Certificate report its pro
rata share of such income or loss will continue until there are no Certificates
of any Class outstanding.
Pursuant to the Trust Agreement, the Master Servicer or one of its
affiliates, as agent of the REMIC, will provide each Holder of a Class [R]
Certificate with information sufficient to enable such Holder to prepare (i) its
federal income tax and information returns and (ii) any reports required by the
Code regarding the Certificates, except where such information is provided to
each such Holder by the Trustee pursuant to the Trust Agreement. As the Holder
of a residual interest in the REMIC, the Holder of this Class [R] Certificate
will have continuing administrative rights and obligations generally similar to
those of a partner with respect to its partnership. Such rights and obligations
principally concern the REMIC's federal income taxes and information returns and
the representation of the REMIC in administrative or judicial proceedings
involving the Internal Revenue Service. The Master Servicer or one of its
affiliates, however, will purchase a Class [R] Certificate and will act on
behalf of the Holders of the Class [R] Certificates as the representative of the
REMIC for such proceedings. The federal tax and information returns of the REMIC
will be prepared by the Master Servicer or its affiliate, and signed and filed
by the Trustee.
By accepting this Certificate, the Holder of this Certificate agrees to be
bound by all of the provisions of the Trust Agreement and, in particular, agrees
that it shall (i) take any action required by the Code or Treasury regulations
thereunder in order to create or maintain the REMIC status of the REMIC and (ii)
refrain from taking any action that could endanger such status.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of SASCO
and the Trustee and the rights of the Holders under the Trust Agreement at any
time by SASCO, the Master Servicer and the Trustee with the consent of the
Holders of Certificates entitled to at least 66% of the Voting Rights. Any such
consent by the Holder of this Certificate shall be conclusive and binding on
such Holder and upon all future Holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent is made upon this Certificate.
The Trust Agreement also permits the amendment thereof, in certain limited
circumstances, without the consent of the Holders of any of the Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the principal Corporate Trust Office of the Trustee or such other
office or agency appointed by the Trustee for that purpose and such other
locations provided in the Trust Agreement, duly endorsed by, or accompanied by
an assignment in the form below or other written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar duly executed by the
Holder hereof or such Holder's attorney duly authorized in writing and thereupon
one or more new Certificates of the same Class in authorized denominations
evidencing the same aggregate Percentage Interest will be issued to the
designated transferee or transferees.
The Securities of this Class are issuable in fully-registered, certificated
form without coupons in minimum Percentage Interests of 25% and increments of 1%
in excess thereof. Two Certificates of this Class may be issued in a different
Percentage Interest than specified above.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, Certificates are exchangeable for new Certificates of the
same Class in the same aggregate Percentage Interest as requested by the Holder
surrendering the same. No service charge will be made for any such registration
of transfer or exchange, but the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Certificates.
3
This Class [R] Certificate (including any beneficial interest therein) may
not be transferred to a Disqualified Organization (i.e., the United States, any
state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing, any organization (other than a farmers' cooperative described in
Section 521 of the Code) that is exempt from federal income taxation (including
taxation under the unrelated business taxable income provisions of the Code),
any rural electrical or telephone cooperative described in Section 1381(a)(2)(C)
of the Code or any other entity designated as a disqualified organization by
legislation enacted after the date hereof (a corporation will not be treated as
an instrumentality of the United States or of any political subdivision thereof
if all of its activities are subject to tax and, with the exception of the
Federal Home Loan Mortgage Corporation, a majority of its board of directors is
not selected by such governmental unit)). In addition, this Class [R]
Certificate (including any beneficial interest therein) may not be transferred
unless (i) the proposed transferee provides the Trustee and the Master Servicer
with (A) a Residual Transferee Agreement, (B) a Benefit Plan Affidavit, (C) a
Disqualified Organization Affidavit and (D) if the proposed transferee is a
Non-U.S. Person, a TAPRI Certificate, and (ii) the interest transferred involves
the entire interest in this Class [R] Certificate or an undivided interest
therein (unless the transferor or the transferee provides the Master Servicer
and the Trustee with an Opinion of Counsel (which shall not be an expense of the
Master Servicer or the Trustee) that the transfer will not jeopardize the REMIC
status of the related REMIC). Furthermore, (i) the Trustee shall require that
the transferor and the transferee certify as to the factual basis for the
registration exemption(s) relied upon and (ii) if the transfer is made within
three years from the acquisition of this Class [R] Certificate by a
non-Affiliate of SASCO from SASCO or an Affiliate of SASCO, the Trustee also may
require an Opinion of Counsel that such transfer may be made without
registration or qualification under the Securities Act and applicable state
securities laws, which Opinion of Counsel shall not be obtained at the expense
of the Trustee or the Master Servicer. In any event, the Trustee shall not
effect any transfer of this Class [R] Certificate except upon notification of
such transfer to the Master Servicer. Any attempted transfer of this Class [R]
Certificate in violation of the foregoing restrictions will be null and void and
will not be recognized by the Trustee.
If a tax or a reporting cost is borne by the REMIC as a result of the
transfer of this Class [R] Certificate, or any beneficial interest therein, in
violation of the restrictions set forth herein or in the Trust Agreement, the
Trustee, upon notification from the Master Servicer, may pay such tax or
reporting cost with amounts that otherwise would have been paid to the
transferee of this Class [R] Certificate (or beneficial interest therein). In
that event, neither the transferee nor the transferor shall have any right to
seek repayment of such amounts from the Trustee, SASCO, the Trust, the
Servicers, the Master Servicer, or the other Holders. The Master Servicer shall
make, or cause to be made, available the information necessary for the
application of Section 860E(e) of the Code.
SASCO, the Master Servicer, the Trustee and the Certificate Registrar and
any agent of SASCO, the Master Servicer, the Trustee or the Certificate
Registrar may treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and none of SASCO, the Master Servicer, the
Trustee, the Certificate Registrar or any such agent shall be affected by notice
to the contrary.
Pursuant to the terms of the Trust Agreement, either SASCO or the Holders
of the majority of the Percentage Interest in the Class [R] Certificates, at
their respective options, subject to the limitations imposed by the Trust
Agreement, may redeem the Certificates, in whole but not in part, on any
Distribution Date on or after the earlier of (i) the Distribution Date on which,
after taking into account payments of principal to be made on such Distribution
Date, the aggregate Certificate Principal Balance of the Certificates is equal
to or less than 10% of the initial aggregate Certificate Principal Balance of
the Certificates and (ii) the Redemption Date. In the event that the
Certificates are redeemed, the purchase price distributable with respect to each
Class of such Certificates will be 100% of the then Certificate Principal
Balance of such Class, plus interest thereon through the Accounting Date
preceding the Distribution Date on which the Certificates are redeemed, net of
unreimbursed Advances and any previously unrealized losses with respect to real
property owned by the Trust, Realized Interest Shortfall and Shortfall allocable
to such Class on the Distribution Date on which the Certificates are redeemed.
Upon redemption and at the option of the redeeming party, (i) the REMIC may be
terminated, thereby causing the sale of the Mortgage Loans and other related
assets of the Trust and the retirement of the Certificates or (ii) the
Certificates may be held or resold by the redeeming party. Notice of optional
redemption of the Certificates will be mailed to the Holders according to the
procedures set out in the Trust Agreement. The REMIC also may be terminated and
the Certificates retired on any Distribution Date upon the Master Servicer's
determination, based upon an Opinion of Counsel, that the REMIC status of the
REMIC has been lost or that a substantial risk exists that such status will be
4
lost for the then current taxable year. Upon the termination of the REMIC,
payment of all amounts due on the Certificates and payment of all administrative
expenses associated with the REMIC, any remaining assets of the REMIC shall be
sold and the proceeds therefrom shall be distributed pro rata to the Holders of
the Class [R] Certificates, as set forth in the Trust Agreement.
Unless the certificate of authentication hereon has been executed by the
Certificate Registrar, by manual signature, this Certificate shall not be
entitled to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE AND THE TRUST AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF
[----------------].
The Trustee has executed this Certificate on behalf of the Trust not in its
individual capacity but solely as Trustee under the Trust Agreement, and the
Trustee shall be liable hereunder only in respect of the assets of the Trust.
Capitalized terms used and not defined herein have the meaning given them
in the Trust Agreement.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed under its official seal.
Dated: [_____________________________], NOT IN ITS
INDIVIDUAL CAPACITY, BUT SOLELY AS TRUSTEE
BY: ______________________________________
AUTHORIZED OFFICER
[SEAL] ATTEST:
------------------------------------------
AUTHORIZED OFFICER
CERTIFICATE OF AUTHENTICATION
THIS IS ONE OF THE CLASS [R] CERTIFICATES REFERRED TO IN THE
WITHIN-MENTIONED TRUST AGREEMENT.
[_____________________________], AS
CERTIFICATE REGISTRAR
BY: ______________________________________
AUTHORIZED SIGNATORY
5
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in UNIF GIFT MIN ACT -- .....Custodian........
common (Cus) (Minor)
Under Uniform Gifts to Minors
TEN ENT -- as tenants by Act.............................
the entireties (State)
JT TEN -- as joint tenants
with rights of survivorship
and not as Tenants in
Common
Additional abbreviations may also be used though not in the above list.
6
FORM OF TRANSFER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
- ---------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE __________________________________________
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
(Please print or typewrite name and address of assignee) the within Certificate
and does hereby irrevocably constitute and appoint ___________________
________________ (Attorney) to transfer the said Certificate in the Certificate
Register of the within-named Trust, with full power of substitution in the
premises.
Dated: ____________________________ ----------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Certificate in every particular
without alteration or enlargement or
any change whatever.
- ----------------------------------
SIGNATURE GUARANTEED: The signature must
be guaranteed by a commercial bank
or trust company or by a member firm
of the New York Stock Exchange or
another national securities exchange.
Notarized or witnessed signatures are
not acceptable.
7
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds, to _______________________________, for the account of
______________________ _____________________, account number
____________________, or, if mailed by check, to
___________________________________. This information is provided by
______________ ____________________________, the assignee named above, or
________________________ ____________________________, as its agent.
8
<PAGE>
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES
STANDARD TERMS TO TRUST AGREEMENT
(July 1996 Edition)
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms..........................................-1-
Accounting Date......................................................-1-
Additional Collateral................................................-1-
Administrative Fee...................................................-1-
Administrative Fee Rate..............................................-1-
Advance..............................................................-1-
Affiliate............................................................-1-
Annual Compliance Statement..........................................-1-
ARM Loan.............................................................-1-
Asset Proceeds Account...............................................-1-
Available Distribution...............................................-2-
Basis Limit Amount...................................................-2-
Beneficial Owner.....................................................-2-
Benefit Plan Affidavit...............................................-2-
Benefit Plan Opinion.................................................-2-
Book-Entry Certificates..............................................-2-
Borrower.............................................................-2-
Business Day.........................................................-2-
Certificate..........................................................-3-
Certificate of Title Insurance.......................................-3-
Certificate Principal Balance........................................-3-
Certificate Register.................................................-3-
Certificate Registrar................................................-3-
Certificateholders...................................................-3-
Class ..............................................................-3-
Class Percentage.....................................................-3-
Clearing Agency......................................................-3-
Clearing Agency Participant..........................................-3-
Closing Date.........................................................-3-
Code ..............................................................-3-
Collateral...........................................................-3-
Conventional Home Improvement Loan...................................-3-
Converted Mortgage Loan..............................................-4-
Cooperative Loan.....................................................-4-
Corporate Trust Office...............................................-4-
Credit Enhancement...................................................-4-
Credit Enhancement Fee...............................................-4-
Custodian............................................................-4-
Cut-Off Date.........................................................-4-
Defect Discovery Date................................................-4-
Deleted Mortgage Loan................................................-4-
Directly Operate.....................................................-4-
Disqualified Organization............................................-4-
Disqualified Organization Affidavit..................................-4-
Distribution Account.................................................-5-
Distribution Date....................................................-5-
Double REMIC Series..................................................-5-
Due Period...........................................................-5-
Eligible Account.....................................................-5-
ERISA ..............................................................-5-
Event of Default.....................................................-5-
Exchange Act.........................................................-5-
Final Certification..................................................-5-
Final Distribution Date..............................................-5-
Fiscal Year..........................................................-5-
FNMA Guidelines......................................................-5-
Fraud Losses.........................................................-5-
Gross Margin.........................................................-6-
Guide ..............................................................-6-
Holders..............................................................-6-
Independent Contractor...............................................-6-
Index ..............................................................-6-
Initial Certification................................................-6-
Insurance Proceeds...................................................-6-
Insurer..............................................................-6-
Interest Adjustment Date.............................................-6-
Interest Fund........................................................-6-
Interest Shortfall...................................................-7-
Issuing REMIC........................................................-7-
Junior Mortgage Loan.................................................-7-
Letter of Credit.....................................................-7-
Liquidation Proceeds.................................................-7-
Loan to Value Ratio..................................................-7-
Master Servicer......................................................-7-
Master Servicer Advance Amount.......................................-7-
Master Servicer Compensation.........................................-7-
Master Servicer Custodial Account....................................-7-
Master Servicer Errors and Omissions Insurance Policy................-7-
Master Servicer Fidelity Bond........................................-7-
Master Servicer Remittance Date......................................-7-
Master Servicer Reporting Date.......................................-8-
Master Servicing Fee.................................................-8-
Master Servicing Fee Rate............................................-8-
Maximum Lifetime Mortgage Interest Rate..............................-8-
Minimum Lifetime Mortgage Interest Rate..............................-8-
Month End Interest...................................................-8-
Month End Interest Shortfall.........................................-8-
Monthly Payment......................................................-8-
Monthly Statement....................................................-8-
Mortgage Interest Rate...............................................-8-
Mortgage Loan........................................................-8-
Mortgage Loan Schedule...............................................-8-
Mortgage Note........................................................-9-
Mortgaged Premises...................................................-9-
Mortgagor Bankruptcy Fund............................................-9-
Mortgagor Bankruptcy Losses..........................................-9-
Multi-Family Loan....................................................-9-
Negative Amortization Amount.........................................-9-
Net Rate.............................................................-9-
New Lease............................................................-9-
Non-Recoverability Certificate.......................................-9-
Non-Recoverable Advance..............................................-9-
Non-U.S. Person......................................................-9-
Officer..............................................................-9-
Opinion of Counsel..................................................-10-
Pass-Through Rate...................................................-10-
Paying Agent........................................................-10-
Payment Adjustment Date.............................................-10-
Percentage Interest.................................................-10-
Permitted Investments...............................................-10-
Person .............................................................-11-
Plan .............................................................-11-
Plan Asset Regulations..............................................-11-
Plan Investor.......................................................-11-
Pooling REMIC.......................................................-11-
Prepayment Period...................................................-11-
Private Certificate.................................................-11-
Private Subordinated Certificate....................................-11-
Public Subordinated Certificate.....................................-11-
Purchase Price......................................................-12-
Purchaser...........................................................-12-
Qualification Defect................................................-12-
Qualified Institutional Buyer.......................................-12-
Qualified Substitute Mortgage Loan..................................-12-
Rating Agency.......................................................-13-
Realized Interest Shortfall.........................................-13-
Realized Loss.......................................................-13-
Record Date.........................................................-13-
Recordation Report..................................................-13-
Redeeming Purchase..................................................-13-
Redemption Account..................................................-13-
Redemption Date.....................................................-13-
Redemption Price....................................................-13-
Regular Certificate.................................................-14-
Regular Interest....................................................-14-
REMIC .............................................................-14-
REMIC Provisions....................................................-14-
Remittance Date.....................................................-14-
Remittance Report...................................................-14-
Rents From Real Property............................................-14-
REO Disposition.....................................................-14-
REO Property........................................................-14-
Request for Release.................................................-14-
Reserve Fund........................................................-14-
Residual Certificate................................................-14-
Residual Interest...................................................-14-
Residual Transferee Agreement.......................................-14-
Rule 144A...........................................................-14-
Rule 144A Agreement.................................................-14-
Rule 144A Certificate...............................................-15-
Sales/Servicing Agreement...........................................-15-
SASCO .............................................................-15-
Saxon Mortgage......................................................-15-
Scheduled Principal Balance.........................................-15-
SEC .............................................................-15-
Securities Act......................................................-15-
Security Instrument.................................................-15-
Seller .............................................................-15-
Senior Mortgage Loan................................................-15-
Senior Percentage...................................................-15-
Senior Prepayment Percentage........................................-15-
Series .............................................................-15-
Servicer............................................................-15-
Servicing Agreement.................................................-15-
Servicing Fee.......................................................-15-
Servicing Fee Rate..................................................-16-
Single Family Loan..................................................-16-
Soldiers' and Sailors' Shortfall....................................-16-
Special Hazard Fund.................................................-16-
Special Hazard Insurance Policy.....................................-16-
Special Hazard Losses...............................................-16-
Special Tax Consent.................................................-16-
Special Tax Opinion.................................................-16-
Standard Terms......................................................-16-
State .............................................................-16-
Subaccount..........................................................-16-
Subordinated Percentage.............................................-16-
Subordinated Prepayment Percentage..................................-16-
Substitution Shortfall..............................................-16-
TAPRI Certificate...................................................-17-
Tax Matters Person..................................................-17-
Terminating Purchase................................................-17-
Termination Account.................................................-17-
Termination Price...................................................-17-
Title I Loan........................................................-17-
Transferee Agreement................................................-17-
Treasury............................................................-17-
Trust .............................................................-17-
Trust Agreement.....................................................-17-
Trust Estate........................................................-17-
Trustee.............................................................-17-
Trustee Fee.........................................................-18-
Trustee Fee Rate....................................................-18-
Trustee Mortgage Loan File..........................................-18-
UCC .............................................................-18-
Unpaid Principal Balance............................................-19-
U.S. Person.........................................................-19-
Voting Rights.......................................................-19-
Withholding Agent...................................................-19-
Section 1.02. Section References; Calculations; Ratings...................-19-
ARTICLE II
MORTGAGE LOAN FILES
Section 2.01. Mortgage Loan Files...................................-19-
Section 2.02. Acceptance by the Trustee...................................-20-
Section 2.03. Purchase or Substitution of Mortgage Loans by the Seller,
a Servicer or SASCO.......................................-22-
Section 2.04. Representations and Warranties of SASCO.....................-26-
Section 2.05. Representations and Warranties of the Master Servicer.......-27-
ARTICLE III
ADMINISTRATION OF THE TRUST
Section 3.01. Master Servicer Custodial Account............................-28-
Section 3.02. Asset Proceeds Account.......................................-30-
Section 3.03. Issuing REMIC Accounts.......................................-31-
Section 3.04. Advances by Master Servicer and Trustee......................-31-
Section 3.05. Month End Interest...........................................-33-
Section 3.06. Trustee to Cooperate; Release of Mortgage Files..............-33-
Section 3.07 Reports to the Trustee; Annual Compliance Statements.........-34-
Section 3.08. Title, Management and Disposition of REO Properties..........-34-
Section 3.09. Amendments to Servicing Agreements; Modification of the
Guide......................................................-37-
Section 3.10. Oversight of Servicing.......................................-37-
Section 3.11. Credit Enhancement...........................................-38-
ARTICLE IV
REPORTING/REMITTING TO CERTIFICATEHOLDERS
Section 4.01. Statements to Certificateholders.............................-39-
Section 4.02. Remittance Reports...........................................-40-
Section 4.03. Compliance with Withholding Requirements.....................-41-
Section 4.04. Reports of Certificate Principal Balances to The Depository
Trust Company..............................................-41-
Section 4.05. Preparation of Regulatory Reports............................-41-
ARTICLE V
THE POOLING INTERESTS AND THE CERTIFICATES
Section 5.01. Pooling REMIC Interests.....................................-42-
Section 5.02. The Certificates............................................-42-
Section 5.03. Book-Entry Certificates.....................................-43-
Section 5.04. Registration of Transfer and Exchange of Certificates.......-43-
Section 5.05. Restrictions on Transfers...................................-44-
Section 5.06. Mutilated, Destroyed, Lost or Stolen Certificates...........-46-
Section 5.07. Persons Deemed Owners.......................................-46-
Section 5.08. Appointment of Paying Agent.................................-46-
ARTICLE VI
SASCO AND THE MASTER SERVICER
Section 6.01. Liability of, and Indemnification by, SASCO and the Master
Servicer-47-
Section 6.02. Merger or Consolidation of SASCO or the Master Servicer.....-47-
Section 6.03. Limitation on Liability of SASCO, the Master Servicer and
Others....................................................-47-
Section 6.04. Resignation of the Master Servicer..........................-48-
Section 6.05. Compensation to the Master Servicer.........................-48-
Section 6.06. Assignment or Delegation of Duties by Master Servicer.......-48-
ARTICLE VII
TERMINATION OF SERVICING AND MASTERSERVICING ARRANGEMENTS
Section 7.01. Termination and Substitution of Servicing Agreements........-49-
Section 7.02. Termination of Master Servicer; Trustee to Act..............-49-
Section 7.03. Notification to Certificateholders..........................-51-
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee...........................................-51-
Section 8.02. Certain Matters.............................................-53-
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans.......-54-
Section 8.04. Trustee May Own Certificates................................-54-
Section 8.05. Trustee's Fees..............................................-54-
Section 8.06. Eligibility Requirements for Trustee........................-54-
Section 8.07. Resignation and Removal of the Trustee......................-55-
Section 8.08. Successor Trustee...........................................-55-
Section 8.09. Merger or Consolidation of Trustee..........................-56-
Section 8.10. Appointment of Trustee or Separate Trustee..................-56-
Section 8.11. Appointment of Custodians...................................-57-
Section 8.12. Trustee May Enforce Claims Without Possession of
Certificates......-57-
ARTICLE IX
REDEMPTION OF CERTIFICATES AND TERMINATION OF THE TRUST
Section 9.01. Redemption..................................................-57-
Section 9.02. Termination.................................................-57-
Section 9.03. Procedure for Redemption or Termination.....................-58-
Section 9.04. Additional Termination Requirements.........................-59-
ARTICLE X
REMIC TAX PROVISIONS
Section 10.01. REMIC Administration.......................................-60-
Section 10.02. Prohibited Activities......................................-61-
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment of Trust Agreement...............................-62-
Section 11.02. Recordation of Agreement; Counterparts.....................-62-
Section 11.03. Limitation of Rights of Certificateholders.................-63-
Section 11.04. Governing Law..............................................-63-
Section 11.05. Notices....................................................-63-
Section 11.06. Severability of Provisions.................................-64-
Section 11.07. Sale of Mortgage Loans.....................................-64-
Section 11.08. Notice to Rating Agency....................................-64-
Exhibit A-1 Form of Initial Certification
Exhibit A-2 Form of Final Certification
Exhibit B Form of Recordation Report
Exhibit C Form of Remittance Report
Exhibit D Form of Rule 144A Agreement-QIB Certification
Exhibit E Form of Transferee Agreement
Exhibit F Form of Benefit Plan Affidavit
Exhibit G Form of Residual Transferee Agreement
Exhibit H-1 Form of Disqualified Organization Affidavit
Exhibit H-2 Form of Disqualified Organization Affidavit
<PAGE>
PRELIMINARY STATEMENT
Saxon Asset Securities Company ("SASCO"), a mortgage banking
company, as master servicer (the "Master Servicer"), and a bank or trust
company, as trustee (the "Trustee"), have entered into a Trust Agreement (the
"Trust Agreement") that provides for the issuance of a series of asset backed
certificates (the "Certificates") that in the aggregate evidence the entire
interest in certain mortgage-related assets and certain other property owned by
the trust created by the Trust Agreement (the "Trust"). These Standard Terms are
a part of, and are incorporated by reference into, the Trust Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations and warranties made in the Trust Agreement and as
hereinafter set forth, SASCO, the Master Servicer and the Trustee agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms. Except as otherwise specified or as
the context may otherwise require, the following capitalized terms shall,
whenever used in the Trust Agreement, have the respective meanings assigned to
them in this Section 1.01. Capitalized terms used but not defined in the Trust
Agreement shall have the respective meanings assigned to them in the Guide.
"Accounting Date": Unless otherwise provided in the Trust
Agreement, with respect to each Distribution Date, the last day of the month
preceding the month in which such Distribution Date occurs.
"Additional Collateral": Any real property (other than the
related Mortgaged Premises), personal property, securities, cash, instruments,
contracts, or other documents constituting or evidencing
collateral pledged as additional security for a Mortgage Loan.
"Administrative Fee": With respect to each Distribution Date and
each Mortgage Loan, the sum of the Servicing Fee, the Master Servicing Fee and
the Trustee Fee relating thereto.
"Administrative Fee Rate": With respect to each Distribution Date
and each Mortgage Loan, the sum of the Servicing Fee Rate, the Master Servicing
Fee Rate and the Trustee Fee Rate relating thereto.
"Advance": With respect to any Mortgage Loan, any advance of
principal and interest, taxes, insurance or expenses made by a Servicer, the
Master Servicer, the Trustee or an Insurer.
"Affiliate": Any person or entity controlling, controlled by or
under common control with SASCO or the Master Servicer ("control" meaning the
power to direct the management and policies of a person or entity, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise, and "controlling" and "controlled" having meanings correlative to the
foregoing).
"Annual Compliance Statement": The Officer's certificate required
to be delivered annually by the Master Servicer pursuant to Section 3.07 hereof.
"ARM Loan": An "adjustable rate" Mortgage Loan, the Mortgage
Interest Rate of which is subject to periodic adjustment in accordance with the
terms of the related Mortgage Note.
"Asset Proceeds Account": The account or accounts created and
maintained for the Trust pursuant to Section 3.02 hereof.
-1-
<PAGE>
"Available Distribution": Unless otherwise provided in the Trust
Agreement, with respect to each Distribution Date, an amount equal to the sum of
the following:
(a) all Monthly Payments with respect to the Mortgage
Loans received by the Trust and due during the preceding Due Period, to
the extent paid by a Borrower, advanced by a Servicer, the Master
Servicer, the Trustee or an Insurer, or deposited in the Asset Proceeds
Account from the Interest Fund (if any);
(b) all amounts deposited in the Asset Proceeds Account on
account of Mortgage Loans sold by the Trust to a Purchaser during the
preceding Prepayment Period; and
(c) all other payments (other than late charges,
conversion fees and similar charges and fees retained by a Servicer
pursuant to the Guide) received by the Trust in connection with any
unscheduled principal payments or recoveries on the Mortgage Loans
during the preceding Prepayment Period, including Liquidation Proceeds
and Insurance Proceeds, together with interest received by the Trust on
the principal portion thereof through the Accounting Date preceding such
Distribution Date, less the sum of (i) expenses associated with such
recovery and (ii) any Advances on such Mortgage Loans;
minus (i) the Administrative Fee allocable to each Mortgage Loan from payments
or Advances on, or proceeds of, such Mortgage Loan, (ii) any Non-Recoverable
Advances to the extent required to be reimbursed, and (iii) the Credit
Enhancement Fee or Fees payable to the providers of any related Credit
Enhancement with respect to such Distribution Date.
"Basis Limit Amount": With respect to a Mortgage Loan purchased
from a REMIC, an amount equal to the REMIC's adjusted federal income tax basis
in such Mortgage Loan as of the date on which the purchase occurs as set forth
in a certificate of an Officer of the Master Servicer, which certificate shall
be delivered to the Trustee in connection with any purchase of a Mortgage Loan.
"Beneficial Owner": With respect to a Book-Entry Certificate, the
Person who is registered as owner of such Certificate in the books of the
Clearing Agency for such Certificate or in the books of a
Person maintaining an account with such Clearing Agency.
"Benefit Plan Affidavit": An affidavit substantially in the form
of Exhibit F attached hereto.
"Benefit Plan Opinion": An Opinion of Counsel satisfactory to the
Master Servicer and the Trustee (and upon which SASCO, the Master Servicer, the
Tax Matters Person and the Trustee are authorized to rely) to the effect that
the proposed transfer will not (i) cause the assets of the Trust to be regarded
as plan assets for purposes of the Plan Asset Regulations, (ii) give rise to any
fiduciary duty under ERISA on the part of SASCO, a Servicer, the Master Servicer
or the Trustee or (iii) result in, or be treated as, a prohibited transaction
under Section 406 or 407 of ERISA or section 4975 of the Code (which opinion
shall not be a cost or expense of SASCO, the Master Servicer, the Tax Matters
Person or the Trustee).
"Book-Entry Certificates": Each Class of Certificates, if any,
specified as such in the Trust Agreement.
"Borrower": With respect to each Mortgage Loan, the individual or
individuals or any Servicer obligated to repay the related Mortgage Note.
"Business Day": Unless otherwise provided in the Trust Agreement,
any day that is not a Saturday, Sunday, holiday or other day on which commercial
banking institutions in the city and state in which
-2-
<PAGE>
the Corporate Trust Office is located or the city and state in which the
principal office of the Custodian, if any, is located are authorized or
obligated by law or executive order to be closed.
"Certificate": Any asset backed certificate designated in the
Trust Agreement.
"Certificate of Title Insurance": A certificate of title
insurance issued pursuant to a master title insurance policy.
"Certificate Principal Balance": Unless otherwise provided in the
Trust Agreement, with respect to each Class of Certificates, on any Distribution
Date, the aggregate principal amount, if any, of such Class of Certificates
immediately prior to such Distribution Date (or, in the case of the first
Distribution Date, an amount equal to the aggregate initial principal amount of
such Class of Certificates as of the Closing Date) net of the sum of (i) the
amounts to be applied on such Distribution Date to reduce the aggregate
principal amount of such Class of Certificates in accordance with the Trust
Agreement and (ii) the aggregate amount of all Realized Losses, if any, to be
allocated to such Class of Certificates on such Distribution Date pursuant to
the Trust Agreement.
"Certificate Register": The register maintained by the Trustee
pursuant to Section 5.02 hereof.
"Certificate Registrar": The registrar appointed pursuant to
Section 5.02 hereof.
"Certificateholders": The holders of the Certificates as recorded
on the Certificate Register.
"Class": The asset backed certificates of a Series bearing the
same designation.
"Class Percentage": With respect to each Class of Certificates as
of each Distribution Date, the percentage obtained by dividing the Certificate
Principal Balance of such Class immediately prior to such Distribution Date by
the aggregate Scheduled Principal Balance of the Mortgage Loans as of the
immediately preceding Distribution Date.
"Clearing Agency": The Depository Trust Company or any successor
organization or any other organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act and the
regulations of the SEC thereunder.
"Clearing Agency Participant": A broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with
such Clearing Agency.
"Closing Date": The date on which Certificates are issued by a
Trust as set forth in the Trust Agreement.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral": With respect to any Mortgage Loan, the Mortgaged
Premises and the Additional Collateral, if any, securing the indebtedness of the
Borrower under such Mortgage Loan.
"Conventional Home Improvement Loan": A mortgage loan that is
made to finance actions or items that substantially protect or improve the basic
livability or utility of a residential property and that is secured by a first,
second, or more junior lien on such residential property.
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"Converted Mortgage Loan": An ARM Loan with respect to which the
Borrower has complied with the applicable requirements of the related Mortgage
Note to convert the Mortgage Interest Rate relating thereto a fixed rate of
interest (and with respect to which the related Servicer has processed such
conversion).
"Cooperative Loan": A Mortgage Loan that is secured by a first
lien against (i) shares issued by a cooperative housing corporation and (ii) the
related Borrower's leasehold interest in a cooperative dwelling unit owned by
such cooperative housing corporation.
"Corporate Trust Office": The principal corporate trust office of
the Trustee at which at any particular time its corporate trust business shall
be administered.
"Credit Enhancement": Any certificate guaranty insurance policy,
mortgage pool insurance policy, Special Hazard Insurance Policy, Special Hazard
Fund, Mortgagor Bankruptcy Fund, Reserve Fund, Letter of Credit, financial
guaranty insurance policy, third party guaranty or other form of insurance
specified in the Trust Agreement that is obtained by or on behalf of SASCO with
respect to the Certificates.
"Credit Enhancement Fee": With respect to each form of Credit
Enhancement, the monthly premium or fee that is payable to the provider of such
Credit Enhancement as specified in the Trust Agreement.
"Custodian": The Trustee or the agent for the Trustee identified
in the Trust Agreement that shall hold all or a portion of the Trustee Mortgage
Loan Files with respect to the Certificates.
"Cut-Off Date": The date specified as such in the Trust
Agreement.
"Defect Discovery Date": With respect to a Mortgage Loan, the
date on which either the Trustee or the Master Servicer first discovers a
Qualification Defect affecting such Mortgage Loan.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced by a Qualified Substitute Mortgage Loan.
"Directly Operate": With respect to any REO Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such REO Property, or any use of such REO Property in a trade or
business conducted by the Trust, in each case other than through an Independent
Contractor; provided, however, that the Trustee or the Master Servicer on behalf
of the Trust shall not be considered to Directly Operate an REO Property solely
because the Trustee or the Master Servicer on behalf of the Trust establishes
rental terms, chooses tenants, enters into or renews leases, deals with taxes
and insurance, or makes decisions as to repairs or maintenance with respect to
such REO Property.
"Disqualified Organization": Either (i) the United States, (ii)
any state or political subdivision thereof, (iii) any foreign government, (iv)
any international organization, (v) any agency or instrumentality of any of the
foregoing, (vi) any tax-exempt organization (other than a cooperative described
in section 521 of the Code) that is exempt from federal income tax unless such
organization is subject to tax under the unrelated business taxable income
provisions of the Code, (vii) any organization described in section
1381(a)(2)(C) of the Code, or (vii) any other entity identified as a
disqualified organization by the REMIC Provisions. A corporation will not be
treated as an instrumentality of the United States or any state or political
subdivision thereof if all of its activities are subject to tax and, with the
exception of the Federal Home Loan Mortgage Corporation, a majority of its board
of directors is not selected by such governmental unit.
"Disqualified Organization Affidavit": If provided by a Non-U.S.
Person, an affidavit substantially in the form of Exhibit H-I attached hereto,
and, if provided by a U.S. Person, an affidavit substantially in the form of
Exhibit H-2 attached hereto.
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"Distribution Account": With respect to any Double REMIC Series,
an Eligible Account established and maintained by the Trustee for the Issuing
REMIC. Unless otherwise provided in the Trust Agreement, the Distribution
Account shall be considered an asset of the Issuing REMIC.
"Distribution Date": Unless otherwise provided in the Trust
Agreement, the 25th day of each month, or the next Business Day if such 25th day
is not a Business Day, commencing in the month following
the Closing Date.
"Double REMIC Series": A Series with respect to which two REMIC
elections are made to form an Issuing REMIC and a Pooling REMIC.
"Due Period": Unless otherwise provided in the Trust Agreement,
(i) the period from but excluding the Cut-Off Date to and including the first
day of the month in which the first Distribution Date occurs and (ii) each
period thereafter from and including the second day of a month to and including
the first day of the following month.
"Eligible Account": Either (i) an account or accounts maintained
with a federal or state chartered depository institution or trust company the
long-term or short-term unsecured debt obligations of which (or a federal or
state chartered depository institution or trust company that is the principal
subsidiary of a holding company the long-term or short-term unsecured debt
obligations of which) are rated by each Rating Agency in one of its two highest
long-term rating categories or one of its two highest short-term rating
categories at the time any amounts are held on deposit therein or (ii) a trust
account or accounts maintained with a federal or state chartered depository
institution or trust company, acting in the capacity of a trustee, in a manner
acceptable to each Rating Agency in respect of mortgage pass-through
certificates rated in one of its two highest rating categories. Eligible
Accounts may be interest-bearing accounts or the funds therein may be invested
in Permitted Investments. If qualified under this definition, accounts
maintained with the Trustee may constitute Eligible Accounts.
"ERISA": The Employee Retirement Income Securities Act of 1974,
as amended.
"Event of Default": An event with respect to the Master Servicer
described in Section 7.02 hereof.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Final Certification": A certification as to the completeness of
each Trustee Mortgage Loan File substantially in the form of Exhibit A-2
attached hereto provided by the Trustee (or the Custodian) on or before the
first anniversary of the Closing Date pursuant to Section 2.02(c).
"Final Distribution Date": The meaning set forth in Section 9.03
hereof.
"Fiscal Year": Unless otherwise provided in the Trust Agreement,
the fiscal year of the Trust shall run from March 1 (or from the Closing Date,
in the case of the first fiscal year) through the last day of February.
"FNMA Guidelines": The provisions contained in the guide for
selling and servicing first lien residential mortgage loans issued from time to
time by the Federal National Mortgage Association.
"Fraud Losses": Losses on Mortgage Loans resulting from fraud,
dishonesty or misrepresentation in the origination of such Mortgage Loans.
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"Gross Margin": With respect to each ARM Loan, the fixed
percentage specified in the related Mortgage Note that is added to or subtracted
from the Index on each Interest Adjustment Date to determine the new Mortgage
Interest Rate for such ARM Loan.
"Guide": Unless otherwise provided in the Trust Agreement, [the
_______ __, 199_ edition of the Saxon Mortgage Seller/Servicer Guide], as
supplemented and amended from time to time through the Closing Date.
"Holders": The holders of the Certificates as recorded on the
Certificate Register.
"Independent Contractor": Either (i) any Person (other than the
Trustee or the Master Servicer) that would be an "independent contractor" with
respect to the Trust within the meaning of section 856(d)(3) of the Code if the
Trust were a real estate investment trust (except that, in applying such
section, more than 35% of the outstanding principal balance of any Class shall
be deemed to be more than 35% of the certificates of beneficial interest of the
Trust), so long as the Trust does not receive or derive any income from such
Person, the relationship between such Person and the Trust is at arm's length
and such Person is not an employee of the Trust, the Trustee or the Master
Servicer, all within the meaning of Treasury Regulation Section 1.856-4(b)(5),
or (ii) any other Person (including the Trustee or the Master Servicer) upon
receipt by the Trustee of an Opinion of Counsel, the expense of which shall
constitute an Advance if borne by a Servicer or a subservicer, to the effect
that the taking of any action in respect of any REO Property by such Person,
subject to any conditions therein specified, that is otherwise herein
contemplated to be taken by an Independent Contractor will not cause such REO
Property to cease to qualify as "foreclosure property" within the meaning of
section 860G(a)(8) of the Code (determined without regard to the exception
applicable for purposes of section 860D(a) of the Code), or cause any income
realized in respect of such REO Property to fail to qualify as Rents From Real
Property.
"Index": With respect to each ARM Loan, the index rate specified
in the related Mortgage Note to which or from which the Gross Margin is added or
subtracted, in accordance with the terms of such Mortgage Note, on each Interest
Adjustment Date to determine the new Mortgage Interest Rate for such ARM Loan.
"Initial Certification": A certification as to the completeness
of each Trustee Mortgage Loan File substantially in the form of Exhibit A-1
attached hereto provided by the Trustee (or the Custodian) on the
Closing Date pursuant to Section 2.02(b) hereof.
"Insurance Proceeds": The proceeds paid by any Insurer pursuant
to an insurance policy covering any Mortgage Loan, less the expenses of
recovering such proceeds and any Non-Recoverable
Advances made with respect to such Mortgage Loan.
"Insurer": Any issuer of an insurance policy relating to the
Mortgage Loans or the asset backed certificates of a Series.
"Interest Adjustment Date": With respect to each ARM Loan, the
date on which the related Mortgage Interest Rate adjusts in accordance with the
related Mortgage Note.
"Interest Fund": An Eligible Account that may be established for
the purpose of making interest payments on Mortgage Loans for which the Trust is
not due any payments until after the first Distribution Date. The amount of the
Interest Fund, if any, shall be set forth in the Trust Agreement. The Interest
Fund shall not be an asset of the Trust or any REMIC, but shall be for the
benefit of the Certificateholders. Unless otherwise provided in the Trust
Agreement, the owner of the Interest Fund shall be the Master Servicer and, to
the extent provided in the REMIC Provisions, any amounts transferred by a REMIC
to the Interest Fund shall be treated as amounts distributed by such REMIC to
the Master Servicer.
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"Interest Shortfall": Month End Interest Shortfall and Soldiers'
and Sailors' Shortfall.
"Issuing REMIC": With respect to any Double REMIC Series, unless
otherwise provided in the Trust Agreement, the REMIC consisting primarily of the
Distribution Account and the Subaccounts of such Distribution Account.
"Junior Mortgage Loan": Any Mortgage Loan with respect to which
the related Security Instrument constitutes a lien of other than first priority
on the related Collateral.
"Letter of Credit": A letter of credit issued to the Trustee and
its successors or assigns by any Person whose long-term unsecured debt
obligations are rated by each Rating Agency in one of its two highest rating
categories.
"Liquidation Proceeds": The proceeds received in connection with
the liquidation of any Mortgage Loan as a result of defaults by the related
Borrower (including any insurance or guarantee proceeds with respect to such
Mortgage Loan), less the expenses of such liquidation and any Non-Recoverable
Advances made with respect to such Mortgage Loan.
"Loan to Value Ratio": With respect to any Mortgage Loan, the
ratio that results when the Unpaid Principal Balance of such Mortgage Loan is
divided by the fair market value of the related Mortgaged Premises. For purposes
of determining that ratio, the fair market value of the Mortgage Premises must
be reduced by (i) the full amount of any lien on such Mortgaged Premises that is
senior to the Mortgage Loan and (ii) a pro rata portion of any lien on such
Mortgaged Premises that is in parity with the Mortgage Loan.
"Master Servicer": The mortgage banking company identified as
such in the Trust Agreement.
"Master Servicer Advance Amount": The amount, if any, specified
as such in the Trust Agreement.
"Master Servicer Compensation": The Master Servicing Fee and any
additional compensation payable to the Master Servicer as specified in Section
6.05 hereof.
"Master Servicer Custodial Account": The account described in
Section 3.01.
"Master Servicer Errors and Omissions Insurance Policy": An
insurance policy in an amount and otherwise in form and substance acceptable
under FNMA Guidelines insuring the Master Servicer as the named insured against
liability for damages arising out of errors, omissions or mistakes committed in
the performance of the services and other obligations required of the Master
Servicer under the Trust Agreement and, if permitted by the issuer of such
policy, naming the Trustee as an additional insured, and containing a
severability of interests provision but no other exclusion or other provision
that would limit the liability of any insured to any other insured.
"Master Servicer Fidelity Bond": A fidelity bond issued by an
insurer and in form and substance acceptable under FNMA Guidelines (i) under
which such insurer agrees to indemnify the Master Servicer for all losses
sustained as a result of any theft, embezzlement, fraud or other dishonest act
on the part of the Master Servicer's directors, officers or employees and (ii)
which provides for limits of liability for each such director, officer or
employee of not less than an amount required by such guidelines.
"Master Servicer Remittance Date": Unless otherwise provided in
the Trust Agreement, (i) each Distribution Date, if the Asset Proceeds Account
and the Master Servicer Custodial Account are
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maintained at the same bank, or (ii) the Business Day preceding
each Distribution Date, if such accounts are not maintained at the same bank.
"Master Servicer Reporting Date": Unless otherwise provided in
the Trust Agreement, the close of business on the second Business Day preceding
each Distribution Date.
"Master Servicing Fee": Unless otherwise provided in the Trust
Agreement, with respect to each Distribution Date and each Mortgage Loan, an
amount equal to one-twelfth of the Master Servicing Fee Rate multiplied by the
Scheduled Principal Balance of such Mortgage Loan as of the first day of the
preceding Due Period.
"Master Servicing Fee Rate": The rate specified as such in the
Trust Agreement.
"Maximum Lifetime Mortgage Interest Rate": With respect to each
ARM Loan, the interest rate, if any, set forth in the related Mortgage Note as
the maximum Mortgage Interest Rate thereunder.
"Minimum Lifetime Mortgage Interest Rate": With respect to each
ARM Loan, the interest rate, if any, set forth in the related Mortgage Note as
the minimum Mortgage Interest Rate thereunder.
"Month End Interest": With respect to any Mortgage Loan
liquidated or prepaid in full during a Prepayment Period, the difference between
the interest that would have been paid on such Mortgage Loan through the last
day of the month in which such Liquidation or prepayment occurred and the
interest actually received by the Master Servicer with respect to such Mortgage
Loan, in each case net of the Administrative Fee applicable thereto. No Month
End Interest shall accrue with respect to Liquidation Proceeds received on
account of any Mortgage Loan during the period from the first day of a month
through the last day of the Prepayment Period ending during such month.
"Month End Interest Shortfall": The amount of Month End Interest
not paid by a Servicer or the Master Servicer.
"Monthly Payment": With respect to any Mortgage Loan and any
month, the scheduled payment of principal and interest due in such month under
the terms of the related Mortgage Note.
"Monthly Statement": The statement required to be prepared and
delivered to the Trustee by the Master Servicer on or before each Master
Servicer Reporting Date as described in Section 4.01 hereof.
"Mortgage Interest Rate": With respect to any Mortgage Loan, the
annual interest rate required to be paid by the related Borrower under the terms
of the related Mortgage Note.
"Mortgage Loan": Any of the Single Family Loans, Multi-Family
Loans, Conventional Home Improvement Loans, Title I Loans, or Cooperative Loans
sold by SASCO to the Trust and listed on the Mortgage Loan Schedule to the Trust
Agreement, and any loans substituted therefor pursuant to the terms of the Trust
Agreement.
"Mortgage Loan Schedule": The list of Mortgage Loans sold by
SASCO to the Trust, which schedule is attached to the Trust Agreement and sets
forth for each Mortgage Loan (i) the Servicer (SASCO) Loan Number, (ii) the
Borrower's Name, (iii) the original principal balance, (iv) the Scheduled
Principal Balance as of the Cut-Off Date and (v) such additional information as
may be reasonably requested by the Trustee.
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"Mortgage Note": The note or other evidence of indebtedness of a
Borrower with respect to a Mortgage Loan.
"Mortgaged Premises": With respect to any Mortgage Loan other
than a Cooperative Loan, the real property or the leasehold interest, together
with any improvements thereon, securing the indebtedness of the Borrower under
such Mortgage Loan. With respect to any Cooperative Loan, the shares issued by a
cooperative housing corporation that secure the indebtedness of the Borrower
under such Cooperative Loan.
"Mortgagor Bankruptcy Fund": A fund consisting of: (i) A surety
bond, insurance policy, Letter of Credit, guarantee or other credit instrument,
in form and substance satisfactory to each Rating Agency, issued by an insurance
company, surety company, bank, trust company, savings and loan association,
financial institution or other Person acceptable to each Rating Agency or (ii)
cash, Permitted Investments or a Class of Certificates or portion thereof held
by or on behalf of the Trust. The Mortgagor Bankruptcy Fund will not be
considered an asset of the Trust or any REMIC, but shall be for the benefit of
the Certificateholders. The owner of the Mortgagor Bankruptcy Fund will be
identified in the Trust Agreement and, to the extent provided in the REMIC
Provisions, any amounts transferred by a REMIC to such fund shall be treated as
amounts distributed by such REMIC to the owner of such fund.
"Mortgagor Bankruptcy Losses": Losses resulting from any court
ordered reduction in the valuation of the Collateral securing a Mortgage Loan or
changes in the repayment terms of a Mortgage Loan in
conjunction with a bankruptcy proceeding of a Borrower or otherwise.
"Multi-Family Loan": A mortgage loan that is secured by a first,
second, or more junior lien on a rental apartment building, a mixed commercial
and residential use property, or a project containing five or more residential
units.
"Negative Amortization Amount": With respect to each Mortgage
Loan, the excess, if any, of interest accrued at the related Mortgage Interest
Rate for any month over the greater of (i) the amount of the Monthly Payment for
such month and (ii) the interest received in respect of such month.
"Net Rate": Unless otherwise provided in the Trust Agreement,
with respect to each Mortgage Loan, the related Mortgage Interest Rate less the
related Administrative Fee Rate.
"New Lease": Any lease of REO Property entered into on behalf of
the Trust, including any lease renewed, modified or extended on behalf of the
Trust (if the Trustee, the Master Servicer, a Servicer or an agent of the
foregoing has the right to renegotiate the terms of such lease).
"Non-Recoverability Certificate": The meaning set forth in
Section 3.04 hereof.
"Non-Recoverable Advance": Any Advance or proposed Advance that
the Master Servicer or the Trustee, as the case may be, has determined to be
non-recoverable in accordance with Section 3.04 hereof.
"Non-U.S. Person": A foreign person within the meaning of
Treasury regulation Section 1.860G-3(a)(1) (i.e., a person other than (i) a
citizen or resident of the United States, (ii) a corporation or partnership that
is organized under the laws of the United States or any jurisdiction thereof or
therein, or (iii) an estate or trust that is subject to United States federal
income taxation regardless of the source of its income) who would be subject to
United States income tax withholding pursuant to section 1441 or 1442 of the
Code and the Treasury regulations thereunder on income derived from a Residual
Interest.
"Officer": With respect to the Trustee, any senior vice
president, any vice president, any assistant vice president, any assistant
treasurer, any trust officer, any assistant secretary, or any other officer of
the Trustee customarily performing functions similar to those performed by the
persons who at the time shall be
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such officers, and also to whom, with respect to a particular corporate trust
matter, such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. With respect to any other Person, the
chairman of the board, the president, a vice president (however designated), the
treasurer or the controller of such Person.
"Opinion of Counsel": A written opinion of counsel, who may be
counsel for SASCO or the Master Servicer, acceptable to the Trustee and the
Master Servicer. Except with the consent of each Rating Agency, no Opinion of
Counsel may be delivered by in-house counsel of the entity required to deliver
such opinion.
"Pass-Through Rate": With respect to each Class of Certificates,
as to each Distribution Date, the rate specified as such in the Trust Agreement.
"Paying Agent": The paying agent appointed pursuant to Section
5.08 hereof.
"Payment Adjustment Date": With respect to each ARM Loan, the
date on which the related payments of principal and interest adjust in
accordance with the related Mortgage Note.
"Percentage Interest": With respect to any Certificate to which a
principal balance is assigned as of the Closing Date, the portion of the Class
evidenced by such Certificate, expressed as a percentage, the numerator of which
is the initial Certificate Principal Balance of such Certificate and the
denominator of which is the aggregate Certificate Principal Balance of all of
the Certificates of such Class as of the Closing Date. With respect to any
Certificate to which a principal balance is not assigned as of the Closing Date,
the portion of the Class evidenced by such Certificate, expressed as a
percentage, as stated on the face of such Certificate.
"Permitted Investments": The following investments:
(a) direct obligations of, or obligations fully guaranteed
as to principal and interest by, the United States or any agency or
instrumentality thereof, provided such obligations are backed by the
full faith and credit of the United States;
(b) senior debt obligations and mortgage participation
certificates of the Federal National Mortgage Association or the Federal
Home Loan Mortgage Corporation;
(c) repurchase obligations (the collateral for which is
held by a third party or the Trustee) with respect to any security
described in clauses (a) or (b) above, provided that the long-term or
short-term unsecured debt obligations of the party agreeing to
repurchase such obligations are at the time rated by each Rating Agency
in one of its two highest long-term unsecured debt rating categories or
one of its two highest short-term unsecured debt rating categories;
(d) money market funds investing exclusively in debt
obligations and rated by each Rating Agency in its highest long-term
rating category;
(e) certificates of deposit, time deposits and bankers'
acceptances of any bank or trust company (including the Trustee)
incorporated under the laws of the United States or any state thereof,
provided that the long-term unsecured debt obligations of such bank or
trust company at the date of acquisition thereof (or, in the case of the
principal depository institution in a depository institution holding
company, the long-term unsecured debt obligations of the depository
institution holding company) have been rated by each Rating Agency in
one of its two highest long-term unsecured debt rating categories;
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(f) commercial paper (having original maturities of not
more than 365 days) of any corporation incorporated under the laws of
the United States or any state thereof which on the date of acquisition
has been rated by each Rating Agency in its highest short-term unsecured
debt rating category (i.e., "P-1" by Moody's Investors Service, Inc.,
"A-1+", by Standard & Poor's Ratings Services and "F-1+" by Fitch
Investors Service, L.P.); and
(g) any other demand, money market or time deposit or
obligation, interest-bearing or other security or investment earning a
return in the nature of interest that would not adversely affect the
then current rating of the Certificates by any Rating Agency;
provided, however, that no investment described above shall constitute a
Permitted Investment if such investment evidences either the right to receive
(i) only interest with respect to the obligations underlying such instrument or
(ii) both principal and interest payments derived from obligations underlying
such instrument if the interest and principal payments with respect to such
instrument provide a yield to maturity at par greater than 120% of the yield to
maturity at par of the underlying obligations; and, provided further, that no
investment described above shall constitute a Permitted Investment unless such
investment matures on or before the Business Day preceding the Distribution Date
on which the funds invested therein are required to be distributed (or, in the
case of an investment that is an obligation of the institution in which the
account is maintained, on or before such Distribution Date).
"Person": Any individual, corporation, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, government or agency or
political subdivision thereof or any other entity.
"Plan": Any "employee benefit plan" within the meaning of Section
3(3) of ERISA, any retirement arrangement (including individual retirement
accounts, individual retirement annuities and Keogh plans), and any collective
investment funds, separate accounts, insurance company general accounts and
similar pooled investment funds in which such plans or arrangements are
invested, that are described in or subject to the Plan Asset Regulations, ERISA
or corresponding provisions of the Code.
"Plan Asset Regulations": The United States Department of Labor
regulations set forth in 29 C.F.R. ss. 2510.3-101, as amended from time to time.
"Plan Investor": Any Plan, any Person acting on behalf of a Plan
or any Person using the assets of a Plan, as determined under the Plan Asset
Regulations.
"Pooling REMIC": With respect to any Double REMIC Series, unless
otherwise provided in the Trust Agreement, the REMIC consisting primarily of the
Mortgage Loans and the Asset Proceeds Account.
"Prepayment Period": Unless otherwise provided in the Trust
Agreement: (i) the period from but excluding the Cut-Off Date to and including
the 17th day of the month in which the first Distribution Date occurs and (ii)
each period thereafter from and including the 18th day of a month to and
including the 17th day of the following month.
"Private Certificate": Any Certificate designated as such in the
Trust Agreement.
"Private Subordinated Certificate": Any Certificate designated as
such in the Trust Agreement.
"Public Subordinated Certificate": Any Certificate designated as
such in the Trust Agreement.
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"Purchase Price": With respect to each Mortgage Loan purchased
from the Trust, an amount equal to the Unpaid Principal Balance of such Mortgage
Loan, plus accrued and unpaid interest thereon at the related Mortgage Interest
Rate to the last day of the month in which such purchase occurs, and, if a
Servicer is the Purchaser, minus any unreimbursed Advances of principal and
interest made by such Servicer on such Mortgage Loan and any outstanding
Servicing Fee owed with respect to such Mortgage Loan.
"Purchaser": The Person that purchases a Mortgage Loan from the
Trust pursuant to Section 2.03 hereof.
"Qualification Defect": With respect to a Mortgage Loan, (i) a
defective document in the Trustee Mortgage Loan File, (ii) the absence of a
document in the Trustee Mortgage Loan File, or (iii) the breach of any
representation, warranty or covenant with respect to such Mortgage Loan made by
a Seller, a Servicer or SASCO, but only if the affected Mortgage Loan would
cease to qualify as a "qualified mortgage" for purposes of the REMIC Provisions.
With respect to a Regular Interest or a mortgage certificate described in
section 860G(a)(3) of the Code, the failure to qualify as a "qualified mortgage"
for purposes of the REMIC Provisions.
"Qualified Institutional Buyer": Any "qualified institutional
buyer" as defined in clause (a)(1) of Rule 144A.
"Qualified Substitute Mortgage Loan": A mortgage loan substituted
by SASCO or a Seller for a Deleted Mortgage Loan that must, on the date of such
substitution: (i) have an Unpaid Principal Balance not greater than (and not
more than $10,000 less than) the Unpaid Principal Balance of the Deleted
Mortgage Loan, (ii) have a Mortgage Interest Rate not less than (and not more
than one percentage point in excess of) the Mortgage Interest Rate of the
Deleted Mortgage Loan, (iii) have a Net Rate equal to the Net Rate of the
Deleted Mortgage Loan, (iv) have a remaining term to maturity not greater than
(and not more than one year less than) the remaining term to maturity of the
Deleted Mortgage Loan, (v) have a Loan-to-Value Ratio as of the first day of the
month in which the substitution occurs equal to or less than the Loan-to-Value
Ratio of the Deleted Mortgage Loan as of such date (in each case, using the fair
market value at origination and after taking into account the Monthly Payment
due on such date), and (vi) comply with each applicable representation,
warranty, and covenant pertaining to the Mortgage Loans set forth in the Trust
Agreement and, if a Seller is effecting the substitution, comply with each
applicable representation, warranty, or covenant pertaining to the Mortgage
Loans set forth in the related Sales Agreement; provided, however, that no ARM
Loan may substituted for a Deleted Mortgage Loan unless such Deleted Mortgage
Loan is also an ARM Loan and, in addition to meeting the conditions set forth
above, the ARM Loan to be substituted, on the date of the substitution, (vii)
has a Minimum Lifetime Mortgage Interest Rate that is not less than the Minimum
Lifetime Mortgage Interest Rate on the Deleted Mortgage Loan, (viii) has a
Maximum Lifetime Mortgage Interest Rate that is not less than the Maximum
Lifetime Mortgage Interest Rate on the Deleted Mortgage Loan, (ix) provides for
a lowest possible Net Rate that is not lower than the lowest possible Net Rate
for the Deleted Mortgage Loan and a highest possible Net Rate that is not lower
than the highest possible Net Rate for the Deleted Mortgage Loan, (x) has a
Gross Margin that is not less than the Gross Margin of the Deleted Mortgage
Loan, (xi) has a Periodic Rate Cap equal to the Periodic Rate Cap on the Deleted
Mortgage Loan, (xii) has a next Interest Adjustment Date that is the same as the
next Interest Adjustment Date for the Deleted Mortgage Loan or occurs not more
than two months prior to the next Interest Adjustment Date for the Deleted
Mortgage Loan, (xiii) does not have a permitted increase or decrease in the
Monthly Payment on each Payment Adjustment Date less than the permitted increase
or decrease applicable to the Deleted Mortgage Loan and (xiv) is not convertible
to a fixed Mortgage Interest Rate unless the Deleted Mortgage Loan is so
convertible. In the event that more than one mortgage loan is substituted for a
Deleted Mortgage Loan, the amount described in clause (i) hereof shall be
determined on the basis of aggregate Unpaid Principal Balances, the rates
described in clauses (iii), (vii), (viii), and (ix) hereof shall be determined
on the basis of weighted average Mortgage Interest Rates and Net Rates, as the
case may be, the term described in clause (iv) hereof shall be determined on the
basis of weighted average remaining terms to maturity, provided that no
Qualified Substitute Mortgage Loan may have an original term to
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maturity beyond the latest original term to maturity of any Mortgage Loan
transferred and assigned to the Trust on the Closing Date, the Gross Margins
described in clause (x) hereof shall be determined on the basis of weighted
average Gross Margins, and the Interest Adjustment Dates described in clause
(xii) hereof shall be determined on the basis of weighted average Interest
Adjustment Dates. In the case of a Trust for which a REMIC election has been or
will be made, a Qualified Substitute Mortgage Loan also shall satisfy the
following criteria as of the date of its substitution for a Deleted Mortgage
Loan: (A) the Borrower shall not be 90 or more days delinquent in payment on the
Qualified Substitute Mortgage Loan, (B) the Trustee Mortgage Loan File for such
Mortgage Loan shall not contain any material deficiencies in documentation, and
shall include an executed Mortgage Note and a recorded Security Instrument; (C)
the Loan-to-Value Ratio of such Mortgage Loan must be 125% or less on the date
of origination of such Mortgage Loan or, if any of the terms of such Mortgage
Loan were modified other than in connection with a default or imminent default
on such Mortgage Loan, on the date of such modification; (D) no property
securing such Mortgage Loan may be subject to foreclosure, bankruptcy, or
insolvency proceedings; and (E) such Mortgage Loan must be secured by a valid
lien on the related Mortgaged Premises.
"Rating Agency": Each nationally recognized statistical rating
agency specified in the Trust Agreement that, on the Closing Date, rated one or
more Classes of Certificates at the request of SASCO.
"Realized Interest Shortfall": With respect to any Mortgage Loan,
the amount by which the interest payable thereon exceeds the net amount
recovered (including Insurance Proceeds) in Liquidation thereof, after payment
of expenses of Liquidation and reimbursement of Advances made with respect to
such Mortgage Loan.
"Realized Loss": With respect to any Mortgage Loan, an amount
equal to the sum of (i) the amount by which the Unpaid Principal Balance thereof
exceeds the net amount recovered in liquidation thereof (after payment of
expenses of liquidation), after payment of accrued interest on such Mortgage
Loan and after application of any Insurance Proceeds with respect thereto, and
(ii) any other types of principal loss with respect to such Mortgage Loan,
including, but not limited to, Mortgagor Bankruptcy Losses, Special Hazard
Losses and Fraud Losses.
"Record Date": Unless otherwise provided in the Trust Agreement,
(i) with respect to the first Distribution Date, the Closing Date, and (ii) with
respect to each Distribution Date thereafter, the last Business Day of the month
preceding the month in which such Distribution Date occurs.
"Recordation Report": A report substantially in the form of
Exhibit B attached hereto provided by the Trustee (or the Custodian) pursuant to
Section 2.02 identifying those Mortgage Loans for which a Security Instrument or
an Assignment remains unrecorded.
"Redeeming Purchase": The purchase of all of the Regular
Certificates issued by the Trust pursuant to Section 9.01 hereof.
"Redemption Account": An escrow account maintained by the Trustee
into which any Trust funds not distributed on a Distribution Date on which a
Redeeming Purchase is made are deposited. The
Redemption Account shall be an Eligible Account.
"Redemption Date": The date, if any, specified as such in the
Trust Agreement.
"Redemption Price": An amount equal to (i) the aggregate
Certificate Principal Balance of the Regular Certificates (and any Residual
Certificates with a Certificate Principal Balance) plus accrued and unpaid
interest thereon through the Accounting Date preceding the Distribution Date
fixed for redemption and (ii) any unreimbursed Advances and Non-Recoverable
Advances.
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"Regular Certificate": A Certificate that represents a Regular
Interest or a combination of Regular Interests.
"Regular Interest": An interest in a REMIC that is designated as
a "regular interest" in such REMIC for purposes of the REMIC Provisions.
"REMIC": With respect to a Trust, each "real estate mortgage
investment conduit," within the meaning of the REMIC Provisions, relating to
such Trust.
"REMIC Provisions": The provisions of the Code relating to "real
estate mortgage investment conduits," which provisions appear at sections 860A
through 860G of the Code, related Code provisions, and regulations,
announcements and rulings thereunder, as the foregoing may be in effect from
time to time.
"Remittance Date": Unless otherwise provided in the Trust
Agreement, the 15th day of each month, or the preceding Business Day if such
15th day is not a Business Day.
"Remittance Report": A report (either a data file or hard copy)
that is prepared by the Master Servicer in accordance with Section 4.02 hereof
and contains the information specified in Exhibit C attached hereto.
"Rents From Real Property": With respect to any REO Property,
gross income of the character described in section 856(d) of the Code and the
Treasury regulations thereunder.
"REO Disposition": The receipt by a Servicer of Insurance
Proceeds and other payments and recoveries (including Liquidation Proceeds)
which a Servicer recovers from the sale or other disposition of an REO Property.
"REO Property": A Mortgaged Premises acquired by a Servicer on
behalf of the
Certificateholders through foreclosure or deed-in-lieu of foreclosure, as
further described in Section 3.08 hereof.
"Request for Release": A release signed by an Officer of a
Servicer in the form attached to the Servicing Agreement [as [Form 340 of the
Guide] (or a similar certificate of the Master Servicer containing the same
information).
"Reserve Fund": Unless otherwise provided in the Trust Agreement,
any fund in the Trust Estate other than (i) the Asset Proceeds Account or (ii)
any other fund that is expressly excluded from a REMIC.
"Residual Certificate": A Certificate that represents a Residual
Interest.
"Residual Interest": An interest in a REMIC that is designated as
a "residual interest" in such REMIC for purposes of the REMIC Provisions.
"Residual Transferee Agreement": An agreement substantially in
the form of Exhibit G attached hereto.
"Rule 144A": Rule 144A promulgated by the SEC, as the same may be
amended from time to time.
"Rule 144A Agreement": An agreement substantially in the form of
Exhibit D attached hereto.
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"Rule 144A Certificate": Unless otherwise provided in the Trust
Agreement, a Private Certificate.
"Sales/Servicing Agreement": Each of the Sales/Servicing
Agreements identified in the Trust Agreement.
"SASCO": Saxon Asset Securities Company, a Virginia corporation.
"Saxon Mortgage": Saxon Mortgage, Inc., a Virginia corporation.
"Scheduled Principal Balance": Unless otherwise provided in the
Trust Agreement, with respect to any Mortgage Loan as of any date of
determination, the scheduled principal balance thereof as of the Cut-Off Date,
increased by the Negative Amortization Amount, if any, with respect thereto, and
reduced by (i) the principal portion of all Monthly Payments due on or before
such determination date, whether or not paid by the Borrower or advanced by a
Servicer, the Master Servicer, the Trustee or an Insurer, (ii) all amounts
allocable to unscheduled principal payments received on or before the last day
of the Prepayment Period preceding such date of determination, and (iii) without
duplication, the amount of any Realized Loss that has occurred with respect to
such Mortgage Loan.
"SEC": The Securities and Exchange Commission and its successors.
"Securities Act": The Securities Act of 1933, as amended.
"Security Instrument": With respect to any Mortgage Loan, the
mortgage, deed of trust, deed to secure debt, security deed, or other instrument
creating a first, second, or more junior lien on the Collateral that secures the
indebtedness of the Borrower under such Mortgage Loan.
"Seller": With respect to each Mortgage Loan, Saxon Mortgage or
any other party other than SASCO that executes a Sales Agreement applicable to
such Mortgage Loan.
"Senior Mortgage Loan": Any Mortgage Loan with respect to which
the related Security Instrument constitutes a lien of first priority on the
related Collateral.
"Senior Percentage": The percentage, if any, specified as such
(and calculated as set forth) in the Trust Agreement.
"Senior Prepayment Percentage": The percentage, if any, specified
as such (and calculated as set forth) in the Trust Agreement.
"Series": A group of asset backed certificates issued by a trust
originated by SASCO.
"Servicer": With respect to each Mortgage Loan, the Person
responsible for the servicing thereof in accordance with the Guide.
"Servicing Agreement": Any agreement between a Servicer and Saxon
Mortgage or SASCO relating to the servicing of Mortgage Loans.
"Servicing Fee": Unless otherwise provided in the Trust
Agreement, with respect to each Distribution Date and each Mortgage Loan, an
amount equal to one-twelfth of the applicable Servicing Fee Rate multiplied by
the Scheduled Principal Balance of such Mortgage Loan as of the first day of the
preceding Due Period.
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"Servicing Fee Rate": The rate specified as such in the Trust
Agreement.
"Single Family Loan": A mortgage loan that is secured by a first,
second, or more junior lien on a one- to four-family residential property.
"Soldiers' and Sailors' Shortfall": Interest losses on a Mortgage
Loan resulting from the application of the Soldiers' and Sailors' Civil Relief
Act of 1940.
"Special Hazard Fund": A Fund consisting of: (i) a surety bond,
insurance policy, Letter of Credit, guarantee or other credit instrument, in
form and substance satisfactory to each Rating Agency, issued by an insurance
company, surety company, bank, trust company, savings and loan association,
financial institution or other Person acceptable to each Rating Agency or (ii)
cash, Permitted Investments or a Class of Certificates or portion thereof held
by or on behalf of the Trust. The Special Hazard Fund will not be considered an
asset of the Trust or any REMIC, but shall be for the benefit of the
Certificateholders. The owner of the Special Hazard Fund will be identified in
the Trust Agreement and, to the extent provided in the REMIC Provisions, any
amounts transferred by a REMIC to such fund shall be treated as amounts
distributed by such REMIC to the owner of such fund.
"Special Hazard Insurance Policy": An insurance policy covering a
Mortgage Loan against (i) loss by reason of damage to Mortgaged Premises caused
by certain hazards not covered by any Hazard Insurance and (ii) partial loss
from damage to the Mortgaged Premises caused by reason of the application of the
coinsurance clause contained in any Hazard Insurance policy.
"Special Hazard Losses": Losses on Mortgage Loans arising by
reason of damage to Mortgaged Premises not covered by Hazard Insurance,
excluding losses caused by war, nuclear reaction,
nuclear or atomic weapons, insurrection or normal wear and tear.
"Special Tax Consent": The written consent of the Holder of a
Residual Certificate to any tax (or risk thereof) arising out of a proposed
transaction or activity that may be imposed upon such Holder or that may affect
adversely the value of such Residual Certificate.
"Special Tax Opinion": An Opinion of Counsel that a proposed
transaction or activity will not (i) affect adversely the status of any REMIC as
a REMIC or of the Regular Interests as the "regular interests" therein under the
REMIC Provisions, (ii) affect the payment of interest or principal on the
Regular Interests or (iii) result in the encumbrance of the Mortgage Loans by a
tax lien.
"Standard Terms": These Standard Terms, as amended or
supplemented from time to time.
"State": The jurisdiction specified in the Trust Agreement.
"Subaccount": With respect to any Double REMIC Series, each
subaccount of the Distribution Account that is established by the Trustee solely
for purposes of the REMIC Provisions pursuant to Section 3.03(a) hereof.
"Subordinated Percentage": The percentage, if any, specified as
such (and calculated as set forth) in the Trust Agreement.
"Subordinated Prepayment Percentage": The percentage, if any,
specified as such (and calculated as set forth) in the Trust Agreement.
"Substitution Shortfall": The meaning set forth in Section
2.03(h) hereof.
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"TAPRI Certificate": A certificate signed by the transferor of a
Residual Certificate stating whether such Certificate has "tax avoidance
potential" as defined in Treasury regulations section 1.860G-3(a)(2).
"Tax Matters Person": The Person or Persons designated from time
to time hereunder to act as the "tax matters person" (within the meaning of the
REMIC Provisions) of a REMIC.
"Terminating Purchase": The purchase of all Mortgage Loans and
each REO Property owned by the Trust pursuant to Section 9.02 hereof.
"Termination Account": An escrow account maintained by the
Trustee into which any Trust funds not distributed on the Distribution Date on
which the earlier of (i) a Terminating Purchase or (ii) the final payment or
other Liquidation of the last Mortgage Loan remaining in the Trust or the
disposition of the last REO Property remaining in the Trust is made are
deposited. The Termination Account shall be an Eligible Account.
"Termination Price": The greater of (i) 100% of the Unpaid
Principal Balance of each Mortgage Loan remaining in the Trust on the day of a
Terminating Purchase, plus accrued and unpaid interest thereon at the related
Mortgage Interest Rate through the Accounting Date preceding such purchase, plus
unreimbursed Advances of other than principal and interest, and the lesser of
(A) the Unpaid Principal Balance of each Mortgage Loan secured by an REO
Property remaining in the Trust, plus accrued but unpaid interest thereon at the
related Mortgage Interest Rate through the Accounting Date preceding such
purchase, and (B) the current appraised value of any such REO Property, such
appraisal to be conducted by an appraiser satisfactory to the Master Servicer
(net of liquidation expenses to be incurred in connection with the disposition
of such REO Property, estimated in good faith by the Master Servicer), and (ii)
the sum of the aggregate fair market value of all of the assets of the Trust (as
determined by the Master Servicer based upon bids from at least three recognized
broker/dealers that deal in similar assets as of the close of business on the
third Business Day preceding the date upon which notice of any such termination
is furnished to Certificateholders pursuant to Section 9.03 hereof). The fair
market value of the assets in the Trust or the appraised value of any REO
Property shall be based upon the inclusion of accrued interest through the
Accounting Date preceding repurchase at the applicable Mortgage Interest Rate on
the Scheduled Principal Balance of each Mortgage Loan (including any Mortgage
Loan secured by an REO Property as to which an REO Disposition has not
occurred).
"Title I Loan": A mortgage loan that is: (i) originated under the
Title I credit insurance program created under the National Housing Act of 1934
by the Federal Housing Administration, (ii) made to finance actions or items
that substantially protect or improve the basic livability or utility of a
property, and (iii) secured by a [first, second, or more junior] lien on such
property.
"Transferee Agreement": An agreement substantially in the form of
Exhibit E attached hereto.
"Treasury": The United States Treasury Department.
"Trust": The trust formed pursuant to the Trust Agreement.
"Trust Agreement": The Trust Agreement among SASCO, the Master
Servicer and the Trustee relating to the issuance of Certificates and into which
these Standard Terms are incorporated by reference.
"Trust Estate": The segregated pool of assets transferred and
assigned to the Trustee by SASCO pursuant to the conveyance clause of the Trust
Agreement.
"Trustee": The bank or trust company identified as the Trustee in
the Trust Agreement.
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"Trustee Fee": Unless otherwise provided in the Trust Agreement,
with respect to each Distribution Date and each Mortgage Loan, an amount equal
to one-twelfth of the Trustee Fee Rate multiplied by the Scheduled Principal
Balance of such Mortgage Loan as of the first day of the preceding Due Period.
"Trustee Fee Rate": The rate specified as such in the Trust
Agreement.
"Trustee Mortgage Loan File": With respect to each Cooperative
Loan, the file containing the documents specified in the Trust Agreement. With
respect to each Mortgage Loan that is not a Cooperative Loan, unless otherwise
specified in the Trust Agreement, the file containing the following documents,
together with any other Mortgage Loan Documents held by the Trustee or the
Custodian with respect to such Mortgage Loan:
(a) the original Mortgage Note, endorsed in blank or to the Trustee or
the Custodian with all prior and intervening endorsements as may be
necessary to show a complete chain of endorsements from the originator
and any related power of attorney, surety or guaranty agreement, Note
Assumption Rider or buydown agreement;
(b) the original recorded Security Instrument with evidence of
recordation noted thereon or attached thereto, together with any addenda
or riders thereto, or a copy of such recorded Security Instrument with
such evidence of recordation certified to be true and correct by the
appropriate governmental recording office, or, if such original Security
Instrument has been submitted for recordation but has not been returned
from the applicable public recording office, a photocopy of such
Security Instrument certified by an Officer of the Master Servicer or by
the title insurance company providing title insurance in respect of such
Security Instrument, the closing/settlement - escrow agent or the
closing attorney to be a true and correct copy of the original Security
Instrument submitted for recordation;
(c) each original recorded intervening Assignment of the Security
Instrument as may be necessary to show a complete chain of title from
the originator to the related Servicer, Trustee or Custodian, as
applicable, with evidence of recordation noted thereon or attached
thereto, or a copy of such Assignment with such evidence of recordation
certified to be true and correct by the appropriate governmental
recording office or, if any such Assignment has been submitted for
recordation but has not been returned from the applicable public
recording office or is not otherwise available, a copy of such
Assignment certified by an Officer of the Master Servicer to be a true
and correct copy of the recorded Assignment or the Assignment submitted
for recordation;
(d) if an Assignment of the Security Instrument to the related Servicer
has been recorded or sent for recordation, an original Assignment of the
Security Instrument from such Servicer in blank or to the Trustee or the
Custodian in recordable form;
(e) an original Title Insurance Policy, Certificate of Title Insurance
or a written commitment to issue such a Title Insurance Policy or
Certificate of Title Insurance, or a copy of a Title Insurance Policy or
Certificate of Title Insurance certified as true and correct by the
applicable Insurer;
(f) if indicated on a Schedule to the Trust Agreement (or otherwise
received by the Trustee or the Custodian), the original or certified
copies of each assumption agreement, modification agreement, written
assurance or substitution agreement, if any; and
(g) any other items required by the Rating Agencies as a condition to
their provision of written confirmation that the ratings on the rated
Certificates will not be downgraded (without regard to the Certificate
Guaranty Insurance Policy).
"UCC": The Uniform Commercial Code, as in effect in the State
from time to time.
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"Unpaid Principal Balance": With respect to any Mortgage Loan,
the outstanding principal balance thereof payable by the Borrower under the
terms of the related Mortgage Note.
"U.S. Person": A Person other than a Non-U.S. Person.
"Voting Rights": The portion of the voting rights of all of the
Certificates that is allocated to any Certificate. Unless otherwise provided in
the Trust Agreement, (i) if any Class of Certificates does not have a
Certificate Principal Balance or has an initial Certificate Principal Balance
that is less than or equal to 1% of the aggregate Certificate Principal Balance
of all of the Certificates, then 1% of the Voting Rights shall be allocated to
each Class of such Certificates and the balance of the Voting Rights shall be
allocated among the remaining Classes of Certificates in proportion to their
respective Certificate Principal Balances following the most recent Distribution
Date, and (ii) if no Class of Certificates has an initial Certificate Principal
Balance that is less than 1% of the aggregate Certificate Principal Balance of
all of the Certificates, then all of the Voting Rights shall be allocated among
all the Classes of Certificates in proportion to their respective Certificate
Principal Balances following the most recent Distribution Date. Voting Rights
allocated to each Class of Certificates shall be allocated in proportion to the
respective Percentage Interests of the Holders thereof.
"Withholding Agent": The Trustee or its designated Paying Agent
or any other person who is liable to withhold federal income tax from a
distribution on a Residual Certificate under section 1441 or 1442 of the Code
and the Treasury regulations thereunder.
Section 1.02. Section References; Calculations; Ratings.
(a) Unless otherwise specified herein, all references in these
Standard Terms to sections shall mean sections contained in these Standard
Terms.
(b) Unless otherwise provided in the Trust Agreement, all
calculations described herein shall be made on the basis of a 360-day year
consisting of twelve 30-day months.
(c) Unless otherwise provided in the Trust Agreement, all
references herein to any long-term rating category of a Rating Agency shall mean
such rating category without regard to any plus or minus or numerical
designation.
ARTICLE II
MORTGAGE LOAN FILES
Section 2.01. Mortgage Loan Files. Pursuant to the Trust
Agreement, SASCO has sold to the Trustee without recourse all the right, title
and interest of SASCO in and to the Mortgage Loans, any and all rights,
privileges and benefits accruing to SASCO under the Sales Agreement and
Servicing Agreements with respect to the Mortgage Loans (except, in the case of
the Sales Agreement, any rights of SASCO to fees and indemnification by the
Seller under such Agreement), including the rights and remedies with respect to
the enforcement of any and all representations, warranties and covenants under
such agreements, and all other agreements and assets included or to be included
in the Trust for the benefit of the Certificateholders as set forth in the
conveyance clause of the Trust Agreement. Such sale includes all of SASCO's
rights to Monthly Payments on the Mortgage Loans due after the Cut-Off Date, and
all other payments of principal (and interest) made on or after the Cut-Off Date
that are reflected in the initial aggregate Certificate Principal Balance of the
Certificates issued pursuant to the Trust Agreement.
In connection with such sale, SASCO shall deliver, or cause to be
delivered, to the Trustee on or before the Closing Date, a Trustee Mortgage Loan
File with respect to each Mortgage Loan. If any Security Instrument or
Assignment of a Security Instrument to the related Servicer, the Trustee, or the
Custodian, as
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applicable, or any intervening Assignment is in the process of being recorded on
the Closing Date, SASCO shall cause each such original recorded document, or a
certified copy thereof, to be delivered to the Trustee promptly following its
recordation. SASCO also shall cause to be delivered to the Trustee any other
original Mortgage Loan Documents to be included in the Trustee Mortgage Loan
File if a copy thereof initially was delivered.
SASCO has delivered or caused to be delivered to each Servicer,
on or before the Closing Date, a Servicer File with respect to each Mortgage
Loan serviced by such Servicer. All such documents shall be held by such
Servicer in trust for the benefit of the Trustee on behalf of the
Certificateholders.
Section 2.02. Acceptance by the Trustee.
(a) By its execution of the Trust Agreement, the Trustee
acknowledges and declares that it holds and will hold or has agreed to hold all
documents delivered to it from time to time with respect to each Mortgage Loan
and all assets included in the Trust Estate in trust for the exclusive use and
benefit of all present and future Certificateholders. The Trustee represents and
warrants that (i) it acquired the Mortgage Loans on behalf of the Trust from
SASCO in good faith, for value and without actual notice or actual knowledge of
any adverse claim, lien, charge, encumbrance or security interest (including,
but not limited to, federal tax liens or liens arising under ERISA) (it being
understood that the Trustee has not undertaken searches (lien records or
otherwise) of any public records), (ii) except as permitted in the Trust
Agreement, it has not and will not, in any capacity, assert any claim or
interest in the Mortgage Loans and will hold (or its agent will hold) such
Mortgage Loans and the proceeds thereof in trust pursuant to the terms of the
Trust Agreement and (iii) it has not encumbered or transferred its right, title
or interest in the Mortgage Loans.
(b) The Trustee shall deliver to SASCO and the Master Servicer,
on the Closing Date, an Initial Certification certifying that, except as
specifically noted on a schedule of exceptions thereto and subject to its review
as herein provided, it, or a Custodian on its behalf, is in possession of a
Trustee Mortgage Loan File for each Mortgage Loan that includes each of the
documents required to be included therein. Before delivering the Initial
Certification, the Trustee shall have examined each Trustee Mortgage Loan File
to confirm that (except as specifically noted on a schedule of exceptions
thereto):
(i) except for the endorsement required pursuant to
clause (a) of the definition of Trustee Mortgage Loan File, the Mortgage
Note, on the face or the reverse side(s) thereof, does not contain
evidence of any unsatisfied claims, liens, security interests,
encumbrances or restrictions on transfer;
(ii) the Mortgage Note bears an endorsement (which
appears to be an original) as required pursuant to clause (a) of the
definition of Trustee Mortgage Loan File;
(iii) all documents required to be contained in the
Trustee Mortgage Loan File are in its possession or in the possession of
a Custodian on its behalf;
(iv) such documents have been reviewed by it, or by a
Custodian on its behalf, and appear regular on their face and relate to
such Mortgage Loan; and
(v) based on its examination, or the examination by a
Custodian on its behalf, and only as to the foregoing documents, the
information set forth on the Mortgage Loan Schedule accurately reflects
the information set forth in the Trustee Mortgage Loan File.
It is understood that, before delivering the Initial
Certification, the Trustee shall examine the Mortgage Loan Documents to confirm
that:
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(A) each Mortgage Note and Security Instrument bears a
signature or signatures that appear to be original and that purport to
be that of the Person or Persons named as the maker and
mortgagor/trustor or, if photocopies are permitted under the definition
of Trustee Mortgage Loan File, that such copies bear a reproduction of
such signature or signatures;
(B) except for the endorsement required pursuant to
clause (a) of the definition of Trustee Mortgage Loan File, neither the
Security Instrument nor any Assignment, on the face or the reverse
side(s) thereof, contains evidence of any unsatisfied claims, liens,
security interests, encumbrances or restrictions on transfer;
(C) the principal amount of the indebtedness secured
by the Security Instrument is identical to the original principal amount
of the Mortgage Note;
(D) the Assignment of the Security Instrument from the
Seller is in the form required pursuant to clause (c) of the definition
of Trustee Mortgage Loan File and bears a signature or signatures that
appear to be original and that purport to be that of the Seller and any
other necessary party or, if photocopies are permitted under the
definition of Trustee Mortgage Loan File, that such copies bear a
reproduction of such signature or signatures;
(E) if intervening Assignments are to be included in
the Trustee Mortgage Loan File, each such intervening Assignment bears a
signature or signatures that appear to be original and that purport to
be that of the Mortgagee and/or the assignee (and any other necessary
party) or, if photocopies are permitted under the definition of Trustee
Mortgage Loan File, that such copies bear a reproduction of such
signature or signatures;
(F) if either a Title Insurance Policy, a [Preliminary
Title Report] or a written commitment to issue a Title Insurance Policy
is delivered, the address of the real property set forth in such policy,
report or written commitment is substantially identical to the address
of the real property contained in the Security Instrument; and
(G) if a Title Insurance Policy or Certificate of
Title Insurance is delivered with respect to a Mortgage Loan, such
policy or certificate: (i) is for an amount not less than the original
principal amount of the related Mortgage Note and (ii) insures (x) in
the case of a Senior Mortgage Loan, that the Security Instrument
constitutes a valid first lien, senior in priority to all other related
deeds of trust, mortgages, deeds to secure debt, financing statements
and security agreements and to any related mechanic's liens, judgment
liens or writs of attachment and (y) in the case of a Junior Mortgage
Loan, that the Security Instrument constitutes a valid second or more
junior lien, senior in priority to any related mechanic's liens,
judgment liens or writs of attachment but subordinate in priority to
certain related deeds of trust, mortgages, deeds to secure debt,
financing statements and security agreements with respect to the related
Collateral of higher priority (or, if a written commitment to issue a
Title Insurance Policy is delivered with respect to a Mortgage Loan,
such written commitment obligates the insurer to issue such policy for
an amount not less than the original principal amount of the related
Mortgage Note).
(c) Prior to the first anniversary of the Closing Date, the
Trustee shall deliver to SASCO and the Master Servicer a Final Certification
evidencing the completeness of the Trustee Mortgage Loan File for each Mortgage
Loan, with any applicable exceptions noted on such certification.
(d) In delivering each of the certifications required above, the
Trustee shall be under no duty or obligation (i) to inspect, review or examine
any such documents, instruments, securities or other papers to determine that
they or the signatures thereon are genuine, enforceable, or appropriate for the
represented purpose or that they have actually been recorded or that they are
other than what they purport to be on their
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face or that any document that appears to be an original is in fact an original
or (ii) to determine whether any Trustee Mortgage Loan File should include any
power of attorney, surety or guaranty agreement, Note Assumption Rider, buydown
agreement, assumption agreement, modification agreement, written assurance or
substitution agreement.
(e) On or before the fifth Business Day of each third month,
commencing the fourth month following the month in which the Closing Date
occurs, the Trustee (or the Custodian on its behalf) shall deliver to the Seller
a Recordation Report, dated as of the first day of such month, identifying those
Mortgage Loans for which it has not yet received (i) an original recorded
Security Instrument or a copy thereof certified to be true and correct by the
public recording office in possession of such Security Instrument, (ii) an
original recorded Assignment of the Security Instrument to the related Servicer,
the Trustee or the Custodian, as applicable, and any required intervening
Assignments or copies thereof, in each case, certified to be a true and correct
copy by the public recording office in possession of such Assignment, or (iii)
if an Assignment of the Security Instrument to the related Servicer has been
recorded or sent for recordation, an original Assignment of the Security
Instrument from such Servicer in blank or to the Trustee or the Custodian in
recordable form.
(f) In lieu of taking possession of the Trustee Mortgage Loan
Files and reviewing such files itself, the Trustee may, in accordance with
Section 8.11 hereof, appoint one or more Custodians to hold the Trustee Mortgage
Loan Files on its behalf and to review the Trustee Mortgage Loan Files as
provided in this Section 2.02. SASCO shall, upon notice of the appointment of a
Custodian, deliver or cause to be delivered all documents to such Custodian that
would otherwise be delivered to the Trustee. In such event, the Trustee shall
obtain from each such Custodian, within the specified times, the Initial
Certifications, Final Certifications, and Recordation Reports with respect to
the Mortgage Loans held and reviewed by such Custodian and may deliver such
certifications and reports to SASCO and the Master Servicer in satisfaction of
the Trustee's obligation to prepare such certifications and reports. The Trustee
shall notify the Custodian of any notices delivered to the Trustee with respect
to the Trustee Mortgage Loan Files held by the Custodian.
Section 2.03. Purchase or Substitution of Mortgage Loans by the
Seller, a Servicer or SASCO.
(a) Seller Breach. Upon discovery or notice of any defective
document in a Trustee Mortgage Loan File or of any breach by a Seller of any of
its representations, warranties or covenants under a Sales Agreement, which
defect or breach materially and adversely affects the value of any Mortgage Loan
or the interest of the Trust therein (it being understood that any such defect
or breach shall be deemed to have materially and adversely affected the value of
such Mortgage Loan or the interest of the Trust therein if the Trust incurs a
loss as a result of such defect or breach), the Trustee shall promptly notify
the Master Servicer of such defect or breach and direct the Master Servicer to
request that the Seller of such Mortgage Loan cure such defect or breach and, if
such Seller does not cure such defect or breach in all material respects within
60 days from the date on which it is notified of such defect or breach, to
enforce such Seller's obligation under the Sales Agreement to purchase such
Mortgage Loan from the Trustee. In lieu of purchasing any such Mortgage Loan as
provided above, if so provided in the Sales Agreement, the Seller may cause such
Mortgage Loan to be removed from the Trust (in which case it shall become a
Deleted Mortgage Loan) and substitute one or more Qualified Substitute Mortgage
Loans in the manner and subject to the limitations set forth in Section 2.03(h)
hereof. Notwithstanding the foregoing, if such defect or breach is or results in
a Qualification Defect, such cure, purchase or substitution must take place
within 75 days of the Defect Discovery Date. It is understood and agreed that
enforcement of the obligation of the Seller to cure, purchase or substitute for
any Mortgage Loan as to which a material defect in a constituent document exists
or as to which such a breach has occurred and is continuing shall constitute the
sole remedy respecting such defect or breach available to the Trustee on behalf
of the Certificateholders; provided, however, that such provision shall not
limit the indemnification provisions of Section 8.05 hereof or of any Sales
Agreement.
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(b) Servicer Breach. In addition to taking any action required
pursuant to Section 7.01, upon discovery or notice of any breach by a Servicer
of any representation, warranty or covenant under the Servicing Agreement which
materially and adversely affects the value of any Mortgage Loan or the interest
of the Trust therein (it being understood that any such breach shall be deemed
to have materially and adversely affected the value of such Mortgage Loan or the
interest of the Trust therein if the Trust incurs a loss as a result of such
breach), the Trustee shall promptly notify the Master Servicer of such breach
and direct the Master Servicer to request that the Servicer of such Mortgage
Loan cure such breach and, if such Servicer does not cure such breach in all
material respects within 60 days from the date on which it is notified of such
breach, to enforce the obligation of such Servicer under the Servicing Agreement
to purchase such Mortgage Loan from the Trustee. Notwithstanding the foregoing,
if such breach results in a Qualification Defect, such cure or purchase must
take place within 75 days of the Defect Discovery Date.
In the event a Seller has breached a representation or warranty
under a Sales Agreement that is substantially identical to a representation or
warranty breached by a Servicer, the Master Servicer shall first proceed against
such Seller. If such Seller does not, within 60 days after notification of the
breach, take steps to cure such breach or purchase or substitute for the
Mortgage Loan, the Master Servicer shall enforce the obligation of such Servicer
under the Servicing Agreement to cure such breach or purchase the Mortgage Loan
from the Trust as provided in this Section 2.03(b).
Except as specifically set forth herein, the Trustee shall have
no responsibility to enforce any provision of the Sales Agreements or Servicing
Agreements assigned to it hereunder, to oversee compliance therewith, or to take
notice of any breach or default thereunder. No successor servicer shall have any
obligation to repurchase a Mortgage Loan except to the extent specifically set
forth in the Servicing Agreement signed by such successor servicer.
(c) SASCO Breach. Within 90 days of the earlier of discovery or
receipt of notice by SASCO of the breach of any of its representations or
warranties set forth in Section 2.04 hereof with respect to any Mortgage Loan,
which breach materially and adversely affects the value of such Mortgage Loan or
the interest of the Trust therein (it being understood that any such breach
shall be deemed to have materially and adversely affected the value of such
Mortgage Loan or the interest of the Trust therein if the Trust incurs a loss as
a result of such breach), SASCO shall (i) cure such breach in all material
respects, (ii) purchase such Mortgage Loan from the Trustee, or (iii) remove
such Mortgage Loan from the Trust (in which case it shall become a Deleted
Mortgage Loan) and substitute one or more Qualified Substitute Mortgage Loans in
the manner and subject to the limitations set forth in Section 2.03(h) hereof.
Notwithstanding the foregoing, if such breach results in a Qualification Defect,
such cure, purchase or substitution must take place within 75 days of the Defect
Discovery Date.
(d) Assignment Failure. If an Assignment of a Security Instrument
to the related Servicer, the Trustee, or the Custodian, as applicable, as
required pursuant to the definition of Trustee Mortgage Loan File has not been
recorded within one year of the Closing Date, the Master Servicer shall enforce
the related Servicer's obligation set forth in the related Servicing Agreement
either to (i) purchase the related Mortgage Loan from the Trustee on behalf of
the Certificateholders or (ii) if there have been no defaults in the Monthly
Payments on such Mortgage Loan, deposit an amount equal to the Purchase Price of
such Mortgage Loan into an escrow account maintained by the Trustee (which
account shall not be an asset of the Trust or any REMIC) as required by the
related Servicing Agreement. Any such amounts deposited to an escrow account,
plus any earnings thereon, shall (i) be released to the related Servicer upon
receipt by the Trustee of satisfactory evidence that an Assignment has been
recorded in the name of such Servicer, the Trustee, or the Custodian, as
applicable, as required pursuant to the definition of Trustee Mortgage Loan File
(and, if the Assignment has been recorded in the name of the Servicer,
satisfactory evidence that an original Assignment from such Servicer in blank or
to the Trustee or the Custodian in recordable form has been deposited into the
Trustee Mortgage Loan File) or (ii) be applied to purchase the related Mortgage
Loan in the
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event that the Master Servicer notifies the Trustee that there has been a
default thereon. Any amounts in the escrow account may be invested in Permitted
Investments at the written direction of the Master Servicer.
(e) Converted Mortgage Loans. Upon receipt of written notice from
the Master Servicer of the conversion of any ARM Loan to a Converted Mortgage
Loan, the Trustee shall direct the Master Servicer to enforce the Servicer's
obligation, if any, set forth in the Servicing Agreement or the Seller's
obligation, if any, set forth in the Sales Agreement to purchase such Converted
Mortgage Loan from the Trustee. If the Servicer or the Seller defaults upon its
obligation to purchase any Converted Mortgage Loan, and such default remains
unremedied for a period of five Business Days after written notice of such
default shall have been given by the Master Servicer to the Servicer or the
Seller, as applicable, then the Master Servicer shall use its best efforts to
cause such Converted Mortgage Loan to be sold for settlement on the last day of
any month to any Person which the Master Servicer may in its sole discretion
select. The Master Servicer shall not cause a Converted Mortgage Loan to be sold
or otherwise transferred to a Person other than the Servicer or the Seller (or
any other Person who has a preexisting obligation to purchase such Mortgage
Loan) unless (i) upon such sale or other transfer the Trust would receive a net
amount at least equal to the Purchase Price and (ii) if the Purchase Price
exceeds the Basis Limit Amount, the Master Servicer receives an Opinion of
Counsel (which Opinion of Counsel will not be an expense of the Master Servicer)
that such sale or other transfer will not result in the imposition of a
"prohibited transaction" tax (as such term is defined in the Code) on the
related REMIC or jeopardize its status as a REMIC. Any such Converted Mortgage
Loan which is not purchased by the Servicer or the Seller and which the Master
Servicer is unable to sell shall remain in the Trust.
(f) Delinquent Mortgage Loans. SASCO may, but is not obligated
to, purchase any Mortgage Loan that is delinquent in payment by 90 days or more
for a price equal to the greater of the Purchase Price for such Mortgage Loan or
the fair market value thereof at the time of purchase.
(g) Purchase Price. Unless otherwise provided in the Trust
Agreement, the purchase of any Mortgage Loan from the Trust pursuant to this
Section 2.03 shall be effected for the related Purchase Price. If the Purchaser
is a Servicer, the Purchase Price shall be deposited into its Servicer Custodial
Account. If the Purchaser is other than the Servicer, the Purchase Price shall
be deposited into the Master Servicer Custodial Account. Within five Business
Days of its receipt of such funds or certification by the Master Servicer that
such funds have been deposited in the appropriate Servicer Custodial Account or
in the Master Servicer Custodial Account, the Trustee shall release or cause to
be released to the Purchaser the related Trustee Mortgage Loan File and the
related Servicer File and shall execute and deliver such instruments of transfer
or assignment, in each case without recourse, in form as presented by the
Purchaser and satisfactory to the Trustee, as shall be necessary to vest in the
Purchaser title to any Mortgage Loan released pursuant hereto and the Trustee
shall have no further responsibility with regard to such Trustee Mortgage Loan
File or Servicer File. The Master Servicer shall cause the Servicer of any
Deleted Mortgage Loan to release to the Purchaser the Servicer File relating
thereto.
(h) Substitution. Unless otherwise provided in the Trust
Agreement, the right to substitute a Qualified Substitute Mortgage Loan for any
Deleted Mortgage Loan that is an asset of the Trust shall be limited to (i) in
the case of substitutions pursuant to Section 2.03(a) or 2.03(c) hereof, the
one-year period beginning on the Closing Date and (ii) in the case of any other
substitution, the three-month period beginning on the Closing Date.
As to any Deleted Mortgage Loan for which SASCO or a Seller
substitutes one or more Qualified Substitute Mortgage Loans, SASCO or the
Seller, as the case may be, shall effect such substitution by delivering to the
Trustee for each such Qualified Substitute Mortgage Loan the related Mortgage
Note, the related Security Instrument, the related Assignment(s), and such other
documents and agreements, with all necessary endorsements thereon, as are
required to be included in the Trustee Mortgage Loan File pursuant to Sections
1.01 and 2.01 hereof, together with a certificate of an Officer of SASCO to the
effect that each such Qualified Substitute Mortgage Loan complies with the terms
of the Trust Agreement. Monthly Payments due
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with respect to Qualified Substitute Mortgage Loans in the month of substitution
are not part of the Trust and will be retained by SASCO or the Seller, as the
case may be. For the month of substitution, distributions to Certificateholders
will reflect the Monthly Payment due on such Deleted Mortgage Loan on or before
the first day of the month in which the substitution occurs, and SASCO or the
Seller, as the case may be, shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan. The Master
Servicer shall amend the Mortgage Loan Schedule to reflect the removal of such
Deleted Mortgage Loan from the terms of the Trust Agreement and the substitution
of each such Qualified Substitute Mortgage Loan. Each Qualified Substitute
Mortgage Loan shall be subject, as of the date of its substitution, to the terms
of the Trust Agreement in all respects (including the representations and
warranties of SASCO with respect to the Mortgage Loans set forth in the Trust
Agreement). In addition, in the case of any substitution effected by a Seller,
each Qualified Substitute Mortgage Loan shall be subject, as of the date of its
substitution, to the terms of the related Sales Agreement (including the
representations and warranties of the Seller with respect to the Mortgage Loans
set forth in the Sales Agreement). The Trustee shall, within five Business Days
of its receipt of the documents referred to above, effect the conveyance of such
Deleted Mortgage Loan to SASCO or the Seller, as the case may be, in accordance
with the procedures specified above.
For any month in which SASCO or a Seller substitutes one or more
Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the
Master Servicer shall determine and notify the Trustee of the amount, if any, by
which the aggregate Unpaid Principal Balance of all such Qualified Substitute
Mortgage Loans as of the date of substitution is less than the aggregate Unpaid
Principal Balance of all such Deleted Mortgage Loans (after application of
Monthly Payments due in the month of substitution) (the "Substitution
Shortfall"). On the date of such substitution, SASCO or the Seller, as the case
may be, shall deliver or cause to be delivered to the Trustee, for deposit into
the Asset Proceeds Account, an amount equal to the Substitution Shortfall.
(i) Determination of Purchase Price. The Master Servicer shall be
responsible for determining the Purchase Price of any Mortgage Loan for purposes
of this Section 2.03 and, where appropriate, the Basis Limit Amount for any
Converted Mortgage Loan that is sold by the Trust, and shall at the time of any
purchase or escrow of funds pursuant to this Section 2.03 certify such amounts
to the Trustee. If the Master Servicer shall certify to the Trustee that there
is a miscalculation of the amount to be paid to the Trust, the Trustee shall,
from monies in the Asset Proceeds Account, return any overpayment that the Trust
received as a result of such miscalculation to the applicable Purchaser upon the
discovery of such overpayment, and the Master Servicer shall collect from the
applicable Purchaser for payment to the Trustee any underpayment that resulted
from such miscalculation upon the discovery of such underpayment. Recovery may
be made either directly or by set-off of all or any part of such underpayment
against amounts owed by the Trust to such Purchaser.
(j) Qualification Defect. If (i) any Person required to cure,
purchase or substitute for a Mortgage Loan affected by a Qualification Defect
under the terms of the Trust Agreement or a separate agreement fails to perform
within the earlier of (A) 75 days of the Defect Discovery Date or (B) the time
limit set forth in the Trust Agreement or such separate agreement or (ii) no
Person is obligated to cure, purchase or substitute for a Mortgage Loan affected
by a Qualification Defect, the Trustee shall dispose of such Mortgage Loan in
such manner and for such price as the Master Servicer notifies the Trustee are
appropriate, provided that the removal of such Mortgage Loan occurs on or before
the 90th day from the Defect Discovery Date. It is the express intent of the
parties that a Mortgage Loan affected by a Qualification Defect be removed from
the Trust before the 90th day from the Defect Discovery Date so that the related
REMIC(s) will continue to qualify as a REMIC(s). Accordingly, the Trustee is not
required to sell an affected Mortgage Loan for its fair market value nor shall
the Trustee be required to make up any shortfall resulting from the sale of such
Mortgage Loan. The Person failing to cure, purchase, or substitute for a
Mortgage Loan as required under the terms of the Trust Agreement shall be liable
to the Trust for (i) any difference between (A) the Unpaid Principal Balance of
the Mortgage Loan plus accrued and unpaid interest thereon at the related
Mortgage Interest Rate to the date of disposition and (B) the net amount
received by the Trustee from the disposition (after the payment of related
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expenses), (ii) interest on such difference at the related Mortgage Interest
Rate from the date of disposition to the date of payment and (iii) any legal and
other expenses incurred by or on behalf of the Trust in seeking such payments.
The Master Servicer shall pursue the legal remedies of the Trust relating to
this Section 2.03(j) on the Trust's behalf, and the Trust shall reimburse the
Master Servicer for any legal or other expenses of the Master Servicer related
to such pursuit not recovered from the Person that failed to cure, purchase, or
substitute for a Mortgage Loan as required under the terms of the Trust
Agreement.
(k) Any Person required under this Section 2.03 to give notice or
to make a request of another Person to give notice shall give such notice or
make such request promptly.
Section 2.04. Representations and Warranties of SASCO. SASCO
hereby represents and warrants to the Trustee that as of the Closing Date or as
of such other date specifically provided herein:
(a) SASCO has been duly incorporated and is validly
existing as a corporation and in good standing under the laws of the
Commonwealth of Virginia with full power and authority (corporate and
other) to own its properties and conduct its business as now conducted
by it and to enter into and perform its obligations under the Trust
Agreement, and has duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction
which requires such qualification wherein it owns or leases any material
properties, except where the failure so to qualify would not have a
material adverse effect on SASCO;
(b) The Trust Agreement, assuming due authorization,
execution and delivery by the Trustee and the Master Servicer,
constitutes a legal, valid and binding agreement of SASCO, enforceable
against SASCO in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and to general principles of equity
regardless of whether enforcement is sought in a proceeding in equity or
at law;
(c) Neither the execution and delivery by SASCO of the
Trust Agreement, nor the consummation by SASCO of the transactions
therein contemplated, nor compliance by SASCO with the provisions
thereof, will (i) conflict with or result in a breach of, or constitute
a default under, any of the provisions of the articles of incorporation
or by-laws of SASCO or any law, governmental rule or regulation or any
judgment, decree or order binding on SASCO or any of its properties, or
any of the provisions of any indenture, mortgage, deed of trust,
contract or other instrument to which SASCO is a party or by which it is
bound or (ii) result in the creation or imposition of any lien, charge,
or encumbrance upon any of its properties pursuant to the terms of any
such indenture, mortgage, deed of trust, contract or other instrument;
(d) There are no actions, suits or proceedings against, or
investigations of, SASCO pending, or, to the knowledge of SASCO,
threatened, before any court, administrative agency or other tribunal
(i) asserting the invalidity of the Trust Agreement or (ii) seeking to
prevent the issuance of the Certificates or the consummation of any of
the transactions contemplated by the Trust Agreement;
(e) The information set forth in the Mortgage Loan
Schedule with respect to each Mortgage Loan is true and correct in all
material respects at the date or dates with respect to which such
information is furnished;
(f) With respect to each Mortgage Loan, SASCO either is
(i) the owner of such Mortgage Loan or (ii) the holder of a first,
second, or more junior (as applicable) priority perfected security
interest in the Collateral securing such Mortgage Loan subject, in the
case of any Junior Mortgage Loan, to any lien on the related Collateral
that is senior in priority to the lien represented by such loan, and
subject, in the case of any Mortgage Loan, to any exceptions of title
set forth in the title insurance policy with respect to such loan that
are generally acceptable to home equity mortgage
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lending institutions and such other exceptions to which similar
properties commonly are subject, provided such exceptions do not
individually, or in the aggregate, materially and adversely affect the
benefits of the security intended to be provided by the related
Collateral;
(g) SASCO has acquired its ownership of, or security
interest in, each Mortgage Loan in good faith without notice of any
adverse claim;
(h) SASCO has not assigned any interest or participation
in any Mortgage Loan (or, if any such interest or participation has been
assigned, it has been released); and
(i) SASCO has full right to sell the Trust Estate to the
Trustee.
It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the
respective Trustee Mortgage Loan Files to the Trustee and shall inure to the
benefit of the Trustee notwithstanding any restrictive or qualified endorsement
or assignment. Upon the discovery by SASCO, the Master Servicer or the Trustee
of a breach of any of the foregoing representations and warranties which
materially and adversely affects the interest of the Certificateholders in any
Mortgage Loan, the party discovering such breach shall give prompt written
notice (but in no event later than two Business Days following such discovery)
to the other parties to the Trust Agreement. It is understood and agreed that
the obligations of SASCO set forth in Section 2.03(c) to cure, repurchase or
substitute for a Mortgage Loan constitute the sole remedies available to the
Certificateholders or to the Trustee on their behalf respecting a breach of the
representations and warranties contained in this Section 2.04. It is further
understood and agreed that SASCO shall be deemed not to have made the
representations and warranties in this Section 2.04 with respect to, and to the
extent of, representations and warranties made, as to the matters covered in
this Section 2.04, by any Servicer in the related Servicing Agreement assigned
to the Trustee or any Seller in the related Sales Agreement assigned to the
Trustee.
Section 2.05. Representations and Warranties of the Master
Servicer. The Master Servicer hereby represents and warrants to the Trustee that
as of the Closing Date or as of such other date specifically provided herein:
(a) The Master Servicer has been duly incorporated and is
validly existing as a corporation and in good standing under the laws of
the jurisdiction of its incorporation with full power and authority
(corporate and other) to own its properties and conduct its business as
now conducted by it and to enter into and perform its obligations under
the Trust Agreement, and has duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction
which requires such qualification wherein it owns or leases any material
properties or conducts any material business or in which the performance
of its duties under the Trust Agreement would require such
qualification, except where the failure so to qualify would not have a
material adverse effect on the performance of its obligations under the
Trust Agreement;
(b) The Trust Agreement, assuming due authorization,
execution and delivery by SASCO and the Trustee, constitutes a legal,
valid and binding agreement of the Master Servicer, enforceable against
the Master Servicer in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and to general principles of equity
regardless of whether enforcement is sought in a proceeding in equity or
at law;
(c) Neither the execution and delivery by the Master
Servicer of the Trust Agreement, nor the consummation by the Master
Servicer of the transactions therein contemplated, nor compliance by the
Master Servicer with the provisions thereof, will (i) conflict with or
result in a breach of, or constitute a default under, any of the
provisions of the articles of incorporation (or corresponding charter
document) or by-laws of the Master Servicer or any law, governmental
rule or
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regulation or any judgment, decree or order binding on the Master
Servicer or any of its properties, or any of the provisions of any
indenture, mortgage, deed of trust, contract or other instrument to
which the Master Servicer is a party or by which it is bound or (ii)
result in the creation or imposition of any lien, charge or encumbrance
upon any of its properties pursuant to the terms of any such indenture,
mortgage, deed of trust, contract or other instrument.
(d) There are no actions, suits or proceedings against, or
investigations of, the Master Servicer pending, or, to the knowledge of
the Master Servicer, threatened, before any court, administrative agency
or other tribunal which would prohibit the Master Servicer from entering
into the Trust Agreement or performing its obligations under the Trust
Agreement; and
(e) The Master Servicer maintains a Master Servicer Errors
and Omissions Policy and a Master Servicer Fidelity Bond which cover the
Master Servicer's performance under the Trust Agreement, and such policy
and bond are in full force and effect.
Upon the discovery by SASCO, the Master Servicer or the Trustee
of a breach of any of the foregoing representations or warranties which
materially and adversely affects the interest of the Certificateholders in any
Mortgage Loan, the party discovering such breach shall give prompt written
notice (but in no event later than two Business Days following such discovery)
to the other parties to the Trust Agreement.
ARTICLE III
ADMINISTRATION OF THE TRUST
Section 3.01. Master Servicer Custodial Account.
(a) Establishment. The Master Servicer shall establish a Master
Servicer Custodial Account into which the Master Servicer shall deposit
payments, collections and Advances with respect to the Mortgage Loans until such
amounts are transferred to the Asset Proceeds Account as provided herein. The
Master Servicer may elect to use a single Master Servicer Custodial Account for
more than one Series of asset backed certificates, but shall maintain separate
accounting records for each Series of asset backed certificates. Each Master
Servicer Custodial Account shall be an Eligible Account and shall reflect the
custodial nature of the account and that all funds in such account (except
interest earned thereon) are held in trust for the benefit of the Trustee.
Unless otherwise provided in the Trust Agreement, the owner of the Master
Servicer Custodial Account shall be the Master Servicer. To the extent provided
in the REMIC Provisions or proposed temporary or final regulations, any amounts
transferred by a REMIC to the Master Servicer Custodial Account shall be treated
as amounts distributed by such REMIC to the Master Servicer. The Master Servicer
Custodial Account shall not be considered an asset of the Trust or any REMIC.
The Master Servicer shall notify the Trustee of the location and account number
of such Master Servicer Custodial Account and of any changes in the location or
account number of such account.
(b) Deposits. On each Remittance Date, the Master Servicer shall
withdraw from the Servicer Custodial Account maintained by each Servicer and
deposit into the Master Servicer Custodial Account an amount with respect to
each Mortgage Loan serviced by such Servicer equal to:
(i) all Monthly Payments received by such Servicer
during the preceding Due Period, whether paid by the Borrower or
advanced by such Servicer, minus the Servicing Fee due such
Servicer to the extent paid by the Borrower;
(ii) all Monthly Payments made by the Borrower after
their Due Date that were not paid or advanced pursuant to Section
3.01(b)(i) hereof;
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(iii) all other payments (other than late charges,
conversion fees and similar charges and fees retained by such
Servicer pursuant to the Servicing Agreement) received by such
Servicer in connection with any unscheduled principal payments or
recoveries on such Mortgage Loan during the preceding Prepayment
Period, including Liquidation Proceeds and Insurance Proceeds,
together with any interest thereon paid by or for the account of
the Borrower minus the sum of (A) expenses associated with such
recovery, (B) any Advances on such Mortgage Loan paid by such
Servicer and (C) the Servicing Fee allocable thereto; and
(iv) the Purchase Price of such Mortgage Loan if such
Mortgage Loan was purchased by the Servicer from the Trust during
the preceding Prepayment Period.
(c) Withdrawals. On each Business Day, the Master Servicer may
withdraw from the appropriate Master Servicer Custodial Account (to the extent
the funds therein are not invested) any NonRecoverable Advance and any Advance
previously made with respect to a Mortgage Loan as to which a late payment,
Liquidation Proceeds or Insurance Proceeds have been received.
On or prior to each Master Servicer Remittance Date, the Master Servicer
shall remit from the funds in the Master Servicer Custodial Account by wire
transfer (or as otherwise instructed by the Trustee) in immediately available
funds to the Asset Proceeds Account an amount equal to the sum of the following:
(i) all Monthly Payments received by the Master
Servicer during the preceding Due Period, whether paid by the
Borrower or advanced by a Servicer, the Master Servicer, the
Trustee or an Insurer, minus the sum of (A) the Servicing Fees
due the Servicer to the extent paid by the Borrower and (B) the
Master Servicing Fee (net of any payments on account of Month End
Interest required pursuant to Section 3.05 hereof) to the extent
paid by the Borrower or advanced by the Servicer;
(ii) all Monthly Payments made by a Borrower after
their Due Date that were not paid or advanced pursuant to Section
3.01(c)(i) hereof, net of the Master Servicing Fee attributable
thereto after payment of Month End Interest required pursuant to
Section 3.05 hereof;
(iii) all other payments received by the Master Servicer
in connection with any unscheduled principal payments or
recoveries on the Mortgage Loans during the preceding Prepayment
Period, including Liquidation Proceeds and Insurance Proceeds,
together, with respect to prepayments or Liquidation Proceeds or
Insurance Proceeds received during the preceding month, with any
interest thereon received by the Master Servicer (net of the
Master Servicing Fee attributable thereto after payment of Month
End Interest required pursuant to Section 3.05 hereof); and
(iv) the Purchase Price of any Mortgage Loans purchased
from the Trust during the preceding Prepayment Period, less any
amounts due the Servicer or the Master Servicer on account of
Advances, the Servicing Fee or the Master Servicing Fee
attributable to such Mortgage Loans.
(d) Investment. The Master Servicer shall cause the funds in the
Master Servicer Custodial Account to be invested in Permitted Investments with a
maturity prior to the next Master Servicer Remittance Date. Net investment
income on the funds in the Master Servicer Custodial Account shall be released
to the Master Servicer as a part of the Master Servicer Compensation on or
before each Distribution Date, unless the Trust Agreement provides that such net
investment income is to be applied to the payment of Month End Interest
Shortfall or other amounts due from the Master Servicer. If there is a loss on
the
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investments in the Master Servicer Custodial Account for any month, the Master
Servicer shall deposit the amount of such loss into the Master Servicer
Custodial Account on or before the related Distribution Date.
Section 3.02. Asset Proceeds Account.
(a) Deposits. The Trustee shall establish and maintain one or
more accounts (collectively, the "Asset Proceeds Account") held in trust for the
benefit of the Certificateholders. Each Asset Proceeds Account shall be an
Eligible Account. On each Distribution Date, the Trustee shall deposit into the
Asset Proceeds Account the following amounts, to the extent not previously
deposited therein:
(i) the amount to be deposited from the Master Servicer
Custodial Account pursuant to Section 3.01(c);
(ii) Advances;
(iii) the amount required to effect a Terminating
Purchase pursuant to Section 9.02 hereof; and
(iv) amounts required to be deposited from any Credit
Enhancement, Reserve Fund, Interest Fund, or other fund as
provided in the Trust Agreement.
(b) Withdrawal. Unless otherwise provided in the Trust Agreement,
on each Distribution Date, the Trustee shall withdraw all monies in the Asset
Proceeds Account in accordance with the amounts set forth in the statement
furnished by the Master Servicer pursuant to Section 4.01 hereof in the
following order of priority and for the purposes indicated:
(i) to pay itself the Trustee Fee with respect to such
Distribution Date;
(ii) to pay each Credit Enhancement provider its Credit
Enhancement Fee with respect to such Distribution Date;
(iii) to pay each Servicer its Servicing Fee with
respect to such Distribution Date, to the extent not retained by
such Servicer;
(iv) to reimburse the Trustee, the Master Servicer and
each Servicer, in that order of priority, for any Advance
previously made that has been determined to be a NonRecoverable
Advance;
(v) to reimburse SASCO or the Master Servicer for
expenses incurred by or reimbursable to it pursuant to Section
6.03;
(vi) to refund any overpayment of the Purchase Price of
a Mortgage Loan;
(vii) to pay the Master Servicer the Master Servicing
Fee with respect to such Distribution Date, to the extent not
previously paid to the Master Servicer;
(viii) to pay the Certificateholders (or, in the case of
a Double REMIC Series, to pay the Holders of the Regular
Interests and the Residual Interest of the Pooling REMIC), the
amount of the Available Distribution as provided in the Trust
Agreement; and
(ix) to reimburse the Trustee and the Master Servicer,
in that order of priority, for any Advance not previously
reimbursed.
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(c) Accounting. The Master Servicer shall keep and maintain
separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose
of justifying any payment to and from the Asset Proceeds Account.
(d) Investment. No later than the close of business on the day
preceding the Master Servicer Remittance Date, the Master Servicer shall direct
the Trustee in writing (which may be in the form of standing instructions) as to
the investment of funds (which funds, if received by [_____________ ________
time], shall be invested in Permitted Investments) in the Asset Proceeds Account
for the period from the Master Servicer Remittance Date through the Distribution
Date. Net investment income on funds in the Asset Proceeds Account shall be
released to the Master Servicer as part of the Master Servicer Compensation on
or before the fifth Business Day of the month following the month in which the
related Distribution Date occurs, unless the Trust Agreement provides that such
net investment income is to be applied to the payment of Month End Interest
Shortfall or other amounts due from the Master Servicer.
Section 3.03. Issuing REMIC Accounts.
(a) With respect to any Double REMIC Series, the Trustee shall
establish one or more Subaccounts of the Distribution Account. Unless otherwise
provided in the Trust Agreement, the Subaccounts will be Regular Interests in
the Pooling REMIC and the Trustee shall deposit all payments with respect to
such Regular Interests into such Subaccounts.
(b) With respect to any Double REMIC Series, the Trustee may
establish one or more accounts into which the Trustee may deposit all payments
on account of the Residual Interest in the Pooling REMIC and any Regular
Interests in the Pooling REMIC that are not considered assets of the Issuing
REMIC and from which the Trustee may withdraw funds to pay the Certificates that
do not evidence interests in the Issuing REMIC. In lieu of establishing such
accounts, the Trustee may pay on each Distribution Date to the Holders of the
Certificates that do not evidence interests in the Issuing REMIC the amounts
that are due with respect to such Certificates. In addition, with respect to a
Double REMIC Series, upon payment in full of all related Regular Interests and
all administrative costs of the related Trust and each related REMIC, any amount
remaining in the Asset Proceeds Account may be distributed directly to the
Holders of the Certificate representing beneficial ownership of the Residual
Interest in the Pooling REMIC.
Section 3.04. Advances by Master Servicer and Trustee.
(a) To the extent not made by the Servicer of a Mortgage Loan,
the Master Servicer shall be obligated to make Advances with respect to such
Mortgage Loan to the extent the Master Servicer determines, in good faith, that
such Advances will be recoverable from Insurance Proceeds, Liquidation Proceeds
or subsequent payments by the Borrower of such Mortgage Loan. In the event the
Master Servicer determines that all, or a portion, of any Advance required by
this Section 3.04 is not so recoverable, the Master Servicer shall promptly
deliver to the Trustee an Officer's certificate setting forth the reasons for
such determination and the amount of the Non-Recoverable Advance (a
"Non-Recoverability Certificate"). Subject to the foregoing:
(i) Prior to the close of business on the Business Day
prior to each Master Servicer Remittance Date, the Master
Servicer shall determine whether and to what extent any Servicers
have failed to make any Advances in respect of Monthly Payments
that were due on the previous Due Date. The Master Servicer shall
make an Advance to the Master Servicer Custodial Account in the
amount, if any, of the aggregate Monthly Payments (less
applicable Servicing Fees) on the Mortgage Loans that were due on
such Due Date but which were not received or advanced by the
Servicers and remitted to the Master Servicer Custodial Account
prior to such Master Servicer Remittance Date. Each such Advance
shall be remitted in
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immediately available funds to the Master Servicer Custodial
Account on or before such Master Servicer Remittance Date.
(ii) To the extent not made by a Servicer, the Master
Servicer shall make Advances from time to time for attorneys'
fees and court costs incurred, or which reasonably can be
expected to be incurred, for the foreclosure of any Mortgage Loan
or for any transaction in which the Trustee is expected to
receive a deed-in-lieu of foreclosure.
(iii) In the event that any Mortgaged Premises shall be
damaged or destroyed and the Servicer of the related Mortgage
Loan fails to Advance the funds necessary to repair or restore
the damaged or destroyed Mortgaged Premises, then the Master
Servicer shall Advance such funds and take such other action as
is necessary to repair or restore the damage or loss.
(iv) To the extent a Servicer is required to Advance
funds sufficient to pay the taxes or insurance premiums with
respect to a Mortgage Loan pursuant to [Section 380] of the Guide
and fails to make such Advance, the Master Servicer shall Advance
such funds and take such steps as are necessary to pay such taxes
or insurance premiums.
(v) In the event that any Servicer fails to remit to
the Master Servicer Custodial Account, on or before the Master
Servicer Remittance Date, the full amount of the funds in the
custody or under the control of the Servicer that the Servicer is
required to remit under its Sales/Servicing Agreement, then the
Master Servicer shall Advance and remit to the Master Servicer
Custodial Account an amount equal to the required remittance on
or before the Master Servicer Remittance Date for the month in
which such funds were required to be remitted by the Servicer
under the Sales/Servicing Agreement.
(b) Any Advance made by the Master Servicer under this Section
3.04 which the Master Servicer shall ultimately determine in its good faith
judgment to be non-recoverable from Insurance Proceeds, Liquidation Proceeds,
the related Servicer, or subsequent payments by the Borrower shall be a
Non-Recoverable Advance. The determination by the Master Servicer that it has
made a Non-Recoverable Advance shall be evidenced by a Non-Recoverability
Certificate of the Master Servicer promptly delivered to the Trustee setting
forth the reasons for such determination. Following the Trustee's receipt of
such Non-Recoverability Certificate, the Master Servicer shall be entitled to
reimbursement for such Non-Recoverable Advance as provided herein.
(c) If the Master Servicer fails to make any Advance required of
it hereunder, the Trustee shall, to the maximum extent permitted by law, make
such Advance in its stead, and, in such event, the Trustee shall be entitled to
receive the Master Servicing Fee payable with respect to the Distribution Date
related to such Master Servicer Remittance Date; provided, however, that in no
event shall the Trustee, whether as Trustee, Master Servicer or Servicer, be
deemed to have assumed the obligations of any Person to purchase any Mortgage
Loan from the Trust for breach of representations or warranties or as a
Converted Mortgage Loan or otherwise or to make any Advances or pay Month End
Interest with respect to any Mortgage Loan except to the extent specifically
provided in Sections 3.04 and 3.05 hereof. Notwithstanding the foregoing,
neither the Master Servicer nor the Trustee will be obligated to make an Advance
that it reasonably believes to be a NonRecoverable Advance. The Trustee may
conclusively rely for any determination to be made by it hereunder upon the
determination of the Master Servicer as set forth in its Non-Recoverability
Certificate.
(d) To the extent that any Advance has been made by the Trustee,
the Trustee shall be entitled to reimbursement therefor at the times and to the
same extent as either the Servicer or the Master Servicer would have been so
entitled had such Person originally made such Advance, whether or not any
provision of the Trust Agreement specifically references the right of the
Trustee to such reimbursement. In the
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event that the Trustee determines that it is prevented by law from making an
Advance, the Trustee will notify the Master Servicer within one (1) Business Day
of such determination.
(e) Notwithstanding anything herein to the contrary, no Advance
shall be required to be made by the Master Servicer or the Trustee to the extent
that making such Advance would result in the amount of aggregate Advances then
outstanding and unreimbursed by the Master Servicer or the Trustee to exceed the
Master Servicer Advance Amount.
Section 3.05. Month End Interest. Unless otherwise provided in
the Trust Agreement, the Master Servicer shall pay and deposit into the Master
Servicer Custodial Account, on or before each Master Servicer Remittance Date,
an amount equal to Month End Interest with respect to the preceding month, but
only to the extent of the Master Servicer Compensation payable with respect to
the following Distribution Date. Such payment will not be considered a
Non-Recoverable Advance. The Master Servicer shall not be entitled to any
recovery or reimbursement of such payment from the Trustee or the
Certificateholders, but may seek and obtain recovery from the Servicer that
failed to make such payment through legal action or otherwise to the extent
provided in the related Servicing Agreement.
Section 3.06. Trustee to Cooperate; Release of Mortgage Files.
The Trustee shall, if requested by any Servicer with a rating satisfactory to
the Trustee, execute a power of appointment pursuant to which the Trustee shall
authorize, make, constitute and appoint designated officers of such Servicer
with full power to execute in the name of the Trustee (without recourse,
representation or warranty) any deed of reconveyance, any substitution of
trustee documents or any other document to release, satisfy, cancel or discharge
any Security Instrument or Mortgage Loan upon its payment in full or other
Liquidation; provided, however, that such power of appointment shall be limited
to the powers listed above. The Servicer shall promptly forward to the Trustee
for its files copies of all documents executed pursuant to such power of
appointment.
Upon the Liquidation of any Mortgage Loan, the Servicer of such
Mortgage Loan shall remit the proceeds thereof to its Servicer Custodial Account
and, unless such Servicer has been given a power of appointment as provided in
the proceeding paragraph, deliver to the Master Servicer a Request for Release
requesting that the Trustee execute such instrument of release or satisfaction
as is necessary to release the related Collateral from the lien of the Security
Instrument. Upon the Master Servicer's receipt of such Request for Release and
its confirmation that all amounts required to be remitted to the appropriate
Servicer Custodial Account in connection with such Liquidation have been so
deposited, the Master Servicer shall deliver such Request for Release to the
Trustee. The Trustee shall, within five Business Days of its receipt of such
Request for Release, release, or cause the Custodian to release, the related
Trustee Mortgage Loan File to the Master Servicer or the Servicer, as requested
by the Master Servicer. No expenses incurred in connection with any instrument
of satisfaction or deed of reconveyance shall be chargeable to the Master
Servicer Custodial Account or the Asset Proceeds Account.
From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, but not limited to, collection
under any Title Insurance Policy, Primary Mortgage Insurance policy, Flood
Insurance policy or Hazard Insurance policy or to effect a partial release of
any Collateral from the lien of the Security Instrument, the Servicer shall
deliver to the Master Servicer a Request for Release. Upon the Master Servicer's
receipt of any such Request for Release, the Master Servicer shall promptly
forward such Request for Release to the Trustee and the Trustee shall, within
five Business Days of its receipt of such Request for Release, release, or cause
the Custodian to release, the related Trustee Mortgage Loan File to the Master
Servicer or the Servicer, as requested by the Master Servicer. Any such Request
for Release shall obligate the Master Servicer or the Servicer, as the case may
be, to return each and every document previously requested from the Trustee
Mortgage Loan File to the Trustee by the twenty-first day following the release
thereof, unless (i) the related Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to such Mortgage Loan have been deposited in the
Asset Proceeds Account or the Servicer Custodial Account or (ii) the
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Trustee Mortgage Loan File or such document has been delivered to an attorney,
or to a public trustee or other public official as required by law, for purposes
of initiating or pursuing legal action or other proceedings for the foreclosure
of the related Mortgaged Premises either judicially or non-judicially, and the
Master Servicer has delivered to the Trustee a certificate of the Master
Servicer or the Servicer certifying as to the name and address of the Person to
which such Trustee Mortgage Loan File or such document was delivered and the
purpose or purposes of such delivery. Upon receipt of an Officer's Certificate
of the Master Servicer or the Servicer stating that such Mortgage Loan was
liquidated and that all amounts received or to be received in connection with
such liquidation which are required to be deposited into the Servicer Custodial
Account or the Asset Proceeds Account have been so deposited, or that such
Mortgage Loan is secured by an REO Property, the Request for Release shall be
released by the Trustee to the Master Servicer or the Servicer, as appropriate.
Upon written certification of the Master Servicer or the
Servicer, the Trustee (subject to Section 8.01(e) hereof), shall execute and
deliver to the Master Servicer or the Servicer, as directed by the Master
Servicer, court pleadings, requests for trustee's sale or other documents
necessary to a foreclosure proceeding or trustee's sale in respect of a
Mortgaged Premises or to any legal action brought to obtain judgment against any
Borrower on any Mortgage Note or Security Instrument or to obtain a deficiency
judgment, or to enforce any other remedies or rights provided by any Mortgage
Note or Security Instrument or otherwise available at law or in equity. Each
such certification shall include a request that such pleadings, requests or
other documents be executed by the Trustee and a statement as to the reason such
pleadings, requests or other documents are required and that the execution and
delivery thereof by the Trustee will not invalidate or otherwise affect the lien
of the Security Instrument, except for the termination of such a lien upon
completion of the foreclosure proceeding or trustee's sale.
Section 3.07 Reports to the Trustee; Annual Compliance
Statements. The Master Servicer shall deliver to the Trustee, on or before April
30 of each year, an Annual Compliance Statement with respect to the Trust
Agreement (if the Master Servicer entered into the Trust Agreement on or before
the preceding December 31), signed by an Officer of the Master Servicer,
certifying that (i) such Officer has reviewed the activities of the Master
Servicer during the preceding calendar year or portion thereof and its
performance under the Trust Agreement and (ii) to the best of such Officer's
knowledge, based on such review, the Master Servicer has performed and fulfilled
its duties, responsibilities and obligations under the Trust Agreement in all
material respects throughout such year, or, if there has been a default in the
fulfillment of any such duties, responsibilities or obligations, specifying each
such default known to such Officer and the nature and status thereof, and (iii)
(A) an Officer of the Master Servicer has conducted an examination of the
activities of each Servicer during the preceding calendar year and the
performance of such Servicer under the related Servicing Agreement, (B) an
Officer of the Master Servicer has examined each Servicer's Fidelity Bond and
Errors and Omissions Policy and each such bond or policy is in effect and
conforms to the requirements of the related Servicing Agreement, (C) the Master
Servicer has received from each Servicer such Servicer's annual audited
financial statements and such other information as is required by the Guide and
(D) to the best of such Officer's knowledge, based on such examination, each
Servicer has performed and fulfilled its duties, responsibilities and
obligations under its Servicing Agreement in all material respects throughout
such year, or, if there has been a default in the performance or fulfillment of
any such duties, responsibilities or obligations, specifying each such default
known to such Officer and the nature and status thereof. The Trustee shall
provide copies of the Annual Compliance Statement to any Certificateholder upon
written request provided such statement is delivered, or caused to be delivered,
by the Master Servicer to the Trustee.
Section 3.08.Title, Management and Disposition of REO Properties.
(a) In the event that any Mortgaged Premises becomes an REO
Property, the Servicer of the related Mortgage Loan shall manage, conserve,
protect and operate such REO Property for the Certificateholders solely for the
purpose of its prompt disposition and sale. If one or more REMIC elections are
made with respect to the assets of the Trust, the Servicer shall use its best
efforts to dispose of any REO Property for its fair market value within
twenty-two months of its acquisition by the Trust, unless the Trustee
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has been granted an extension of time to dispose of such REO Property by the
Internal Revenue Service pursuant to section 856(c)(3) of the Code (an
"Extension"). If the Trustee has been granted an Extension, the Servicer shall
continue to attempt to sell the REO Property for its fair market value for the
period ending two months prior to the time such Extension expires (the Extended
Period"). In the event the Servicer is unable to dispose of any REO Property
within such twenty-two-month period or Extended Period, as the case may be, the
Master Servicer shall ensure that such REO Property is auctioned to the highest
bidder within one month after the end of such twenty-two-month period or
Extended Period, as the case may be. If no REMIC election has been or is to be
made with respect to the assets of the Trust, the time period for disposing of
any REO Property as specified in the preceding two sentences shall be within
eleven months of its acquisition by the Trust. In the event of any such sale or
auction of an REO Property, the Trustee shall, at the written request of the
Master Servicer and upon being provided with appropriate forms therefor, within
five Business Days of its receipt of the proceeds of such sale or auction,
release or cause to be released to the purchaser the related Trustee Mortgage
Loan File and Servicer File and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be necessary to
vest in the purchaser title to the REO Property, and upon so doing the Trustee
shall have no further responsibility with regard to such Trustee Mortgage Loan
File or Servicer File. Neither the Trustee, the Master Servicer nor the
Servicer, acting on behalf of the Trust, shall provide financing from the Trust
to any purchaser of an REO Property.
(b) In the event that title to any REO Property is acquired, the
deed or certificate of sale shall be issued to the Trustee for the benefit of
the Certificateholders. Each Servicer shall, in accordance with Section 3.08(a)
hereof, use its reasonable efforts to sell any REO Property as expeditiously as
possible, but in any event within the time period, and subject to the conditions
set forth in Section 3.08(a) hereof. Pursuant to its efforts to sell any REO
Property, each Servicer shall either itself, or through an agent selected by it,
protect and conserve such REO Property in the same manner and to the same extent
as it customarily does in connection with its own real estate acquired through
foreclosure or by deed-in-lieu of foreclosure, incident to its conservation and
protection of the interests of the Certificateholders, and may rent such REO
Property, or any part thereof, as it deems likely to increase the net proceeds
distributable to the Certificateholders, subject to the terms and conditions
described in this Section 3.08.
For the purpose of protecting the interests of the Trustee and
conserving any REO Property prior to sale, the Servicer of the related Mortgage
Loan may contract with any Independent Contractor for the conservation,
protection and rental of such REO Property, provided that:
(i) the terms and conditions of any such contract may
not be inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor (A) pay
all costs and expenses incurred in connection with the operation
and management of such REO Property, (B) hold all related
revenues in a segregated account insured by the FDIC and (C)
remit all related revenues collected (net of such costs and
expenses retained by such Independent Contractor) to the Servicer
on a monthly or more frequent basis; and
(iii) none of the provisions of this Section 3.08
relating to any such contract or to actions taken through any
such Independent Contractor shall be deemed to relieve the
Servicer of any of its duties and obligations to the Trustee and
the Certificateholders with respect to the conservation,
protection and rental of such REO Property.
A Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Servicer by such Independent
Contractor, and nothing in this Agreement shall be deemed to limit or modify
such indemnification. A Servicer or any Independent Contractor shall be entitled
to a fee, based on the prevailing
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market rate (and set in good faith at a reasonable level in the case of a fee
payable to a Servicer), for the operation and management of any REO Property,
which fee shall be an expense of the Trust payable out of the gross income on
such REO Property.
(c) A Servicer shall deposit all funds collected and received in
connection with the operation of any REO Property in its Servicer Custodial
Account on or before the second Business Day following receipt of such funds.
(d) A Servicer, upon the final disposition of any REO Property,
shall be entitled to be reimbursed for any unreimbursed Advances and paid any
unpaid Servicing Fees with respect to the related Mortgage Loan from the
Liquidation Proceeds received in connection with the final disposition of such
REO Property; provided, however, that any such unreimbursed Advances or unpaid
Servicing Fees may be reimbursed or paid, as the case may be, out of any net
rental income or other net amounts derived from such REO Property.
(e) The final disposition of any REO Property shall be carried
out by a Servicer at the fair market value of such REO Property under the
circumstances existing at the time of disposition and upon such terms and
conditions as such Servicer shall deem necessary or advisable and as are in
accordance with accepted servicing practices and in accordance with Section
3.08(a) hereof.
(f) A Servicer shall deposit the Liquidation Proceeds from the
final disposition of any REO Property in its Servicer Custodial Account on or
before the second Business Day following receipt of such Liquidation Proceeds
and, subject to such withdrawals as may be permitted by Section 3.08(d) hereof,
such proceeds shall be transferred to the Asset Proceeds Account pursuant to
Section 3.01(c) hereof.
(g) A Servicer shall prepare and file reports of foreclosure and
abandonment in accordance with section 6050J of the Code.
(h) Notwithstanding any other provision of this Agreement, a
Servicer, acting on behalf of the Trustee, shall not rent, lease or otherwise
earn income or take any action on behalf of the Trust with respect to any REO
Property that might (i) cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of section 86OG(a)(8) of the Code or
(ii) result in the receipt by the REMIC of any "income from non-permitted
assets" within the meaning of section 86OF(a)(2) of the Code or any "net income
from foreclosure property" within the meaning of section 860G(c)(2) of the Code,
both of which types of income are subject to tax under the REMIC Provisions,
unless the Trustee has received an Opinion of Counsel, at the expense of the
Trust (the costs of which shall be recoverable out of such Servicer's Servicer
Custodial Account), to the effect that, under the REMIC Provisions and any
relevant proposed legislation, any income generated for any related REMIC by
such REO Property would not result in the imposition of a tax upon such REMIC.
Without limiting the generality of the foregoing, neither the
Trustee, the Master Servicer nor a Servicer shall knowingly:
(i) enter into, renew or extend any New Lease with
respect to any REO Property if the New Lease by its terms will
give rise to any income that does not constitute Rents From Real
Property;
(ii) permit any amount to be received or accrued under
any New Lease other than amounts that will constitute Rents From
Real Property;
(iii) authorize or permit any construction on any REO
Property, other than the completion of a building or other
improvement thereon and then only if more than ten percent
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of the construction of such building or other improvement was
completed before default on the related Mortgage Loan became
imminent, all within the meaning of section 856(e)(4)(B) of the
Code; or
(iv) Directly Operate, or allow any other Person to
Directly Operate, any REO Property on any date more than 90 days
after its acquisition date (unless the Person who would Directly
Operate such REO Property is an Independent Contractor);
unless, in any such case, the Person proposing to take such action has requested
and received the Opinion of Counsel described in the preceding sentence, in
which case the Person may take such actions as are specified in such Opinion of
Counsel.
A Servicer shall not acquire any personal property relating to
any Mortgage Loan pursuant to this Section 3.08 unless either:
(i) such personal property is incident to real
property (within the meaning of section 856(e)(1) of the Code) so
acquired by such Servicer; or
(ii) such Servicer shall have requested and received an
Opinion of Counsel, at the expense of the Trust (the costs of
which shall be recoverable out of its Servicer Custodial
Account), to the effect that the holding of such personal
property by the related REMIC will not cause the imposition of a
tax under the REMIC Provisions on any REMIC related to the Trust
or cause any such REMIC to fail to qualify as a REMIC at any time
that any Certificate is outstanding.
(j) Any actions required or permitted to be taken by a Servicer
under this Section 3.08 may be taken by the Master Servicer on behalf of such
Servicer.
(k) Each Servicing Agreement relating to a Trust Agreement shall
provide that the related Servicer shall manage, conserve, protect and operate
any REO Property as provided in this Section 3.08, and the Master Servicer is
hereby obligated to assure that each Servicer complies with the provisions of
this Section 3.08.
Section 3.09. Amendments to Servicing Agreements; Modification of
the Guide. From time to time SASCO may, to the extent permitted by the
applicable Servicing Agreement, make such modifications and amendments to the
Guide as SASCO deems necessary or appropriate to confirm or carry out more fully
the intent and purpose of the Servicing Agreement and the duties,
responsibilities and obligations to be performed by the Servicer thereunder;
provided, however, that in no event shall SASCO modify or amend the Guide if
such modification or amendment would have an adverse effect on the
Certificateholders. Any such modification or amendment of the Guide shall be
deemed to have an adverse effect on the Certificateholders if such amendment or
modification either results in (i) the downgrading of the rating assigned by any
Rating Agency to the Certificates or (ii) the loss by the Trust or the assets
thereof of REMIC status for federal income tax purposes. Prior to the issuance
of any such modification or amendment, SASCO shall deliver to the Master
Servicer and the Trustee an Officer's Certificate setting forth (i) the
provision that is to be modified or amended, (ii) the modification or amendment
that SASCO desires to issue and (iii) the reason or reasons for such proposed
modification or amendment.
Section 3.10. Oversight of Servicing. The Master Servicer shall
supervise, administer, monitor and oversee the servicing of the Mortgage Loans
by each Servicer and the performance by each Servicer of all services, duties,
responsibilities and obligations that are to be observed or performed by such
Servicer under its Servicing Agreement (including, but not limited to, such
Servicer's obligation to comply with the provisions of Section 3.08 hereof).
Without limiting the generality of the foregoing, the Master Servicer,
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acting with the consent of SASCO but without the consent of the Trustee or any
Certificateholder, shall have the power and responsibility for approving the
transfer or other assignment of any Servicing Agreement by any Servicer. SASCO
shall provide the Master Servicer with a copy of the Servicing Agreement
executed by each Servicer as well as the Guide incorporated by reference into
such Servicing Agreement on or before the Closing Date. The Master Servicer
acknowledges that, prior to taking certain actions required to service the
Mortgage Loans, the Guide provides that the Servicer must notify, consult with,
obtain the consent of or otherwise follow the instructions of the Master
Servicer. [The Master Servicer is also given authority to waive compliance by
the Servicer with certain provisions of the Servicing Agreement.] In each such
instance, the Master Servicer shall promptly instruct the Servicer or otherwise
respond to any request of the Servicer. In no event shall the Master Servicer
instruct the Servicer to take any action, give any consent to action by the
Servicer or waive compliance by the Servicer with any provision of the Servicing
Agreement if any resulting action or failure to act is inconsistent with the
obligations of the Servicer for similarly rated transactions or would otherwise
have an adverse effect on the Certificateholders. Any such action or failure to
act shall be deemed to have an adverse effect on the Certificateholders if such
action or failure to act either results in (i) the downgrading of the rating
assigned by any Rating Agency to the Certificates or (ii) the loss by the Trust
or the assets thereof of REMIC status for federal income tax purposes.
The Master Servicer shall instruct each Servicer that it should
not take any action to foreclose, or accept a deed in lieu of foreclosure, with
respect to any Mortgage Loan if such Servicer knows, or has reason to know, that
the related Mortgaged Premises are contaminated with toxic wastes or other
hazardous substances.
During the term of the Trust Agreement, the Master Servicer shall
consult fully with each Servicer as may be necessary from time to time to
perform and carry out the Master Servicer's obligations hereunder and receive,
review and evaluate all reports, information and other data that are provided to
the Master Servicer by each Servicer and otherwise exercise reasonable efforts
to encourage each Servicer to perform and observe the covenants, obligations and
conditions to be performed or observed by it under its Servicing Agreement.
For the purposes of determining whether any modification of a
Mortgage Loan shall be permitted by the Trustee or the Master Servicer, such
modification shall be construed as a substitution of the modified Mortgage Loan
for the Mortgage Loan originally assigned and transferred to the Trust. No
modification shall be approved unless (i) such modification is occasioned by
default or a reasonably foreseeable default or (ii) there is delivered to the
Trustee an Opinion of Counsel (at the expense of the party seeking to modify the
Mortgage Loan) to the effect that such modification would not be treated as
giving rise to a new debt instrument for federal income tax purposes.
The relationship of the Master Servicer or any Servicer to the
Trustee under the Trust Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
Section 3.11. Credit Enhancement. To the extent provided in the
Trust Agreement, one or more forms of Credit Enhancement shall be maintained for
the benefit of the Certificateholders. The Trust Agreement shall specify with
respect to each such form of Credit Enhancement, among other things, the manner
in which any funds relating to such Credit Enhancement are to be invested, the
source and manner of payment of any Credit Enhancement Fees, the circumstances,
if any, under which supplemental or replacement Credit Enhancement shall be
obtained, the manner in which such Credit Enhancement is to be enforced, and
whether such Credit Enhancement covers or will cover other Series of asset
backed certificates.
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ARTICLE IV
REPORTING/REMITTING TO CERTIFICATEHOLDERS
Section 4.01. Statements to Certificateholders. Unless otherwise
provided in the Trust Agreement: (i) on or before each Master Servicer Reporting
Date, the Master Servicer shall prepare and deliver to the Trustee a Monthly
Statement and (ii) on the Distribution Date following each Master Servicer
Reporting Date, the Trustee shall forward a copy of such Monthly Statement by
mail to each Certificateholder.
Each Monthly Statement shall contain the following information:
(a) the amount of the distribution to be made on such
Distribution Date to be applied to reduce the Certificate Principal Balance of
each Class of Certificates, separately identifying the amounts, if any, of any
prepayments;
(b) the amount of the distribution to be made on such
Distribution Date allocable to interest with respect to each Class of
Certificates, and the Pass-Through Rate applicable to each Class of
Certificates;
(c) the amount of the Master Servicing Fee to be paid to the
Master Servicer on such Distribution Date, the amount of the Trustee Fee to be
paid to the Trustee on such Distribution Date, the amount of the Servicing Fees
to be paid to the Servicers on such Distribution Date, the amount of any Credit
Enhancement Fees to be paid to the providers of any related Credit Enhancement
on such Distribution Date, and such other customary information as the Master
Servicer deems necessary or desirable, or which a Certificateholder reasonably
requests, to enable Certificateholders to prepare their tax returns;
(d) the aggregate amount of outstanding Advances, together with
Non-Recoverable Advances, if any, at the close of business on such Distribution
Date;
(e) the aggregate Scheduled Principal Balance of the Mortgage
Loans as of such Distribution Date and the number of Mortgage Loans outstanding
on such Distribution Date;
(f) the number and aggregate principal balance of Mortgage Loans
(i) delinquent two months (i.e., 60 to 89 days), (ii) delinquent three months
(i.e., 90 days or longer) and (iii) as to which foreclosure proceedings have
been commenced;
(g) the number and aggregate Unpaid Principal Balance of Mortgage
Loans that are secured by REO Properties;
(h) the aggregate Certificate Principal Balance of each Class of
Certificates after giving effect to the distribution to be made on such
Distribution Date, separately identifying any reduction thereof on account of
Realized Losses;
(i) the amount of Realized Losses incurred during the preceding
Prepayment Period and since the Cut-Off Date, separately identifying any
Mortgagor Bankruptcy Losses, Special Hazard Losses and Fraud Losses, if such
losses are separately allocated;
(j) the amount of Month End Interest Shortfall, Soldiers' and
Sailors' Shortfall and Realized Interest Shortfall incurred during the preceding
Due Period;
(k) the aggregate amount of interest remaining unpaid, if any,
for each Class of Certificates (exclusive of Interest Shortfalls and Realized
Interest Shortfall allocated to such Class), after giving effect to the
distribution to be made on such Distribution Date;
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(l) the aggregate amount of payments made, if any, since the
Closing Date under each form of Credit Enhancement and the amount, if any,
remaining available under each form of Credit Enhancement;
(m) the Senior Percentage and the Senior Prepayment Percentage,
if any, after giving effect to the distribution to be made, and Realized Losses
to be allocated, on such Distribution Date;
(n) the Subordinated Percentage and the Subordinated Prepayment
Percentage, if any, after giving effect to the distribution to be made, and
Realized Losses to be allocated, on such Distribution Date; and
(o) if a REMIC election has been or will be made with respect to
the Trust, any reports required to be provided to Certificateholders by the
REMIC Provisions.
In the case of information furnished pursuant to clauses (a) and
(b) above, the amounts shall be expressed with respect to any Certificate as a
dollar amount per $1,000 denomination; provided, however, that if any Class of
Certificates does not have a Certificate Principal Balance, then the amounts
shall be expressed as a dollar amount per 10% Percentage Interest.
In addition to the Monthly Statement specified above, the Master
Servicer shall prepare and deliver to the Trustee prior to each Distribution
Date, and the Trustee shall forward to each Holder of a Residual Certificate, if
any, on each Distribution Date, a statement setting forth the amounts actually
distributed with respect to the Residual Certificates on such Distribution Date
and the aggregate Certificate Principal Balance, if any, of any Residual
Certificates after giving effect to any distribution to be made on such
Distribution Date, separately identifying the amount of Realized Losses
allocated to such Residual Certificates for the preceding Prepayment Period.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall prepare, based on information provided by the Master
Servicer, and deliver a statement containing the information set forth in
clauses (a) through (c) above, to each Person who at any time during the
calendar year was a Certificateholder that constituted a retail investor or to
any other Certificateholder that requests such statement, aggregated for such
calendar year or portion thereof during which such Person was a
Certificateholder. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code as from time to
time are in effect.
Within a reasonable period of time after the end of each calendar
year, the Master Servicer shall prepare and deliver to the Trustee, and the
Trustee shall forward by mail to each Person who at any time during such
calendar year was a Holder of a Residual Certificate, a statement containing the
information provided pursuant to the second preceding paragraph aggregated for
such calendar year. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code as from time to
time are in effect.
The Trustee may provide Certificateholders with access to the
Monthly Statements and other statements described in this Section 4.01 via
electronic on-line reports in lieu of forwarding such statements by mail to
Certificateholders provided that such electronic on-line reports satisfy the
requirements of the Code as from time to time may be in effect.
Section 4.02. Remittance Reports. The Master Servicer shall
prepare and deliver to the Trustee by mail, facsimile or electronic transfer on
or before each Master Servicer Reporting Date, the Remittance Report with
respect to the following Distribution Date. Each Remittance Report shall contain
the
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information specified in Exhibit C attached hereto. The information in such
report shall be made available by the Trustee to any Certificateholder that
requests such report in writing.
In the event the Master Servicer does not furnish the Remittance
Report or any other statement or report as required by this Section 4.02 or
Section 4.01 hereof, or if an Officer of the Trustee has actual knowledge that
any such Remittance Report or other statement or report is erroneous or
inaccurate in any material respect, and if any such Remittance Report or other
statement or report is not furnished or corrected, as the case may be, within
one Business Day following the date it is due to be delivered, then the Trustee
shall request and the Master Servicer shall furnish by electromagnetic tape (or
such other medium as the Trustee and the Master Servicer may agree from time to
time) the information necessary to enable the Trustee to prepare the Remittance
Report and the other statements and reports as required by this Section 4.02 and
Section 4.01 hereof, and the Trustee shall thereupon prepare such report and
receive the Master Servicing Fee for such month. Upon termination of the Master
Servicer pursuant to Section 7.02 hereof, the Trustee shall thereafter undertake
all of the obligations of the Master Servicer pursuant to this Section 4.02 and
Section 4.01 hereof and shall be entitled to the compensation otherwise payable
to the Master Servicer pursuant hereto in consideration of the performance of
such obligations.
The Trustee shall be under no duty to recalculate, verify or
recompute the information provided to it hereunder by the Master Servicer.
Section 4.03. Compliance with Withholding Requirements.
Notwithstanding any other provision of the Trust Agreement, the Trustee shall
comply with all federal withholding requirements respecting payments to
Certificateholders of interest or original issue discount on the Certificates
that the Trustee reasonably believes are applicable under the Code. The consent
of Certificateholders shall not be required for such withholding. In the event
the Trustee does withhold any amount from interest or original issue discount
payments or Advances thereof to any Certificateholder pursuant to federal
withholding requirements, the Trustee shall indicate with any payment to such
Certificateholder the amount withheld.
Section 4.04. Reports of Certificate Principal Balances to The
Depository Trust Company. If and for so long as any Certificate is held by The
Depository Trust Company, on the second Business Day before each Distribution
Date, the Trustee shall give oral notice to The Depository Trust Company (and
shall promptly thereafter confirm in writing) the following: (i) the amount to
be reported pursuant to clause (a) and (b) of the statement to be provided to
Certificateholders pursuant to Section 4.01 hereof in respect of the next
succeeding distribution, (ii) the Record Date for such distribution, (iii) the
Distribution Date for such distribution and (iv) the aggregate Certificate
Principal Balance of each Class of Certificates to be reported pursuant to
clause (h) of such statement.
Section 4.05. Preparation of Regulatory Reports.
(a) Subject to the provisions of subsections (b) and (c) of this
Section 4.05, the Master Servicer shall prepare or cause to be prepared, on
behalf of the Trust, and shall deliver or cause to be delivered in a timely
manner to the Trustee for its review and execution, such supplementary and
periodic information, documents and reports (collectively, "Periodic Reports")
as may be required pursuant to Section 12(g) or Section 15(d) of the Exchange
Act, by the rules and regulations of the SEC thereunder or as a condition to
approval of any application for relief ("Application for Relief") hereinafter
referred to and, in connection therewith, shall prepare such applications and
requests for exemption and other relief from such provisions as it may deem
appropriate. The Master Servicer shall be deemed to certify as to each Periodic
Report delivered to the Trustee for its review and execution that such Periodic
Report conforms in all material respects to applicable reporting requirements
imposed by the Exchange Act or is otherwise in form and content appropriate for
filing with the SEC. The Trustee shall execute all such Periodic Reports and
Applications for Relief delivered as provided above and shall return the same to
the Master Servicer for filing with the SEC and other required
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filing offices, if any, on behalf of the Trust or shall authorize the Master
Servicer to execute any such Periodic Report or Application for Relief on the
Trustee's behalf.
(b) Within 30 days after the beginning of the first fiscal year
of the Trust during which the obligation to file Periodic Reports pursuant to
the Exchange Act shall have been suspended, the Master Servicer shall prepare,
or cause to be prepared, a notice on SEC Form 15 ("Form 15") and shall forward
such notice to the Trustee for execution. The Trustee shall execute each Form 15
delivered as provided above and shall return the same to the Master Servicer for
filing with the SEC on behalf of the Trust or shall authorize the Master
Servicer to execute such Form 15 on the Trustee's behalf; provided, however,
that the Master Servicer shall be under no obligation to prepare such notice if
the number of Certificateholders exceeds 300. The Trustee shall notify the
Master Servicer in a timely manner if the number of Certificateholders at any
one time exceeds 300. The Master Servicer shall file any Form 15 with the SEC in
accordance with the provisions of Rule 15d-6 under the Exchange Act.
(c) Notwithstanding any other provision of this Agreement, the
Trustee has not assumed, and shall not by its performance hereunder be deemed to
have assumed, any of the duties or obligations of SASCO or any other Person with
respect to (i) the registration of the Certificates pursuant to the Securities
Act, (ii) the issuance or sale of the Certificates or (iii) compliance with the
provisions of the Securities Act, the Exchange Act or any applicable federal or
state securities or other laws, including, but not limited to, any requirement
to update the registration statement or prospectus relating to the Certificates
in order to render the same not materially misleading to investors.
(d) In connection with the Master Servicer's preparation of any
Form 15 or any Periodic Report, the Trustee shall provide the Master Servicer
with such information as the Master Servicer may reasonably request concerning
the number and identity of the Holders appearing on the Certificate Register,
but the Trustee shall have no duty or obligation to provide information which
does not appear on the Certificate Register, including any information
concerning the ownership of Persons for whom a nominee is the Certificateholder
of record.
ARTICLE V
THE POOLING INTERESTS AND THE CERTIFICATES
Section 5.01. Pooling REMIC Interests. If an election has been
made to treat certain assets of the Trust as a Pooling REMIC, the Trust
Agreement will set forth the terms of the Regular Interests and the Residual
Interest of the Pooling REMIC. Unless otherwise provided in the Trust Agreement,
(i) the Subaccounts will be the Regular Interests in the Pooling REMIC but will
not constitute securities or certificates of interest in the Trust and (ii) the
Trustee will be the owner of the Subaccounts, which may not be transferred to
any person other than a successor trustee appointed pursuant to Section 8.07
hereof unless the party desiring the transfer obtains a Special Tax Opinion.
Section 5.02. The Certificates. The Certificates shall be
designated in the Trust Agreement. The Certificates in the aggregate will
represent the entire beneficial ownership interest in the Trust Estate. On the
Closing Date, the aggregate Certificate Principal Balance of the Certificates
will be equal to or less than the aggregate Scheduled Principal Balance of the
Mortgage Loans as of the Cut-Off Date. The Certificates will be substantially in
the forms annexed to the Trust Agreement. Unless otherwise provided in the Trust
Agreement, the Certificates of each Class will be issuable in registered form,
in denominations or authorized Percentage Interests as described in the
definition thereof. Each Certificate will share ratably in all rights of the
related Class.
Upon original issue, the Certificates shall be executed and
delivered by the Trustee and the Trustee shall cause the Certificates to be
authenticated by the Certificate Registrar to or upon the order of
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SASCO upon receipt by the Trustee of the documents specified in Section 2.01
hereof. The Certificates shall be executed and attested by manual or facsimile
signature on behalf of the Trustee by an authorized Officer. Certificates
bearing the manual or facsimile signatures of individuals who were at any time
the proper Officers of the Trustee shall bind the Trustee, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of such Certificates. No Certificate shall be entitled to any benefit
under the Trust Agreement or be valid for any purpose unless there appears on
such Certificate a certificate of authentication substantially in the form
provided in the Trust Agreement executed by the Certificate Registrar by manual
signature, and such certificate of authentication shall be conclusive evidence,
and the only evidence, that such Certificate has been duly authenticated and
delivered under the Trust Agreement. All Certificates shall be dated the date of
their execution.
Section 5.03. Book-Entry Certificates.
(a) The Book-Entry Certificates shall be represented initially by
one or more certificates registered in the name designated by the Clearing
Agency. SASCO, the Master Servicer and the Trustee may for all intents and
purposes (including the making of payments on the Book-Entry Certificates) deal
with the Clearing Agency as the authorized representative of the Beneficial
Owners of the Book-Entry Certificates for as long as such Certificates are
registered in the name of the Clearing Agency. The rights of Beneficial Owners
of the Book-Entry Certificates shall be limited to those established by law and
agreements between such Beneficial Owners and the Clearing Agency and Clearing
Agency Participants. The Beneficial Owners of the Book-Entry Certificates shall
not be entitled to certificates for the Book-Entry Certificates as to which they
are the Beneficial Owners, except as provided in subsection (c) below. Requests
and directions from, and votes of, the Clearing Agency, as Certificateholder,
shall not be deemed to be inconsistent if they are made with respect to
different Beneficial Owners. A Book-Entry Certificate may not be transferred by
the Clearing Agency without the consent of SASCO, the Master Servicer and the
Trustee except to another Clearing Agency that agrees to hold such Book-Entry
Certificate for the account of the respective Clearing Agency Participants and
Beneficial Owners.
(b) Neither SASCO, the Master Servicer nor the Trustee shall have
any liability for any aspect of the records relating to or payment made on
account of Beneficial Owners of the Book-Entry Certificates held by the Clearing
Agency, for monitoring or restricting any transfer of beneficial ownership in a
Book-Entry Certificate or for maintaining, supervising or reviewing any records
relating to such Beneficial Owners.
(c) The Book-Entry Certificates shall be issued in fully
registered, certificated form to Beneficial Owners of Book-Entry Certificates or
their nominees, rather than to the Clearing Agency or its nominee, only if (i)
SASCO advises the Trustee in writing that the Clearing Agency is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Book-Entry Certificates, and SASCO is unable to locate a
qualified successor within 30 days, or (ii) SASCO, at its option, elects to
terminate the book-entry system operating through the Clearing Agency. Upon the
occurrence of either such event, the Trustee shall notify the Clearing Agency,
which in turn shall notify all Beneficial Owners of Book-Entry Certificates
through Clearing Agency Participants, of the availability of certificated
Certificates. Upon surrender by the Clearing Agency of the certificates
representing the Book-Entry Certificates and receipt of instructions for
re-registration, the Trustee shall reissue the Book-Entry Certificates as
certificated Certificates to the Beneficial Owners identified in writing by the
Clearing Agency. Such certificated Certificates shall not constitute Book-Entry
Certificates. All reasonable costs associated with the preparation and delivery
of certificated Certificates shall be borne by SASCO.
Section 5.04. Registration of Transfer and Exchange of
Certificates. The Trustee shall cause to be kept at its Corporate Trust Office a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of Certificates and of
transfers and
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exchanges of Certificates as provided in the Trust Agreement. The Trustee shall
initially serve as Certificate Registrar for the purpose of registering
Certificates and transfers and exchanges of Certificates as provided in the
Trust Agreement.
Subject to Section 5.05 hereof, upon surrender for registration
of transfer of any Certificate at the Corporate Trust Office of the Trustee or
at any other office or agency of the Trustee maintained for such purpose, the
Trustee shall execute and the Certificate Registrar shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of the same Class of a like aggregate Percentage Interest.
At the option of the Certificateholders, each Certificate may be
exchanged for other Certificates of the same Class with the same and authorized
denominations and a like aggregate Percentage Interest upon surrender of such
Certificate to be exchanged at any such office or agency. Whenever any
Certificates are so surrendered for exchange, the Trustee shall execute and
cause the Certificate Registrar to authenticate and deliver the Certificates
which the Certificateholder making the exchange is entitled to receive. Every
Certificate presented or surrendered for transfer or exchange shall (if so
required by the Trustee) be duly endorsed by, or be accompanied by a written
instrument of transfer in a form satisfactory to the Trustee duly executed by,
the Holder of such Certificate or his attorney duly authorized in writing.
No service charge to the Certificateholders shall be made for any
transfer or exchange of Certificates, but the Trustee may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for transfer and exchange shall be
destroyed by the Certificate Registrar.
The Trustee shall cause the Certificate Registrar (unless the
Trustee is acting as Certificate Registrar) to provide notice to the Trustee of
each transfer of a Certificate and to provide the Trustee and the Master
Servicer with an updated copy of the Certificate Register on January 1 and July
1 of each year.
Section 5.05. Restrictions on Transfers.
(a) Securities Law Compliance. No transfer of any Private
Certificate shall be made unless that transfer is made pursuant to an effective
registration statement under the Securities Act and effective registration or
qualification under applicable state securities laws, or is made in a
transaction that does not require such registration or qualification. Any Holder
of a Private Certificate shall, and, by acceptance of such Certificate, does
agree to, indemnify SASCO, the Trustee and the Master Servicer against any
liability that may result if any transfer of such Certificate by such Holder is
not exempt from registration under the Securities Act and all applicable state
securities laws or is not made in accordance with such federal and state laws.
Neither SASCO, the Trustee nor the Master Servicer is obligated to register or
qualify any Private Certificate under the Securities Act or any other securities
law or to take any action not otherwise required under the Trust Agreement to
permit the transfer of such Certificate without such registration or
qualification. The Trustee shall not register any transfer of a Private
Certificate (other than a Residual Certificate) unless and until the prospective
transferee provides the Trustee with a Transferee Agreement or, if the
Certificate to be transferred is a Rule 144A Certificate, a Rule 144A Agreement
certifying to facts which, if true, would mean that the proposed transferee is a
Qualified Institutional Buyer, and unless and until the transfer otherwise
complies with the provisions of this Section 5.05. If a proposed transfer does
not involve a Rule 144A Certificate or the transferee of a Rule 144A Certificate
does not certify to facts which, if true, would mean that the proposed
transferee is a Qualified Institutional Buyer, the Trustee shall require that
the transferor and the proposed transferee certify as to the factual basis for
the registration exemption(s) relied upon, and if the transfer is made within
three years of the acquisition of such Certificate by a non-Affiliate of SASCO
from SASCO or an Affiliate of SASCO, the Master Servicer or the Trustee also may
require an Opinion of Counsel that such
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transfer may be made without registration or qualification under the Securities
Act and applicable state securities laws, which Opinion of Counsel shall not be
obtained at the expense of SASCO, the Trustee or the Master Servicer.
Notwithstanding the foregoing, no Rule 144A Agreement, Transferee Agreement or
Opinion of Counsel shall be required in connection with the initial transfer of
the Private Certificates and no Opinion of Counsel shall be required in
connection with the transfer of the Private Certificates by a broker or dealer,
if such broker or dealer was the initial transferee.
SASCO shall provide to any Holder of a Rule 144A Certificate and
any prospective transferee designated by such Holder information regarding the
related Certificates and the Mortgage Loans and such other information as shall
be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such Certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by Rule
144A.
(b) Regular Certificates.
(i) Public Subordinated Certificates. No Regular
Certificate that is a Public Subordinated Certificate shall be
transferred to a transferee that acknowledges that it is a Plan
Investor unless such transferee provides the Trustee and the
Master Servicer with a Benefit Plan Opinion. The transferee of a
Public Subordinated Certificate that does not provide the Trustee
and the Master Servicer with a Benefit Plan Opinion will be
deemed, by virtue of its acquisition of such Certificate, to have
represented that it is not a Plan Investor.
(ii) Private Subordinated Certificates. No Regular
Certificate that is a Private Subordinated Certificate shall be
transferred unless the prospective transferee provides the
Trustee and the Master Servicer with a properly completed Benefit
Plan Affidavit, together with a Benefit Plan Opinion if required
in order to comply with such Benefit Plan Affidavit.
(c) Residual Certificates. No Residual Certificate (including any
beneficial interest therein) may be transferred to a Disqualified Organization.
In addition, no Residual Certificate (including any beneficial interest therein)
may be transferred unless (i) the proposed transferee provides the Trustee and
the Master Servicer with (A) a Residual Transferee Agreement, (B) a Benefit Plan
Affidavit, (C) a Disqualified Organization Affidavit and (D) if the proposed
transferee is a Non-U.S. Person, a TAPRI Certificate, and (ii) the interest
transferred involves the entire interest in a Residual Certificate or an
undivided interest therein (unless the transferor or the transferee provides the
Master Servicer and the Trustee with an Opinion of Counsel (which shall not be
an expense of the Master Servicer or the Trustee) that the transfer will not
jeopardize the REMIC status of any related REMIC). Furthermore, if a proposed
transfer involves a Private Certificate, (i) the Trustee shall require that the
transferor and the transferee certify as to the factual basis for the
registration exemption(s) relied upon and (ii) if the transfer is made within
three years from the acquisition of the Certificate by a non-Affiliate of SASCO
from SASCO or an Affiliate of SASCO, the Trustee also may require an Opinion of
Counsel that such transfer may be made without registration or qualification
under the Securities Act and applicable state securities laws, which Opinion of
Counsel shall not be obtained at the expense of the Trustee or the Master
Servicer. In any event, the Trustee shall not effect any transfer of a Residual
Certificate except upon notification of such transfer to the Master Servicer.
Notwithstanding the foregoing, no Opinion of Counsel shall be required in
connection with the initial transfer of the Residual Certificates or their
transfer by a broker or dealer, if such broker or dealer was the initial
transferee.
Upon notice to the Trustee that any legal or beneficial interest
in any portion of the Residual Certificates has been transferred, directly or
indirectly, to a Disqualified Organization or an agent thereof (including a
broker, nominee or middleman) in contravention of the foregoing restrictions,
(i) such transferee shall be deemed to hold the Residual Certificates in
constructive trust for the last transferor who was not a Disqualified
Organization or an agent thereof, and such transferor shall be restored as the
owner of such Residual Certificates as completely as if such transfer had never
occurred; provided, however, that the Trustee
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may, but is not required to, recover any distributions made to such transferee
with respect to the Residual Certificates and return such recovery to the
transferor, and (ii) the Master Servicer agrees to furnish to the Internal
Revenue Service and to any transferor of the Residual Certificates or any such
agent (within 60 days of the request therefor by the transferor or such agent)
such information as may be necessary for the computation of the tax imposed
under section 860E(e) of the Code and as otherwise may be required by the Code,
including, but not limited to, the present value of the total anticipated excess
inclusions with respect to the Residual Certificates (or portion thereof) for
periods after such transfer. At the election of the Master Servicer, the cost of
computing and furnishing such information may be charged to the transferor or
the agent referred to above; provided, however, that the Master Servicer shall
in no event be excused from furnishing such information.
If a tax or a reporting cost is borne by a REMIC as a result of
the transfer of a Residual Certificate (or any beneficial interest therein) in
violation of the restrictions set forth in this Section 5.05, the transferor
shall pay such tax or cost and, if such tax or cost is not so paid, the Trustee,
upon notification from the Master Servicer, shall pay such tax or cost with
amounts that otherwise would have been paid to the transferee of the Residual
Certificate (or the beneficial interest therein). In that event, neither the
transferee nor the transferor shall have any right to seek repayment of such
amounts from SASCO, the Trustee, any REMIC, the Master Servicer or the other
Holders of any of the Certificates, and none of such parties shall have any
liability for payment of any such tax or reporting cost.
Section 5.06. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee or the
Certificate Registrar, or the Trustee and the Certificate Registrar receive
evidence to their satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee and the Certificate
Registrar such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of actual knowledge by the Trustee or the
Certificate Registrar that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
the same Class and of like tenor and Percentage Interest. Upon the issuance of
any new Certificate under this Section 5.06, the Trustee may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Certificate Registrar) connected therewith. Any replacement
Certificate issued pursuant to this Section 5.06 shall constitute complete and
indefeasible evidence of ownership in the Trust as if originally issued, whether
or not the destroyed, lost or stolen Certificate shall be found at any time.
Section 5.07. Persons Deemed Owners. Prior to due presentation of
a Certificate for registration of transfer, the Trustee, the Certificate
Registrar and any agent of either of them may treat the person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving distributions and for all other purposes whatsoever, and neither the
Trustee, the Certificate Registrar nor any agent of either of them shall be
affected by notice to the contrary.
Section 5.08. Appointment of Paying Agent. The Trustee may
appoint a Paying Agent for the purpose of making distributions to
Certificateholders. The Trustee shall cause such Paying Agent to execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee that such Paying Agent will hold all sums held by it for the payment
to Certificateholders in an Eligible Account in trust for the benefit of the
Certificateholders entitled thereto until such sums shall be paid to the
Certificateholders. All funds remitted by the Trustee to any such Paying Agent
for the purpose of making distributions shall be paid to the Certificateholders
on each Distribution Date and any amounts not so paid shall be returned on such
Distribution Date to the Trustee.
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ARTICLE VI
SASCO AND THE MASTER SERVICER
Section 6.01. Liability of, and Indemnification by, SASCO and the
Master Servicer. SASCO and the Master Servicer shall each be liable in
accordance herewith only to the extent of the respective obligations
specifically imposed by the Trust Agreement and undertaken by SASCO and the
Master Servicer under the Trust Agreement.
The Master Servicer shall indemnify and hold harmless the Trustee
and SASCO and any director, officer, employee or agent thereof against any loss,
liability or expense, including reasonable attorney's fees, arising out of or in
connection with or incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties of the Master Servicer under the Trust
Agreement or by reason of reckless disregard of its obligations and duties under
the Trust Agreement. Any payment pursuant to this Section 6.01 made by the
Master Servicer to SASCO or the Trustee shall be from such entity's own funds,
without reimbursement therefor. The provisions of this Section 6.01 shall
survive the resignation or removal of the Master Servicer and the termination of
the Trust Agreement.
SASCO shall indemnify and hold harmless the Master Servicer and
any director, officer, employee or agent thereof against any loss, liability or
expense, including reasonable attorney's fees, incurred in connection with or
arising out of or in connection with the Trust Agreement (other than a loss,
liability or expense subject to indemnification by the Master Servicer pursuant
to the preceding paragraph), any custodial agreement or the Certificates,
including, but not limited to, any such loss, liability or expense incurred in
connection with any legal action against the Master Servicer or any director,
officer, employee or agent thereof, or the performance of any of the Master
Servicer's duties under the Trust Agreement other than any loss, liability or
expense incurred by reason of the Master Servicer's willful misfeasance, bad
faith or negligence in the performance of its duties under the Trust Agreement
or by reason of its reckless disregard of its obligations and duties under the
Trust Agreement. The provisions of this Section 6.01 shall survive the
resignation or removal of the Master Servicer and the termination of the Trust
Agreement.
Section 6.02. Merger or Consolidation of SASCO or the Master
Servicer. Subject to the following paragraph, SASCO and the Master Servicer each
will keep in full effect its existence, rights and franchises as a corporation
under the laws of the jurisdiction of its incorporation, and will obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of the Trust Agreement, the Certificates or any of
the Mortgage Loans and to perform its respective duties under the Trust
Agreement.
SASCO or the Master Servicer may be merged or consolidated with
or into any Person, or transfer all or substantially all of their respective
assets to any Person, in which case any Person resulting from any merger or
consolidation to which SASCO or the Master Servicer shall be a party, or any
Person succeeding to the business of SASCO or the Master Servicer, shall be the
successor of SASCO or the Master Servicer, as the case may be, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties to the Trust Agreement, anything herein to the contrary
notwithstanding.
Section 6.03. Limitation on Liability of SASCO, the Master
Servicer and Others. Neither SASCO, the Master Servicer nor any of the
directors, officers, employees or agents of SASCO or the Master Servicer shall
be under any liability to the Trust or the Certificateholders, and all such
Persons shall be held harmless for any action taken or for refraining from the
taking of any action in good faith pursuant to the Trust Agreement, or for
errors in judgment; provided, however, that this provision shall not protect any
such Person against any breach of warranties or representations made herein or
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the Trust
Agreement. SASCO, the Master Servicer and any of the directors, officers,
employees or agents of SASCO or the Master Servicer may rely in good faith
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on any document of any kind which, prima facie, is properly executed and
submitted by any Person respecting any matters arising hereunder. Neither SASCO
nor the Master Servicer shall be under any obligation to appear in, prosecute or
defend any legal action unless such action is related to its respective duties
under the Trust Agreement and in its opinion does not involve it in any expense
or liability, except as provided in Section 10.01(b) hereof; provided, however,
that SASCO or the Master Servicer may in its discretion undertake any such
action that it deems necessary or desirable with respect to the Trust Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder if the Certificateholders offer to SASCO or the
Master Servicer, as the case may be, reasonable security or indemnity against
the costs, expenses and liabilities that may be incurred therein or thereby.
Section 6.04. Resignation of the Master Servicer. The Master
Servicer shall not resign from the obligations and duties hereby imposed on it
except (i) upon appointment of a successor master servicer and receipt by the
Trustee of a letter from each Rating Agency that such a resignation and
appointment will not, in and of itself, result in a downgrading of any rated
Certificates or (ii) upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination permitting the
resignation of the Master Servicer shall be evidenced by an Opinion of Counsel
to such effect delivered to the Trustee. No such resignation shall become
effective until the Trustee or a successor master servicer shall have become the
successor master servicer hereunder and agreed to perform the responsibilities,
duties, liabilities and obligations of the Master Servicer that arise
thereafter; provided, however, that no successor master servicer shall (unless
otherwise agreed) assume any liability for the actions (or failure to act) of
the Master Servicer prior to the date that such successor becomes Master
Servicer under the Trust Agreement.
Section 6.05. Compensation to the Master Servicer. The Master
Servicer shall be entitled to receive a monthly fee as compensation for services
rendered by the Master Servicer under the Trust Agreement. The monthly Master
Servicing Fee with respect to the Trust shall equal the amount set forth in the
Trust Agreement, which may be retained by the Master Servicer when it remits
funds from the Master Servicer Custodial Account to the Asset Proceeds Account.
The Master Servicer also will be entitled, as additional compensation, to
interest paid by a Borrower or a Servicer in connection with a Liquidation
(including a prepayment in full) of a Mortgage Loan that is not required to be
deposited in the Asset Proceeds Account, any late reporting fees paid by a
Servicer pursuant to [Section 450] of the Guide and any net investment earnings
on the Master Servicer Custodial Account, the Asset Proceeds Account or any
Reserve Fund that it is considered to own pursuant to the Trust Agreement.
Section 6.06. Assignment or Delegation of Duties by Master
Servicer. Except as expressly provided in the Trust Agreement, the Master
Servicer shall not assign or transfer any of its rights, benefits or privileges
under the Trust Agreement to any other Person, or delegate to or subcontract
with, or authorize or appoint any other Person to perform any of the duties,
covenants or obligations to be performed by the Master Servicer under the Trust
Agreement, without the prior written consent of the Trustee, and any agreement,
instrument or act purporting to effect any such assignment, transfer, delegation
or appointment without such written consent shall be void. Notwithstanding the
foregoing, the Master Servicer shall have the right without the prior written
consent of the Trustee to delegate to, subcontract with, authorize or appoint an
affiliate of the Master Servicer to perform and carry out any duties, covenants
or obligations to be performed and carried out by the Master Servicer under the
Trust Agreement and hereby agrees so to delegate, subcontract, authorize or
appoint to an affiliate of the Master Servicer any duties, covenants or
obligations to be performed and carried out by the Master Servicer under the
Trust Agreement to the extent that such duties, covenants or obligations are to
be performed in any state or states in which the Master Servicer is not
authorized to do business as a foreign corporation but in which the affiliate is
so authorized. In no case, however, shall any permitted assignment relieve the
Master Servicer of any liability to the Trustee or SASCO under the Trust
Agreement.
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ARTICLE VII
TERMINATION OF SERVICING AND MASTER
SERVICING ARRANGEMENTS
Section 7.01. Termination and Substitution of Servicing
Agreements. Upon the occurrence of any event for which a Servicer may be
terminated pursuant to a Servicing Agreement, the Master Servicer shall promptly
deliver to SASCO and the Trustee a certification by an Officer that an event has
occurred that may justify termination of such Servicing Agreement, describing
the circumstances surrounding such event and directing what action should be
taken by the Trustee with respect to such Servicer. If the Master Servicer
directs that such Servicing Agreement be terminated, the Master Servicer's
certification must state that the breach is material and not merely technical in
nature. Upon written direction of the Master Servicer and the consent of SASCO,
based upon such certification and consent, the Trustee, as assignee of such
Servicing Agreement, shall promptly terminate such Servicing Agreement and, as
provided in the succeeding paragraph, the Master Servicer shall concurrently
therewith appoint another Servicer to enter into a substitute Servicing
Agreement.
The Master Servicer shall indemnify the Trustee and hold the
Trustee harmless from and against all claims, liabilities, costs and expenses
(including, but not limited to, reasonable attorneys' fees) arising out of, or
assessed against the Trustee in connection with, termination of any Servicing
Agreement at the direction of the Master Servicer. If the Trustee terminates any
such Servicing Agreement, the Trustee shall enter into a substitute Servicing
Agreement with another mortgage loan service company acceptable to the Master
Servicer and each Rating Agency under which such mortgage loan service company
shall assume, satisfy, perform and carry out all liabilities, duties,
responsibilities and obligations that are to be, or otherwise were to have been,
satisfied, performed and carried out by the Servicer under such terminated
Servicing Agreement. Notwithstanding the foregoing, no such substitute Servicing
Agreement need contain a covenant by the substitute Servicer to purchase
Converted Mortgage Loans. Until such time as the Trustee enters into a
substitute servicing agreement with respect to the Mortgage Loans, the Master
Servicer shall assume, satisfy, perform and carry out all obligations which
otherwise were to have been satisfied, performed and carried out by the Servicer
under the terminated Servicing Agreement. In no event, however, shall the Master
Servicer be deemed to have assumed the obligations of a Servicer to purchase any
Mortgage Loan from the Trust pursuant to any provision of the related Servicing
Agreement or the Guide or to make Advances with respect to any Mortgage Loan,
except to the extent specifically provided in Section 3.04 hereof. As
compensation to the Master Servicer for any servicing obligations fulfilled or
assumed by the Master Servicer, the Master Servicer shall be entitled to any
servicing compensation to which the Servicer would have been entitled if the
Servicing Agreement with the Servicer had not been terminated.
Section 7.02. Termination of Master Servicer; Trustee to Act.
Each of the following shall constitute an Event of Default by the Master
Servicer of its obligations under the Trust Agreement:
(a) the Master Servicer shall fail duly to observe or perform in
any material respect any of its covenants or agreements (other than its
obligation to make an Advance pursuant to Section 3.04 hereof) contained in the
Trust Agreement and such failure shall continue unremedied for a period of 30
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 the Trustee by the Holders of Certificates entitled
to at least 25% of the Voting Rights; or
(b) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case under any
present or future federal or state bankruptcy, insolvency or similar law or the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceeding, or for the winding-up or liquidation of its affairs, shall have been
entered against the Master Servicer and such decree or order shall have remained
in force undischarged and unstayed for a period of 60 days; or
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(c) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceeding of or relating to
the Master Servicer or relating to all or substantially all of its property; or
(d) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations; or
(e) the Master Servicer shall fail to remit funds in the Master
Servicer Custodial Account to the Asset Proceeds Account as required by Section
3.01(c) hereof within one Business Day of the date that such funds are due; or
(f) the Master Servicer shall fail to make any Advance or other
payment required by Section 3.04 or Section 3.05 hereof within one Business Day
of the date that such Advance or other payment is due.
The rights and obligations of the Master Servicer under the Trust
Agreement may be terminated only upon the occurrence of an Event of Default. If
an Event of Default described in clauses (a) through (d) of this Section 7.02
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee may, and at the direction of
the Holders of Certificates entitled to at least 51% of the Voting Rights, the
Trustee shall, by notice in writing to the Master Servicer, terminate all of the
rights and obligations of the Master Servicer under the Trust Agreement, other
than its rights as a Certificateholder. If an Event of Default described in
clauses (e) and (f) of this Section 7.02 shall occur, the Trustee may, by notice
in writing to the Master Servicer, terminate all of the rights and obligations
of the Master Servicer under the Trust Agreement, other than its rights as a
Certificateholder. On and after the receipt by the Master Servicer of such
written notice, all authority and power of the Master Servicer under the Trust
Agreement, whether with respect to the Certificates (other than as a Holder
thereof) or the Mortgage Loans or otherwise, shall, to the maximum extent
permitted by law, pass to and be vested in the Trustee pursuant to and under
this Section 7.02 (provided, however, that the Master Servicer shall continue to
be entitled to receive all amounts accrued or owing to it under the Trust
Agreement on or prior to the date of such termination). Without limiting the
generality of the foregoing, the Trustee is hereby authorized and empowered to
execute and deliver on behalf of and at the expense of the Master Servicer, as
the Master Servicer's attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things that in the
Trustee's sole and absolute judgment may be necessary or appropriate, to effect
such termination. Notwithstanding the foregoing, upon any such termination the
Master Servicer shall do all things reasonably requested by the Trustee to
effect the termination of the Master Servicer's responsibilities, rights and
powers under the Trust Agreement, and the transfer thereof to the Trustee,
including, but not limited to, promptly providing to the Trustee (and in no
event later than ten Business Days subsequent to such notice) all documents and
records electronic and otherwise reasonably requested by the Trustee to enable
the Trustee or its designee to assume and carry out the duties and obligations
that otherwise were to have been performed and carried out by the Master
Servicer but for such termination.
Upon any such termination, the Trustee shall, to the maximum
extent permitted by law, be the successor in all respects to the Master Servicer
in its capacity as master servicer under the Trust Agreement, but the Trustee
shall not have any liability for, or any duty or obligation to perform, any
duties or obligations of the Master Servicer required to be performed prior to
the date that the Trustee becomes successor master servicer.
As successor master servicer, the Trustee shall be entitled to
the fees to which the Master Servicer would have been entitled if the Master
Servicer had continued to act as such. The Trustee shall also, as successor
master servicer, be entitled to all of the protections and indemnification
afforded to the Master Servicer pursuant to Section 6.03 hereof.
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Notwithstanding the above, the Trustee may, upon the occurrence
of an Event of Default, if it shall be unwilling so to act, or shall, if it is
unable so to act or if the Holders of Certificates entitled to at least 51% of
the Voting Rights so request in writing to the Trustee, promptly appoint, or
petition a court of competent jurisdiction to appoint, any established mortgage
loan servicing institution acceptable to each Rating Agency and having a net
worth of not less than $15,000,000 as the successor to the Master Servicer. No
appointment of a successor to the Master Servicer shall be effective until the
assumption by such successor of all future responsibilities, duties and
liabilities of the Master Servicer under the Trust Agreement. Pending
appointment of a successor to the Master Servicer, the Trustee or an affiliate
shall, to the maximum extent permitted by law, act in such capacity as
hereinabove provided.
In connection with any such appointment and assumption described
herein, the Trustee may make such arrangements for the compensation of such
successor out of payments received on the assets included in the Trust Estate as
it and such successor shall agree; provided, however, that no such compensation
shall be in excess of that permitted the Master Servicer under the Trust
Agreement. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
Upon the occurrence of any Event of Default, the Trustee, in
addition to the rights specified in this Section 7.02, shall have the right, in
its own name and as Trustee, to take all actions now or hereafter existing at
law, in equity or by statute to enforce its rights and remedies and to protect
the interests, and enforce the rights and remedies, of the Certificateholders
(including the institution and prosecution of all judicial, administrative and
other proceedings and the filings of proofs of claim and debt in connection
therewith). No remedy provided for by the Trust Agreement shall be exclusive of
any other remedy, each and every remedy shall be cumulative and in addition to
any other remedy and no delay or failure to exercise any right or remedy shall
impair any such right or remedy or shall be deemed to be a waiver of any Event
of Default.
For the purposes of this Section 7.02 and Section 8.01 hereof,
the Trustee shall not be deemed to have knowledge of an Event of Default unless
an Officer of the Trustee has actual knowledge thereof or unless written notice
of such Event of Default is received by the Trustee at the Corporate Trust
Office and such notice references the Certificates, the Trust or the Trust
Agreement.
Section 7.03. Notification to Certificateholders.
(a) Upon any termination pursuant to Section 7.01 or Section 7.02
hereof, or any appointment of a successor to a Servicer or the Master Servicer,
the Trustee shall give prompt written notice thereof to the Certificateholders
at their respective addresses appearing in the Certificate Register.
(b) Within 60 days after the occurrence of any Event of Default
or the Trustee's receipt of notice of the occurrence of any event permitting
termination of a Servicer, the Trustee shall transmit by mail to the
Certificateholders notice of each such Event of Default or event known to the
Trustee, unless such Event of Default or event shall have been cured or waived.
ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.01. Duties of Trustee. The Trustee, prior to the
occurrence of an Event of Default and after the curing of each Event of Default,
undertakes to perform such duties and only such duties as are specifically set
forth in the Trust Agreement. During an Event of Default of which the Trustee
has notice, the Trustee shall exercise such of the rights and powers vested in
it by the Trust Agreement, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of such person's own affairs.
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The Trustee, upon receipt of any resolution, certificate,
statement, opinion, report, document, order or other instrument specifically
required to be furnished to it pursuant to any provision of the Trust Agreement,
shall examine such instrument to determine whether it conforms to the
requirements of the Trust Agreement; provided, however, that the Trustee shall
be under no duty to recalculate, verify or recompute any information provided to
it hereunder by SASCO or the Master Servicer. If any such instrument is found
not to conform to the requirements of the Trust Agreement in a material manner,
the Trustee shall take action as it deems appropriate to have the instrument
corrected, and if the instrument is not corrected to the Trustee's satisfaction,
the Trustee shall provide notice thereof to the Certificateholders.
No provision of the Trust Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct; provided, however, that:
(a) Prior to the occurrence of an Event of Default, and after the
curing of each Event of Default, the duties and obligations of the Trustee shall
be determined solely by the express provisions of the Trust Agreement, the
Trustee shall not be liable except for the performance of such duties and
obligations as are specifically set forth in the Trust Agreement, no implied
covenants or obligations shall be read into the Trust Agreement against the
Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished to
the Trustee that conform to the requirements of the Trust Agreement;
(b) The Trustee shall not be personally liable for an error of
judgment made in good faith by an Officer of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent facts;
(c) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of the Holders of Certificates entitled to at
least 25% of the Voting Rights relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under the Trust Agreement;
(d) Any determination of negligence or bad faith of the Trustee
shall be made only upon a finding that there is clear and convincing evidence
(and not upon the mere preponderance of evidence) thereof in a proceeding before
a court of competent jurisdiction in which the Trustee has had an opportunity to
defend; and
(e) In no event shall the Trustee be held liable for the actions
or omissions of the Master Servicer or a Servicer (excepting the Trustee's own
actions as Master Servicer or Servicer), and in connection with any action or
claim for recovery sought against the Trustee based upon facts involving the
acts or omissions of the Master Servicer or SASCO, or involving any allegation
or claim of liability or recovery against the Trustee by the Master Servicer or
by a Seller, the Trustee shall not be held to a greater standard of care than
the Master Servicer or the Seller would be held in such situation. Other than
those obligations assumed by the Trustee pursuant to Sections 3.04, 3.06, 4.02
and 7.02 hereof, no provision of the Trust Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it unless such risk or liability relates to duties set
forth herein (which duties shall not be deemed to include actions required to be
taken by the Trustee arising out of the failure of another person to take any
required action hereunder).
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Section 8.02. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.01 hereof:
(i) The Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate
of auditors or other certificate, statement, instrument, opinion,
report, notice, request, consent, order, appraisal, bond or other
paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties. Further, the
Trustee may accept a copy of the vote of the Board of Directors
of any party certified by its clerk or assistant clerk or
secretary or assistant secretary as conclusive evidence of the
authority of any person to act in accordance with such vote, and
such vote may be considered as in full force and effect until
receipt by the Trustee of written notice to the contrary;
(ii) The Trustee may, in the absence of bad faith on
its part, rely upon a certificate of an Officer of the
appropriate Person whenever in the administration of the Trust
Agreement the Trustee shall deem it desirable that a matter be
proved or established (unless other evidence be herein
specifically prescribed) prior to taking, suffering or omitting
any action hereunder;
(iii) The Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith
and in accordance with such written advice or Opinion of Counsel;
(iv) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by the Trust
Agreement or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, pursuant to the
provisions of the Trust Agreement, unless such Certificateholders
shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby;
(v) The Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by the Trust Agreement;
(vi) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or
document, unless requested in writing to do so by the Holders of
Certificates entitled to at least 25% of the Voting Rights;
provided, however, that if the payment within a reasonable time
to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the
opinion of the Trustee, not assured to the Trustee by the
security afforded to it by the terms of the Trust Agreement, the
Trustee may require indemnity against such expense or liability
as a condition to taking any such action. The expense of every
such investigation shall be paid by the Master Servicer or, if
paid by the Trustee, shall be repaid by the Master Servicer upon
demand;
(vii) The Trustee may execute any of the trusts or
powers under the Trust Agreement or perform any duties thereunder
either directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed with due care by
it under the Trust Agreement;
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(viii) Whenever the Trustee is authorized herein to
require acts or documents in addition to those required to be
provided it in any matter, it shall be under no obligation to
make any determination whether or not such additional acts or
documents should be required unless obligated to do so under
Section 8.01 hereof;
(ix) The permissive right or authority of the Trustee
to take any action enumerated in the Trust Agreement shall not be
construed as a duty or obligation; and
(x) The Trustee shall not be deemed to have notice of
any matter, including, but limited to, any Event of Default,
unless an Officer of the Trustee has actual knowledge thereof or
unless written notice thereof is received by the Trustee at the
Corporate Trust Office and such notice references the
Certificates, the Trust or the Trust Agreement.
(b) All rights of action under the Trust Agreement or under any
of the Certificates that are enforceable by the Trustee may be enforced by the
Trustee without the possession of any of the Certificates, or the production
thereof at any trial or other proceeding relating thereto, and any such suit,
action or proceeding instituted by the Trustee shall be brought in its name for
the benefit of all the Holders of such Certificates, subject to the provisions
of the Trust Agreement.
Section 8.03. Trustee Not Liable for Certificates or Mortgage
Loans. The recitals contained in the Trust Agreement and in the Certificates
(other than the signature and countersignature of the Trustee on the
Certificates) shall be taken as the statements of SASCO, and the Trustee assumes
no responsibility for their correctness. The Trustee makes no representations or
warranties as to the validity or sufficiency of the Trust Agreement or the
Certificates (other than the signature and countersignature of the Trustee on
the Certificates) or of any Mortgage Loan or related document. The Trustee shall
not be accountable for the use or application by SASCO of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to SASCO in respect of the Mortgage Loans or
deposited in or withdrawn from the Asset Proceeds Account or the Master Servicer
Custodial Account other than any funds held by or on behalf of the Trustee in
accordance with Sections 3.01 and 3.02 hereof or as owner of the Regular
Interests of the Pooling REMIC.
Section 8.04. Trustee May Own Certificates. The Trustee in its
individual capacity or any other capacity may become the owner or pledgee of
Certificates with the same rights it would have if it were not Trustee.
Section 8.05. Trustee's Fees. The Trustee shall be entitled to
receive the Trustee Fee as compensation for its services under the Trust
Agreement. The Trustee Fee shall be payable from amounts received with respect
to the Mortgage Loans. SASCO shall indemnify and hold harmless the Trustee and
any director, officer, employee or agent thereof against any loss, liability or
expense, including reasonable attorney's fees, incurred in connection with or
arising out of or in connection with the Trust Agreement (other than a loss,
liability or expense subject to indemnification by the Master Servicer pursuant
to Section 6.01 hereof), any custodial agreement or the Certificates, including,
but not limited to, any such loss, liability or expense incurred in connection
with any legal action against the Trust or the Trustee or any director, officer,
employee or agent thereof, or the performance of any of the Trustee's duties
under the Trust Agreement other than any loss, liability or expense incurred by
reason of the Trustee's willful misfeasance, bad faith or negligence in the
performance of its duties under the Trust Agreement or by reason of its reckless
disregard of its obligations and duties under the Trust Agreement. The
provisions of this Section 8.05 shall survive the resignation or removal of the
Trustee and the termination of the Trust Agreement. The Trustee may receive an
additional indemnity from a party acceptable to the Trustee.
Section 8.06. Eligibility Requirements for Trustee. The Trustee
shall at all times be a bank or trust company that: (i) is not an Affiliate,
(ii) is organized and doing business under the laws of the United States or any
state thereof and is authorized under such laws to exercise corporate trust
powers, (iii) has a
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combined capital and surplus of at least $50,000,000, and (iv) is subject to
supervision or examination by a federal or state authority. If such bank or
trust company publishes reports of its condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 8.06 the combined capital and surplus of
such bank or trust company shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.06, the Trustee shall resign immediately in the
manner and with the effect specified in Section 8.07 hereof.
Section 8.07. Resignation and Removal of the Trustee. The Trustee
may at any time resign and be discharged from the trusts created pursuant to the
Trust Agreement by giving written notice thereof to SASCO, the Master Servicer
and all Certificateholders. Upon receiving such notice of resignation, SASCO
shall promptly appoint a successor trustee by written instrument, in duplicate,
which instrument shall be delivered to the resigning Trustee and to the
successor trustee. SASCO shall deliver a copy of such instrument to the
Certificateholders, the Master Servicer and each Servicer. If no successor
trustee shall have been so 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.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 hereof and shall fail to resign
after written request therefor by SASCO, or if at any time the Trustee shall
become incapable of acting, or shall be adjudged bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then
SASCO may remove the Trustee and appoint a successor trustee by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. SASCO shall also deliver a copy of such
instrument to the Certificateholders, the Master Servicer and each Servicer.
The Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to each of SASCO, the Trustee so removed and the successor so
appointed. SASCO shall deliver a copy of such instruments to the
Certificateholders, the Master Servicer and each Servicer.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.07 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08 hereof.
Section 8.08. Successor Trustee. Any successor trustee appointed
as provided in Section 8.07 hereof shall execute, acknowledge and deliver to
SASCO, the Master Servicer and the predecessor trustee an instrument accepting
such appointment under the Trust Agreement, and thereupon the resignation or
removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
thereunder, with the like effect as if originally named as trustee therein. The
predecessor trustee shall deliver, or cause to be delivered, to the successor
trustee all Trustee Mortgage Loan Files and related documents and statements
held by it under the Trust Agreement, and SASCO, the Master Servicer and the
predecessor trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in the successor trustee all such rights, powers, duties and
obligations.
No successor trustee shall accept appointment as provided in this
Section 8.08 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.06 hereof.
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Upon acceptance of appointment by a successor trustee as provided
in this Section, SASCO shall mail notice of the succession of such trustee under
the Trust Agreement to all Certificateholders at their addresses as shown in the
Certificate Register. If SASCO fails to mail such notice within 10 days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of SASCO.
Section 8.09. Merger or Consolidation of Trustee. Any Person into
which the Trustee may be merged or converted or with which it may be
consolidated or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
the business of the Trustee, shall be the successor of the Trustee under the
Trust Agreement provided such Person shall be eligible under the provisions of
Section 8.06 hereof, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 8.10. Appointment of Trustee or Separate Trustee. For the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or property securing the same may at the time be located, SASCO,
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 trustees, of all or any part of the Trust, and
to vest in such Person or Persons, in such capacity, such title to the Trust, or
any part thereof, and, subject to the other provisions of this Section 8.10,
such powers, duties, obligations, rights and trusts as SASCO, the Master
Servicer or the Trustee may consider necessary or desirable. If SASCO or the
Master Servicer shall not have joined in such appointment within 15 days after
the receipt by it of a request so to do, the Trustee alone shall have the power
to make such appointment. No co-trustee(s) or separate trustee(s) hereunder
shall be required to meet the terms of eligibility as a successor trustee under
Section 8.06 hereof and no notice to Certificateholders of the appointment of
co-trustee(s) or separate trustee(s) shall be required under Section 8.08
hereof.
In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10, all rights, powers, duties and
obligations conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate trustee or
co-trustee jointly, except to the extent that under any law of any jurisdiction
in which any particular act or acts are to be performed (whether as Trustee
under the Trust Agreement or as successor to the Master Servicer pursuant to
Section 7.02 hereof), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed by such separate trustee or
co-trustee at the direction of the Trustee.
Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to the Trust Agreement
and the conditions of this Article VIII. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of the Trust Agreement, specifically including every provision of the Trust
Agreement relating to the conduct of or affecting the liability of, or affording
protection to, the Trustee. Every such instrument shall be filed with the
Trustee.
Any separate trustee or co-trustee may, at any time, constitute
the Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of the
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee. Any expense associated with the
appointment of a separate trustee or co-trustee shall not be an expense of the
Master Servicer.
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Section 8.11. Appointment of Custodians. The Trustee may, with
the consent of the Master Servicer, appoint one or more Custodians to hold all
or a portion of the Trustee Mortgage Loan Files as agent for the Trustee, by
entering into a custodial agreement. The appointment of any Custodian may at any
time be terminated and a substitute Custodian appointed therefor by the Trustee.
The Trustee shall terminate the appointment of any Custodian and appoint a
substitute custodian upon the request of the Master Servicer. The Trustee agrees
to comply with the terms of each custodial agreement and to enforce the terms
and provisions thereof against the Custodian for the benefit of the
Certificateholders. Each Custodian shall be a depository institution or trust
company subject to supervision by federal or state authority, shall have
combined capital and surplus of at least $10,000,000 and shall be qualified to
do business in the jurisdiction in which it holds any Trustee Mortgage Loan
File. Any such Custodian may not be an affiliate of SASCO or any Seller.
Section 8.12. Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under the Trust Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Certificateholders in respect of which such
judgment has been recovered.
ARTICLE IX
REDEMPTION OF CERTIFICATES AND TERMINATION OF THE TRUST
Section 9.01. Redemption. Unless otherwise provided in the Trust
Agreement, either SASCO or the Holders of the majority of the Percentage
Interest in the Residual Certificates (or each Class of Residual Certificates,
if more than one), may, at their respective options, make or cause a Person to
make a Redeeming Purchase for the Redemption Price on any Distribution Date on
or after the earlier of (i) the Distribution Date on which, after taking into
account distributions of principal to be made on such Distribution Date, the
aggregate Certificate Principal Balance of the Certificates is equal to or less
than 10% of the initial aggregate Certificate Principal Balance of such
Certificates, or (ii) the Redemption Date. The Master Servicer will not be
obligated to redeem the Certificates at the request of SASCO or the Holders of a
majority of the Percentage Interest in the Residual Certificates (or each Class
of Residual Certificates, if more than one) unless the Master Servicer shall
have first received cash in an amount equal to the Redemption Price. Unclaimed
funds otherwise distributable to Certificateholders on a Distribution Date on
which a Redeeming Purchase is made shall be deposited in the Redemption Account.
Upon redemption of the Certificates, the redeeming party, at its option, may
either (a) make or cause a Person to make a Terminating Purchase for the
Termination Price as described in Section 9.02 hereof or (b) hold such
Certificates or resell such Certificates (in which event, no party other than
the Holders of a majority of the Percentage Interest in the Residual
Certificates may redeem the Certificates subsequent to such redemption),
provided that such redeeming party pays all administrative costs and expenses of
the Master Servicer following such redemption in excess of the Master Servicing
Fee.
Section 9.02. Termination. Whether or not the Certificates have
been redeemed, unless otherwise provided in the Trust Agreement, either SASCO or
the Holders of the majority of the Percentage Interest in the Residual
Certificates (or each Class of Residual Certificates, if more than one), may, at
their respective options, make or cause a Person to make a Terminating Purchase
for the Termination Price on any Distribution Date upon which a Redeeming
Purchase may be made. Upon such Terminating Purchase or the final payment or
other liquidation (or any advance with respect thereto) of the last Mortgage
Loan remaining in the Trust or the disposition of the last REO Property
remaining in the Trust, the respective obligations and responsibilities under
the Trust Agreement of SASCO, the Master Servicer and the Trustee (other than
the obligations of the Trustee to make payments to Certificateholders as
hereafter set forth) shall terminate upon payment to the Certificateholders of
all amounts held by or on behalf of the Trustee and required hereunder to be so
paid, payment of all administrative expenses associated with the Trust and any
related REMICs, and
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deposit of unclaimed funds otherwise distributable to the Certificateholders in
the Termination Account; provided, however, that in no event shall the Trust
continue beyond the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late ambassador of the United
States to the Court of St. James's, living on the date hereof.
The Trust also may be terminated and the Certificates retired if
the Master Servicer determines, based upon an Opinion of Counsel, that the REMIC
status of any related REMIC has been lost or that a substantial risk exists that
such REMIC status will be lost for the then-current taxable year.
Section 9.03. Procedure for Redemption or Termination. The
requisite Residual Certificateholders or SASCO shall each advise the Trustee of
its election to cause a Redeeming Purchase or Terminating Purchase on or before
the Distribution Date in the month preceding the Distribution Date on which the
Redeeming Purchase or Terminating Purchase will occur. The Master Servicer shall
advise the Trustee of the final payment or other Liquidation of the last
Mortgage Loan remaining in the Trust or the disposition of the last REO Property
remaining in the Trust at least two Business Days prior to the Remittance Date
in the month in which the Trust will terminate. Notice of the Distribution Date
on which any such redemption or termination shall occur (the "Final Distribution
Date") shall be given promptly by the Trustee by letter to the
Certificateholders mailed (i) in the event such notice is given in connection
with a Redeeming Purchase or a Terminating Purchase, not earlier than the 15th
day and not later than the last day of the month preceding the month of such
final distribution or (ii) otherwise during the month of such final distribution
on or before the Remittance Date in such month, in each case specifying (A) the
Final Distribution Date and that final payment of the Certificates will be made
upon presentation and surrender of Certificates at the office of the Trustee
therein designated on that date, (B) the amount of any such final payment and
(C) that the Record Date otherwise applicable to such Final Distribution Date is
not applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Trustee. The Trustee shall give such notice to
the Certificate Registrar at the time such notice is given to
Certificateholders. In the event such notice is given in connection with a
Redeeming Purchase or a Terminating Purchase, the purchaser shall deliver to the
Trustee for deposit in the Asset Proceeds Account on the Business Day preceding
the Final Distribution Date an amount in next day funds equal to the Redemption
Price or the Termination Price, as the case may be.
Upon presentation and surrender of the Certificates on a
Distribution Date by Certificateholders, the Trustee shall distribute to
Certificateholders (i) the amount otherwise distributable on such Distribution
Date, if not in connection with a Redeeming Purchase or a Terminating Purchase,
or (ii) if in connection with a Redeeming Purchase or a Terminating Purchase, an
amount determined as follows: with respect to each Certificate with an
outstanding Certificate Principal Balance, the outstanding Certificate Principal
Balance thereof, if any, plus interest thereon through the Accounting Date
preceding the Distribution Date fixed for redemption or termination and any
previously unpaid interest, net of any unreimbursed Advances and any Realized
Losses, Realized Interest Shortfall and Interest Shortfalls allocable to such
Certificate on the Distribution Date fixed for redemption or termination; and in
addition, with respect to each Residual Certificate, the Percentage Interest
evidenced thereby multiplied by the difference between the Redemption Price or
the Termination Price, as applicable, and the aggregate amount to be distributed
as provided in the first clause of this sentence and the next succeeding
sentence. The Trustee also shall pay each Servicer, the Master Servicer or
itself the amount of their respective unreimbursed Advances.
Upon the deposit of the Redemption Price in the Asset Proceeds
Account, the Trustee (or any Custodian) shall retain possession of the Mortgage
Loans and shall release the Certificates to the person effecting the Redeeming
Purchase. Upon the deposit of the Termination Price in the Asset Proceeds
Account, the Trustee (or any Custodian) shall promptly release to the purchaser
the Trustee Mortgage Loan Files for the remaining Mortgage Loans, and the
Trustee shall execute all assignments, endorsements and other instruments, in
each case without recourse, necessary to effectuate such transfer.
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In the event that not all of the Certificates shall have been
surrendered within six months after the Final Distribution Date specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates and receive
the final distribution with respect thereto, net of the cost of such second
written notice. If within one year after the second written notice, not all of
the Certificates shall have been surrendered, the Trustee may take appropriate
steps, or may appoint an agent to take appropriate steps, to contact the
remaining Certificateholders concerning surrender of their Certificates, and the
cost thereof shall be paid out of the amounts otherwise payable on such
Certificates. Any funds payable to Certificateholders that are not distributed
on the Final Distribution Date shall be deposited in the Redemption Account or
the Termination Account, as the case may be, each of which shall be an Eligible
Account, to be held for the benefit of Certificateholders not presenting and
surrendering their Certificates in the aforesaid manner, and shall be disposed
of in accordance with this Section 9.03. Funds on deposit in such Redemption
Account or such Termination Account, as the case may be, shall not be invested,
and the Trustee shall have no liability to any Person for interest thereon. The
Trust shall terminate immediately following the deposit of funds in the
Termination Account as provided below.
Section 9.04. Additional Termination Requirements.
(a) In the event of a Terminating Purchase as provided in Section
9.02 hereof, the Trust shall be terminated in accordance with the following
additional requirements, unless the Trustee receives (i) a Special Tax Opinion
and (ii) a Special Tax Consent from each Holder of a Residual Interest (unless
the Special Tax Opinion specially provides that no REMIC-level tax will result
from the Terminating Purchase):
(A) Within 90 days prior to the Final Distribution Date,
SASCO on behalf of each related REMIC shall adopt a plan of
complete liquidation meeting the requirements of a qualified
liquidation under the REMIC Provisions (which plan may be adopted
by the Trustee's attachment of a statement specifying the first
day of the 90-day liquidation period to each REMIC's final
federal income tax return);
(B) Upon making final payment on the Regular Certificates
or the deposit of any unclaimed funds otherwise distributable to
the holders of the Regular Certificates in the Termination
Account on the Final Distribution Date, the Trustee shall
distribute or credit, or cause to be distributed or credited, to
the Holders of the Residual Certificates all cash on hand
relating to the REMIC after such final payment (other than cash
retained to meet claims), and the REMIC shall terminate at that
time; and
(C) In no event may the final payment on the Certificates
be made after the 90th day from the date on which the plan of
complete liquidation is adopted. A payment into the Termination
Account with respect to any Certificate pursuant to Section 9.03
hereof shall be deemed a final payment on, or final distribution
with respect to, such Certificate for the purposes of this
clause.
(b) By its acceptance of a Residual Certificate, the Holder
thereof hereby (i) authorizes such action as may be necessary to adopt a plan of
complete liquidation of any related REMIC and (ii) agrees to take such action as
may be necessary to adopt a plan of complete liquidation of any related REMIC
upon the written request of the Master Servicer, which authorization shall be
binding upon all successor Holders of Residual Certificates.
(c) By its acceptance of a Residual Certificate, the Holder
thereof hereby authorizes (i) the Holders of the majority of the Percentage
Interest in the Residual Certificates of the related Class to effect a
Terminating Purchase or a Redeeming Purchase on behalf of all Holders of such
Class of Residual Certificates in accordance with Section 9.01 or 9.02 hereof
and (ii) the reimbursement of the Holders of the majority of the Percentage
Interest in the Residual Certificates for reasonable costs and expenses incurred
in connection with the
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related Terminating Purchase or Redeeming Purchase (including, but not limited
to, the payment of interest on the funds advanced at the Net Rate applicable to
the related Mortgage Loans).
ARTICLE X
REMIC TAX PROVISIONS
Section 10.01. REMIC Administration.
(a) Unless otherwise specified in the Trust Agreement, the
Trustee shall elect (on behalf of each REMIC to be created) to have the Trust
(or designated assets thereof) treated as one or more REMICs on Form 1066 or
such other appropriate federal tax or information return for the taxable year
ending on the last day of the calendar year in which the Certificates are issued
as well as on any corresponding state tax or information return necessary to
have the Trust (or such assets) treated as one or more REMICs under state law.
(b) The Master Servicer shall pay any and all tax related
expenses (not including taxes) of the Trust and each REMIC, including, but not
limited to, any professional fees or expenses related to (i) audits or any
administrative or judicial proceedings with respect to each REMIC that involve
the Internal Revenue Service or state tax authorities or (ii) the adoption of a
plan of complete liquidation.
(c) The Master Servicer shall prepare any necessary forms for
election as well as all of the Trust's and each REMIC's federal and state tax
and information returns. At the request of the Master Servicer, the Trustee
shall sign and file such returns on behalf of each REMIC. The expenses of
preparing and filing such returns shall be borne by the Master Servicer.
(d) The Master Servicer shall perform all reporting and other tax
compliance duties that are the responsibility of the Trust and each REMIC under
the REMIC Provisions or state or local tax law. Among its other duties, if
required by the REMIC Provisions, the Master Servicer, acting as agent of each
REMIC, shall provide (i) to the Treasury or other governmental authority such
information as is necessary for the application of any tax relating to the
transfer of a Residual Certificate to any Disqualified Organization and (ii) to
the Trustee such information as is necessary for the Trustee to discharge its
obligations under the REMIC Provisions to report tax information to the
Certificateholders.
(e) SASCO, the Master Servicer, the Trustee (to the extent it has
been instructed by SASCO or the Master Servicer), and the Holders of the
Residual Certificates shall take any action or cause any REMIC to take any
action necessary to create or maintain the status of such REMIC as a REMIC under
the REMIC Provisions and shall assist each other as necessary to create or
maintain such status.
(f) SASCO, the Master Servicer, the Trustee (to the extent it has
been instructed by SASCO or the Master Servicer), and the Holders of the
Residual Certificates shall not take any action required by the Code or REMIC
Provisions or fail to take any action, or cause any REMIC to take any action or
fail to take any action, that, if taken or not taken, could endanger the status
of any such REMIC as a REMIC unless the Trustee and the Master Servicer have
received an Opinion of Counsel (at the expense of the party seeking to take or
to fail to take such action) to the effect that the contemplated action or
failure to act will not endanger such status.
(g) Unless otherwise provided in the Trust Agreement, any taxes
that are imposed upon the Trust or any REMIC by federal or state (including
local) governmental authorities (other than taxes paid by a party pursuant to
Section 10.02 hereof or as provided in the following sentence) shall be
allocated in the same manner as Realized Losses are allocated. Any taxes imposed
upon the Trust or any REMIC by the jurisdiction (or any subdivision thereof) in
which the Corporate Trust Office of the Trustee is located that would not have
been imposed on the Trust or such REMIC in the absence of any legal or business
connection between the
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Trustee and such jurisdiction (or locality), shall be paid by the Trustee and,
notwithstanding anything to the contrary in the Trust Agreement, such taxes
shall be deemed to be part of the Trustee's cost of doing business and shall not
be reimbursable to the Trustee.
(h) Unless otherwise provided in the Trust Agreement, the Master
Servicer or an Affiliate shall acquire a Residual Certificate in each REMIC and
will act as the Tax Matters Person of each REMIC and perform various tax
administration functions of each REMIC as its agent. If the Master Servicer or
an Affiliate is unable for any reason to fulfill its duties as Tax Matters
Person for a REMIC, the holder of the largest Percentage Interest of the
Residual Certificates in such REMIC shall become the successor Tax Matters
Person of such REMIC.
Section 10.02. Prohibited Activities. Except as otherwise
provided in the Trust Agreement, neither SASCO, the Master Servicer, the Holders
of the Residual Certificates, nor the Trustee shall engage in, nor shall the
parties permit, any of the following transactions or activities unless it has
received (i) a Special Tax Opinion and (ii) a Special Tax Consent from each of
the Holders of the Residual Certificates (unless the Special Tax Opinion
specially provides that no REMIC-level tax will result from the transaction or
activity in question):
(i) the sale or other disposition of, or substitution
for, any Mortgage Loan except pursuant to (A) a foreclosure or default
with respect to such Mortgage Loan, (B) the bankruptcy or insolvency of
any REMIC, (C) the termination of any REMIC pursuant to Section 9.02
hereof or (D) a substitution or purchase in accordance with Section 2.03
hereof;
(ii) the acquisition of any Mortgage Loan for the Trust
after the Closing Date except (A) during the three-month period
beginning on the Closing Date pursuant to a fixed price contract in
effect on the Closing Date that has been reviewed and approved by tax
counsel acceptable to the Master Servicer or (B) a substitution in
accordance with Section 2.03 hereof;
(iii) the sale or other disposition of any investment in
the Asset Proceeds Account at a gain;
(iv) the sale or other disposition of any asset held in
a Reserve Fund for a period of less than three months (a "Short-Term
Reserve Fund Investment") if such sale or other disposition would cause
30% or more of a REMIC's income from such Reserve Fund for the taxable
year to consist of gain from the sale or disposition of Short-Term
Reserve Fund Investments;
(v) the withdrawal of any amounts from any Reserve
Fund except (A) for the distribution pro rata to the Holders of the
Residual Certificates or (B) to provide for the payment of expenses of
the related REMIC or amounts payable on the Certificates in the event of
defaults or late payments on the Mortgage Loans or lower than expected
returns on funds held in the Asset Proceeds Account, as provided under
section 860G(a)(7) of the Code;
(vi) the acceptance of any contribution to the Trust
except (A) a cash contribution received during the three month period
beginning on the Closing Date, (B) any transfer of funds from a
Mortgagor Bankruptcy Fund, Special Hazard Fund or Interest Fund to the
Asset Proceeds Account, (C) a cash contribution to a Reserve Fund owned
by a REMIC that is made pro rata by the Holders of the Residual
Certificates, (D) a cash contribution to facilitate a Terminating
Purchase that is made within the 90-day period beginning on the date on
which a plan of complete liquidation is adopted pursuant to Section
9.04(a)(A) hereof, or (E) any other cash contribution approved by the
Master Servicer after consultation with tax counsel; or
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(vii) any other transaction or activity that is not
contemplated by the Trust Agreement.
Any party causing the Trust to engage in any of the activities
prohibited in this Section 10.02 shall be liable for the payment of any tax
imposed on the Trust pursuant to section 860F(a)(1) or 860G(d) of the Code as a
result of the Trust engaging in such activities.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment of Trust Agreement. The Trust Agreement
may be amended or supplemented from time to time by SASCO, the Master Servicer
and the Trustee without the consent of any of the Certificateholders (i) to cure
any ambiguity, (ii) to correct or supplement any provisions herein which may be
inconsistent with any other provisions herein, (iii) to modify, eliminate or add
to any of its provisions to such extent as shall be necessary or appropriate to
maintain the qualification of the Trust (or certain assets thereof) either as a
REMIC or as a grantor trust, as applicable under the Code at all times that any
Certificates are outstanding or (iv) to make any other provisions with respect
to matters or questions arising under the Trust Agreement or matters arising
with respect to the Trust that are not covered by the Trust Agreement, provided
that such action shall not adversely affect in any material respect the
interests of any Certificateholder. Any such amendment or supplement shall be
deemed not to adversely affect in any material respect any Certificateholder if
there is delivered to the Trustee written notification from each Rating Agency
to the effect that such amendment or supplement will not cause such Rating
Agency to reduce the then current rating assigned to such Certificates.
The Trust Agreement may also be amended from time to time by
SASCO, the Master Servicer and the Trustee with the consent of the Holders of
Certificates entitled to at least 66% of the Voting Rights for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Trust Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the Holder of such Certificate, (ii) adversely affect in any
material respect the interests of the Holders of any Class of Certificates in a
manner other than as described in (i), without the consent of the Holders of
Certificates of such Class evidencing at least 66% of the Voting Rights of such
Class, or (iii) reduce the aforesaid percentage of Certificates the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all such Certificates then outstanding. For purposes of the giving or
withholding of consents pursuant to this Section 11.01, Certificates registered
in the name of SASCO or an Affiliate shall be entitled to Voting Rights with
respect to matters affecting such Certificates.
Promptly after the execution of any such amendment the Trustee shall
furnish a copy of such amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders under
this Section 11.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Section 11.02. Recordation of Agreement; Counterparts. To the
extent permitted by applicable law, the Trust Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Security Instruments are situated, and in any other
appropriate public recording office or elsewhere, only if such recording is
deemed necessary by an Opinion of Counsel (which shall not be an expense of the
Master Servicer
-62-
<PAGE>
or the Trustee) to the effect that such recordation materially and beneficially
affects the interests of the Certificateholders.
For the purpose of facilitating the recordation of the Trust
Agreement as herein provided and for other purposes, the Trust Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
Section 11.03. Limitation of Rights of Certificateholders. The
death or incapacity of any Certificateholder shall not operate to terminate the
Trust Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Certificates, be
construed so as to constitute the Certificateholders from time to time as
partners or members of an association nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to the Trust Agreement pursuant to any provision thereof.
No Certificateholder shall have any right by virtue of any
provision of the Trust Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to the Trust Agreement unless (i)
such Holder previously shall have given to the Trustee a written notice of
default and of the continuance thereof, as hereinbefore provided, and (ii) the
Holders of Certificates entitled to at least 25% of the Voting Rights shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee under the Trust Agreement and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 15 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding. It is understood and intended, and expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Certificateholders shall have any right in any manner whatever by
virtue of any provision of the Trust Agreement to affect, disturb or prejudice
the rights of the Certificateholders of any other Certificateholders, or to
obtain or seek to obtain priority over or preference to any other
Certificateholders or to enforce any right under the Trust Agreement, except in
the manner therein provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section 11.03, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Section 11.04. Governing Law. The Trust Agreement shall be
construed in accordance with and governed by the laws of the State applicable to
agreements made and to be performed therein.
Section 11.05. Notices. All demands and notices under the Trust
Agreement shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by first class mail, postage prepaid, or by
express delivery service, to (i) in the case of SASCO, 4880 Cox Road, Glen
Allen, Virginia 23060, Attention: President (telecopy number (804) 747-4294), or
such other address or telecopy number as may hereafter be furnished to each
party to the Trust Agreement in writing by SASCO, (ii) in the case of the Master
Servicer, at its address set forth in the Trust Agreement, or such other address
or telecopy number as may hereafter be furnished to each party to the Trust
Agreement in writing by the Master Servicer and (iii) in the case of the
Trustee, at its address set forth in the Trust Agreement, or such other address
or telecopy number as may hereafter be furnished to each party to the Trust
Agreement in writing by the Trustee. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first-class mail, postage
-63-
<PAGE>
prepaid, or by express delivery service, at the address of such
Certificateholder as shown in the Certificate Register. Any notice so mailed
within the time prescribed in the Trust Agreement shall be conclusively presumed
to have been duly given, whether or not the Certificateholder receives such
notice. A copy of any notice required to be telecopied hereunder also shall be
mailed to the appropriate party in the manner set forth above. A copy of any
notice given hereunder to any other party shall be delivered to the Trustee.
Section 11.06. Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of the Trust Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of the Trust Agreement and shall in no way
affect the validity or enforceability of the other provisions of the Trust
Agreement or of the Certificates or the rights of the Certificateholders.
Section 11.07. Sale of Mortgage Loans. It is the express intent
of SASCO and the Trustee that the conveyance of the Mortgage Loans by SASCO to
the Trustee pursuant to the Trust Agreement be construed as a sale of the
Mortgage Loans by SASCO to the Trustee. It is, further, not the intention of
SASCO and the Trustee that such conveyance be deemed a pledge of the Mortgage
Loans by SASCO to the Trustee to secure a debt or other obligation of SASCO.
However, in the event that, notwithstanding the intent of the parties, the
Mortgage Loans are held to continue to be property of SASCO then (i) the Trust
Agreement shall be deemed to be a security agreement within the meaning of
Article 9 of the UCC, (ii) the conveyance by SASCO provided for in the Trust
Agreement shall be deemed to be a grant by SASCO to the Trustee of a security
interest in all of SASCO's right, title and interest in and to the Mortgage
Loans and all amounts payable to the holders of the Mortgage Loans in accordance
with the terms thereof and all proceeds of the conversion, voluntary or
involuntary, of the foregoing into cash, instruments, securities or other
property, including, but not limited to, all amounts, other than investment
earnings, from time to time held or invested in the Master Servicer Custodial
Account or Asset Proceeds Account, whether in the form of cash, instruments,
securities or other property, (iii) the possession by the Trustee or its agent
of Mortgage Notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be "possession
by the secured party" for purposes of perfecting the security interest pursuant
to Section 9-305 of the UCC of the State and (iv) notifications to persons
holding such property, and acknowledgments, receipts or confirmations from
persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trustee for the purpose of perfecting
such security interest under applicable law. SASCO and the Trustee (to the
extent it has been instructed by SASCO or the Master Servicer) shall, to the
extent consistent with the Trust Agreement, take such actions as may be
necessary to ensure that, if the Trust Agreement were deemed to create a
security interest in the Mortgage Loans, such security interest would be deemed
to be a perfected security interest of first priority under applicable law and
will be maintained as such throughout the term of the Trust Agreement.
Section 11.08. Notice to Rating Agency.
(a) The Trustee shall use its best efforts promptly to provide
notice to each Rating Agency with respect to each of the following of which it
has actual knowledge:
(i) any material change or amendment to the Trust
Agreement or any agreement assigned to the Trust;
(ii) the occurrence of any Event of Default involving
the Master Servicer that has not been cured or any recommendation by the
Master Servicer that a Servicing Agreement with a Servicer be
terminated;
(iii) the resignation, termination or merger of SASCO,
the Master Servicer, the Trustee or any Servicer;
-64-
<PAGE>
(iv) the purchase or substitution of Mortgage Loans
pursuant to Section 2.03 hereof;
(v) the final payment to Certificateholders;
(vi) any change in the location of any Master Servicer
Custodial Account, Reserve Fund or Asset Proceeds Account;
(vii) any event that would result in the inability of
the Servicer or the Master Servicer to make Advances regarding
delinquent Mortgage Loans or the inability of the Trustee to make any
such Advance in the event it is serving as the Master Servicer pursuant
to Section 7.02 hereof;
(viii) any change in applicable law that would require an
Assignment of a Security Instrument, not previously recorded pursuant to
Section 2.01 hereof, to be recorded in order to protect the right, title
and interest of the Trustee in and to the related Mortgage Loan or, in
case a court should recharacterize the sale of the Mortgage Loans as a
financing, to perfect a first priority security interest in favor of the
Trustee in the related Mortgage Loan.
(b) The Master Servicer shall promptly notify the Trustee of any
of the events listed in Section 11.08(a) of which it has actual knowledge. In
addition, the Trustee shall promptly furnish to each Rating Agency at its
address set forth in the Trust Agreement copies of the following:
(i) each report to Certificateholders described in
Section 4.01 hereof; and
(ii) each Annual Compliance Statement.
(c) Any notice pursuant to this Section 11.08 shall be in writing
and shall be deemed to have been duly given if personally delivered or mailed by
first class mail, postage prepaid, or by express delivery service, to each
Rating Agency at the address specified in the Trust Agreement.
-65-
<PAGE>
Exhibit A-1
FORM OF INITIAL CERTIFICATION
[____________], 199[_]
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Attention: [____________________]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Trust Agreement, dated as of [____________], 199[_]
among Saxon Asset Securities Company,
[____________________], as Master Servicer,
and [____________________]_, as Trustee,
Asset Backed Certificates, Series 199[_]-[_]
Ladies and Gentlemen:
In accordance with Section 2.02 of the Standard Terms to the
above-captioned Trust Agreement, the Trustee hereby certifies that, as to each
mortgage loan listed in the Mortgage Loan Schedule, it, or a Custodian on its
behalf, has reviewed the Trustee Mortgage Loan File and determined that, except
as noted on the Schedule of Exceptions attached hereto: (i) all documents
required to be included in the Trustee Mortgage Loan File (as set forth in
Section 2.01 of the Standard Terms) are in its possession or in the possession
of a Custodian on its behalf; (ii) such documents have been reviewed by it, or
by a Custodian on its behalf, and appear regular on their face and relate to
such Mortgage Loan; and (iii) based on examination its examination, or the
examination by a Custodian on its behalf, and only as to such documents, the
information set forth on the Mortgage Loan Schedule to the Trust Agreement
accurately reflects the information set forth in the Trustee Mortgage Loan File.
The Trustee further certifies that its review, or the review of its Custodian,
of each Trustee Mortgage Loan File included each of the procedures listed in
clause (b) of Section 2.02 of the Standard Terms.
The Trustee further certifies as to each Mortgage Note that:
(1) except for the endorsement required pursuant to clause (a) of
the definition of Trustee Mortgage Loan File, the Mortgage Note, on the face or
the reverse side(s) thereof, does not contain evidence of any unsatisfied
claims, liens, security interests, encumbrances or restrictions on transfer; and
(2) the Mortgage Note bears an endorsement (which appears to be
an original) as required pursuant to clause (a) of the definition of Trustee
Mortgage Loan File.
Except as described herein, neither the Trustee nor any Custodian
on its behalf has made an independent examination of any documents contained in
any Trustee Mortgage Loan File. The Trustee makes no representations as to: (i)
the validity, legality, sufficiency, enforceability or genuineness of any of the
A-1-1
<PAGE>
documents contained in any Trustee Mortgage Loan File for any of the Mortgage
Loans listed on the Mortgage Loan Schedule to the Trust Agreement, (ii) the
collectibility, insurability, effectiveness or suitability of any such Mortgage
Loan or (iii) whether any Trustee Mortgage Loan File should include any surety
or guaranty agreement, Note Assumption Rider, buydown agreement, assumption
agreement, modification agreement, written assurance or substitution agreement.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Trust Agreement.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
executed by a duly authorized Officer this [____] day of [____________], 199[_].
[TRUSTEE],
as Trustee
By:____________________________
Title:_________________________
A-1-2
<PAGE>
Exhibit A-2
FORM OF FINAL CERTIFICATION
[____________], 199[_]
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Attention: [____________________]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Trust Agreement, dated as of [____________], 199[_]
among Saxon Asset Securities Company,
[____________________], as Master Servicer,
and [____________________]_, as Trustee,
Asset Backed Certificates, Series 199[_]-[_]
Ladies and Gentlemen:
In accordance with Section 2.02 of the Standard Terms to the
above-captioned Trust Agreement, the Trustee hereby certifies that, except as
noted on the Schedule of Exceptions attached hereto, for each Mortgage Loan
listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full
or listed on the attachment hereto) it, or a Custodian on its behalf, has
received a complete Trustee Mortgage Loan File which includes each of the
documents required to be included in the Trustee Mortgage Loan File.
Except as specifically required in the above-captioned Trust
Agreement, neither the Trustee nor any Custodian on its behalf has made an
independent examination of any documents contained in any Trustee Mortgage Loan
File. The Trustee makes no representations as to: (i) the validity, legality,
sufficiency, enforceability or genuineness of any of the documents contained in
any Trustee Mortgage Loan File for any of the Mortgage Loans listed on the
Mortgage Loan Schedule to the Trust Agreement, (ii) the collectibility,
insurability, effectiveness or suitability of any such Mortgage Loan or (iii)
whether any Trustee Mortgage Loan File should include any surety or guaranty
agreement, Note Assumption Rider, buydown agreement, assumption agreement,
modification agreement, written assurance or substitution agreement.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Trust Agreement.
A-2-1
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
executed by a duly authorized Officer this [____] day of [____________], 199[_].
[TRUSTEE],
as Trustee
By:____________________________
Title:_________________________
A-2-2
<PAGE>
Exhibit B
FORM OF RECORDATION REPORT
[____________], 199[_]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Trust Agreement, dated as of [____________], 199[_]
among Saxon Asset Securities Company,
[____________________], as Master Servicer,
and [____________________]_, as Trustee,
Asset Backed Certificates, Series 199[_]-[_]
Ladies and Gentlemen:
In accordance with Section 2.02(e) of the Standard Terms, the
Trustee hereby notifies you that, as of the date hereof with respect to the
following Mortgage Loans, it has not received the indicated documents.
If a Security Instrument for any Mortgage Loan has not been
recorded and the original recorded Security Instrument or a copy of such
recorded Security Instrument with such evidence of recordation certified to be
true and correct by the appropriate governmental recording office has not been
delivered to the Trustee (or to a Custodian on its behalf), the Seller or
Servicer may be required to purchase such Mortgage Loan from the Trustee if such
defect materially and adversely affects the value of the Mortgage Loan or the
interest of the Trust therein.
[If an Assignment to the Trustee or a Custodian on its behalf, as
applicable, of the Seller's interest in a Security Instrument has not been
recorded within one year of the Closing Date, the Seller or Servicer shall be
required to (i) purchase the related Mortgage Loan from the Trustee or (ii) if
there have been no defaults in the Monthly Payments on such Mortgage Loan,
deposit an amount equal to the Purchase Price into an escrow account maintained
by the Trustee.]
Documents Not Received
------------------------------------------------
Original Recorded
Original Recorded Assignment of
Security Instrument Security Instrument
or certified copy or certified copy
SASCO Loan Number thereof thereof*
- ----------------- ------------------- -------------------
*Also required with regard to any intervening Assignments.
B-1
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
executed by a duly authorized Officer this [____] day of [____________], 199[_].
[TRUSTEE],
as Trustee
By:____________________________
Title:_________________________
B-2
<PAGE>
Exhibit C
FORM OF REMITTANCE REPORT
Saxon Asset Securities Company
Trust: Asset Backed Certificates, Series 199[_]-[_]
Distribution Date: [____________], 199[_]
Reporting Month: [____________] 199[_]
The following class, series and collateral information will be
included on each Remittance Report, as appropriate:
<TABLE>
<CAPTION>
Class Level Collateral Level Series Level
- ----------- ---------------- ------------
<S> <C>
Class Name Asset Proceeds Account - Scheduled Principal
Pass-Through Rate Deposits and Withdrawals Unscheduled Principal
Beginning Balance Balance Information for Scheduled Interest
Interest Distribution Other Accounts Beginning Loan Count
Principal Distribution Advances on Delinquencies Ending Loan Count
Realized Losses Beginning Balance Realized Losses
Ending Balance Interest Distribution Weighted Average Maturity
Aggregate Realized Losses Principal Distribution (WAM)
Original Balance Realized Losses Weighted Average
Record Date Ending Balance Mortgage Note Rate
Interest Distribution Factor Total Distribution Total Distribution
Principal Distribution Factor Aggregate Realized Losses Weighted Average Net Rate
Remaining Principal Factor Original Balance Weighted Average Pass-
Scheduled Principal Remaining Principal Factor Through Rate
Unscheduled Principal Scheduled Principal Delinquency Statistics
Current Interest Unscheduled Principal - 30, 60, and 90 day
Recovery/(Shortfall) Current Interest delinquencies; foreclosures
Accretion Recovery/(Shortfall) and REO's
Accretion
</TABLE>
D-1
<PAGE>
Exhibit D
FORM OF RULE 144A AGREEMENT-QIB CERTIFICATION
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 199[_]-[_], CLASS [___]
[____________], 199[_]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Attention: [____________________]
Ladies and Gentlemen:
In connection with the purchase on the date hereof of the
captioned Certificates (the "Purchased Certificates"), the undersigned (the
"Transferee") hereby certifies and covenants to the transferor, SASCO, the
Master Servicer, the Trustee and the Trust as follows:
1. The Transferee is a "qualified institutional buyer" as that
term is defined in Rule 144A ("Rule 144A") promulgated under the Securities Act
of 1933, as amended (the "Securities Act") and has completed the form of
certification to that effect attached hereto as Annex A1 (if the Transferee is
not a registered investment company) or Annex A2 (if the Transferee is a
registered investment company). The Transferee is aware that the sale to it is
being made in reliance on Rule 144A.
2. The Transferee understands that the Purchased Certificates
have not been registered under the Securities Act or registered or qualified
under any state securities laws and that no transfer may be made unless the
Purchased Certificates are registered under the Securities Act and under
applicable state law or unless an exemption from such registration is available.
The Transferee further understands that neither SASCO, the Master Servicer, the
Trustee nor the Trust is under any obligation to register the Purchased
Certificates or make an exemption from such registration available.
3. The Transferee is acquiring the Purchased Certificates for its
own account or for the account of a "qualified institutional buyer," and
understands that such Purchased Certificates may be resold, pledged or
transferred only (a) to a person reasonably believed to be such a qualified
institutional buyer that purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, or (b) pursuant to another
exemption from registration under the Securities Act and under applicable state
securities laws. In addition, such transfer may be subject to additional
restrictions, as set forth in Section 5.05 of the Standard Terms to the Trust
Agreement.
D-2
<PAGE>
4. The Transferee has been furnished with all information that it
requested regarding (a) the Purchased Certificates and distributions thereon and
(b) the Trust Agreement referred to below.
5. If applicable, the Transferee has complied or will comply in
all material respects with applicable regulatory guidelines relating to the
ownership of mortgage derivative products.
All capitalized terms used but not otherwise defined herein have
the respective meanings assigned thereto in the Trust Agreement, dated as of
[____________], 199[_], which incorporates by reference the Standard Terms
thereto, among Saxon Asset Securities Company, the Master Servicer and the
Trustee, pursuant to which the Purchased Certificates were issued.
IN WITNESS WHEREOF, the undersigned has caused this Rule 144A
Agreement--QIB Certification to be executed by a duly authorized representative
this [____] day of [____________], 199[_].
[TRANSFEREE]
By:____________________________
Title:_________________________
D-3
<PAGE>
Annex A1 to Exhibit D
TRANSFEREES OTHER THAN REGISTERED INVESTMENT COMPANIES
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Transferee.
2. The Transferee is a "qualified institutional buyer" as that
term is defined in Rule 144A ("Rule 144A") promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), because (a) the Transferee owns
and/or invests on a discretionary basis at least $100,000,000 in securities or,
if the Transferee is a dealer, the Transferee owns and/or invests on a
discretionary basis at least $10,000,000 in securities. The Transferee owned
and/or invested on a discretionary basis at least $[____________] in securities
(except for the excluded securities referred to in paragraph 3 below) as of
[_____________], 199[_] [specify a date on or since the end of the Transferee's
most recently ended fiscal year] (such amount being calculated in accordance
with Rule 144A) and (b) the Transferee meets the criteria listed in the category
marked below.
_____ Corporation. etc. The Transferee is an organization described in
Section 501(c) (3) of the Internal Revenue Code of 1986, as
amended, a corporation (other than a bank as defined in Section
3(a) (2) of the Securities Act or a savings and loan association
or other similar institution referenced in Section 3(a) (5) (A)
of the Securities Act), a partnership, or a Massachusetts or
similar business trust.
____ Bank. The Transferee (a) is a national bank or banking
institution as defined in Section 3(a) (2) of the Securities Act
and is organized under the laws of a state, territory or the
District of Columbia. The business of the Transferee is
substantially confined to banking and is supervised by the
appropriate state or territorial banking commission or similar
official or is a foreign bank or equivalent institution, and (b)
has an audited net worth of at least $25,000,000 as demonstrated
in its latest annual financial statements as of a date not more
than 16 months preceding the date of this certification in the
case of a U.S. bank, and not more than 18 months preceding the
date of this certification in the case of a foreign bank or
equivalent institution, a copy of which financial statements is
attached hereto.
_____ Saving and Loan. The Transferee is a savings and loan
association, building and loan association, cooperative bank,
homestead association or similar institution referenced in
Section 3(a) (5) (A) of the Securities Act. The Transferee is
supervised and examined by a state or federal authority having
supervisory authority over any such institutions or is a foreign
savings and loan association or equivalent institution and has an
audited net worth of at least $25,000,000 as demonstrated in its
latest annual financial statements as of a date not more than 16
months preceding the date of this certification in the case of a
U.S. savings and loan association or similar institution, and not
more than 18 months preceding the date of this certification in
the case of a foreign savings and loan association or equivalent
institution, a copy of which financial statements is attached
hereto.
_____ Broker-dealer. The Transferee is a dealer registered pursuant to
Section 15 of the Certificates Exchange Act of 1934, as amended
(the "1934 Act").
_____ Insurance Company. The Transferee is an insurance company as
defined in Section 2(13) of the Securities Act, whose primary and
predominant business activity is the writing of insurance or the
reinsuring of risks underwritten by insurance companies and which
is subject to supervision by the insurance commissioner or a
similar official or agency of a state, territory or the District
of Columbia.
D-1-1
<PAGE>
_____ State or Local Plan. The Transferee is a plan established and
maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for
the benefit of its employees.
_____ ERISA Plan. The Transferee is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Certificate
Act of 1974, as amended.
_____ Investment Adviser. The Transferee is an investment adviser
registered under the Investment Advisers Act of 1940, as amended.
_____ Other. The Transferee qualifies as a "qualified institutional
buyer" as defined in Rule 144A on the basis of facts other than
those listed in any of the entries above. If this response is
marked, the Transferee must certify on additional pages, to be
attached to this certification, to facts that satisfy the
Servicer that the Transferee is a "qualified institutional buyer"
as defined in Rule 144A.
3. The term "securities" as used herein does not include (a)
securities of issuers that are affiliated with the Transferee, (b) securities
constituting the whole or part of an unsold allotment to or subscription by the
Transferee, if the Transferee is a dealer, (c) bank deposit notes and
certificates of deposit, (d) loan participations, (e) repurchase agreements, (f)
securities owned but subject to a repurchase agreement and (g) currency,
interest rate and commodity swaps.
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Transferee, the Transferee
used the cost of such securities to the Transferee and did not include any of
the securities referred to in the preceding paragraph. Further, in determining
such aggregate amount, the Transferee may have included securities owned by
subsidiaries of the Transferee, but only if such subsidiaries are consolidated
with the Transferee in its financial statements prepared in accordance with
generally accepted accounting principles and if the investments of such
subsidiaries are managed under the Transferee's direction. However, such
securities were not included if the Transferee is a majority-owned, consolidated
subsidiary of another enterprise and the Transferee is not itself a reporting
company under the 1934 Act.
5. The Transferee acknowledges that it is familiar with Rule 144A
and understands that the Transferor and other parties related to the Purchased
Certificates are relying and will continue to rely on the statements made herein
because one or more sales to the Transferee may be made in reliance on Rule
144A.
6. Will the Transferee be purchasing YES NO
the Purchased Certificates only for the Transferee's own account?
If the answer to the foregoing question is "NO", the
Transferee agrees that, in connection with any purchase of securities
sold to the Transferee for the account of a third party (including any
separate account) in reliance on Rule 144A, the Transferee will only
purchase for the account of a third party that at the time is a
"qualified institutional buyer" within the meaning of Rule 144A. In
addition, the Transferee agrees that the Transferee will not purchase
securities for a third party unless the Transferee has obtained a
current representation letter from such third party or taken other
appropriate steps contemplated by Rule 144A to conclude that such third
party independently meets the definition of "qualified institutional
buyer" set forth in Rule 144A.
7. The Transferee will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Transferee's purchase of the Purchased
Certificates will constitute a reaffirmation of this certification as of the
date of such purchase. In addition, if the Transferee is a bank or savings and
loan as provided above, the Transferee agrees that it will furnish to such
parties updated annual financial statements promptly after they become
available.
D-1-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this certificate
to be executed by its duly authorized representative this [____] day of
[____________], 199[_].
[TRANSFEREE]
By:____________________________
Name:__________________________
Title:_________________________
Date:__________________________
Saxon Asset Securities Company,
Asset Backed Certificates, Series 199[_]-[_], Class [___]
D-2-1
<PAGE>
Annex A2 to Exhibit D
TRANSFEREES THAT ARE REGISTERED INVESTMENT COMPANIES
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the entity purchasing the
Purchased Certificates (the 'Transferee") or, if the Transferee is part of a
Family of Investment Companies (as defined in paragraph 3 below), is an officer
of the related investment adviser (the "Adviser").
2. The Transferee is a "qualified institutional buyer" as that
term is defined in Rule 144A ("Rule 144A") promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), because (a) the Transferee is an
investment company (a "Registered Investment Company") registered under the
Investment Company Act of 1940, as amended (the "1940 Act") and (b) as marked
below, the Transferee alone, or the Transferee's Family of Investment Companies,
owned at least $100,000,000 in securities (other than the excluded securities
referred to in paragraph 4 below) as of [____________], 199[_] [specify a date
on or since the end of the Transferee's most recently ended fiscal year]. For
purposes of determining the amount of securities owned by the Transferee or the
Transferee's Family of Investment Companies, the cost of such securities to the
Transferee or the Transferee's Family of Investment Companies was used.
_____ The Transferee owned $[____________] in securities (other than
the excluded securities referred to in paragraph 4 below) as of
the end of the Transferee's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).
_____ The Transferee is part of a Family of Investment Companies which
owned in the aggregate $[____________] in securities (other than
the excluded securities referred to in paragraph 4 below) as of
the end of the Transferee's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).
3. The term "Family of Investment Companies" as used herein means
two or more Registered Investment Companies except for a unit investment trust
whose assets consist solely of shares of one or more Registered Investment
Companies (provided that each series of a "series company, as defined in Rule
18f-2 under the 1940 Act, shall be deemed to be a separate investment company)
that have the same investment adviser (or, in the case of a unit investment
trust, the same depositor) or investment advisers (or depositors) that are
affiliated (by virtue of being majority-owned subsidiaries of the same parent or
because one investment adviser is a majority-owned subsidiary of the other).
4. The term "securities" as used herein does not include (a)
securities of issuers that are affiliated with the Transferee or are part of the
Transferee's Family of Investment Companies, (b) bank deposit notes and
certificates of deposit, (c) loan participations, (d) repurchase agreements, (e)
securities owned but subject to a repurchase agreement and (f) currency,
interest rate and commodity swaps.
5. The Transferee is familiar with Rule 144A and understands that
the parties to which this certification is being made are relying and will
continue to rely on the statements made herein because one or more sales to the
Transferee will be in reliance on Rule 144A. In addition, the Transferee will
only purchase for the Transferee's own account.
6. The undersigned will notify the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice, the Transferee's purchase of the Purchased Certificates will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
D-2-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this certificate
to be executed by its duly authorized representative this [____] of
[____________], 199[_].
[TRANSFEREE OR ADVISOR]
By:____________________________
Name:__________________________
Title:_________________________
Date:__________________________
Saxon Asset Securities Company,
Asset Backed Certificates, Series 199[_]-[_], Class [___]
IF AN ADVISER:
Print Name of Transferee
Date:__________________________
D-2-3
<PAGE>
Exhibit E
FORM OF TRANSFEREE AGREEMENT
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 199[_]-[_], CLASS [___]
[____________], 199[_]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Attention: [____________________]
Ladies and Gentlemen:
In connection with the purchase on the date hereof of the
captioned Certificates (the "Purchased Certificates"), the undersigned (the
"Transferee") hereby certifies and covenants to the transferor, SASCO, the
Master Servicer, the Trustee and the Trust as follows:
1. Representations and Warranties. The Transferee represents and
warrants:
(a) The Transferee is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which the
Transferee is organized, is authorized to invest in the Purchased
Certificates and to enter into this Agreement, and has duly executed and
delivered this Agreement.
(b) The Transferee is acquiring the Purchased Certificates
for its own account as principal and not with a view to the distribution
of the Purchased Certificates, in whole or in part, in violation of
Section 5 of the Securities Act of 1933, as amended (the "Securities
Act").
(c) The Transferee is an "Accredited Investor" as defined
in Rule 501(a) (1), (2), (3) or (7) of Regulation D under the Securities
Act.
(d) The Transferee has knowledge in financial and business
matters and is capable of evaluating the merits and risks of an
investment in the Purchased Certificates; the Transferee has sought such
accounting, legal and tax advice as it has considered necessary to make
an informed investment decision; and the Transferee is able to bear the
economic risk of an investment in the Purchased Certificates and can
afford a complete loss of such investment;
E-1
<PAGE>
(e) The Transferee confirms that SASCO has made available
to the Transferee the opportunity to ask questions of, and receive
answers from, SASCO concerning SASCO, the Trust, the purchase by the
Transferee of the Purchased Certificates and all matters relating
thereto, and to obtain additional information relating thereto that
SASCO possesses or can acquire without unreasonable effort or expense.
2. Covenants. The Transferee Covenants:
(a) The Transferee will not make a public offering of the
Purchased Certificates, and will not reoffer or resell the Purchased
Certificates in a manner that would render the issuance and sale of the
Purchased Certificates, whether considered together with the resale or
otherwise, a violation of the Securities Act, or any state securities or
"Blue Sky" laws or require registration pursuant thereto;
(b) The Transferee agrees that, in its capacity as holder
of the Purchased Certificates, it will assert no claim or interest in
the Mortgage Loans by reason of owning the Purchased Certificates other
than with respect to amounts that may be properly and actually payable
to the Transferee pursuant to the terms of the Trust Agreement and the
securities; and
(c) If applicable, the Transferee will comply in all
material respects with respect to the Purchased Certificates with
applicable regulatory guidelines relating to the ownership of mortgage
derivative products.
3. Transfer Restrictions.
(a) The Transferee understands that the Purchased
Certificates have not been registered under the Securities Act or
registered or qualified under any state securities laws and that no
transfer may be made unless the Purchased Certificates are registered
under the Securities Act and under applicable state law or unless an
exemption from such registration is available. If so requested by the
Master Servicer or the Trustee, the Transferee and the transferor shall
certify to SASCO, the Master Servicer and the Trustee as to the factual
basis for the registration or qualification exemption relied upon. The
Transferee further understands that neither SASCO, the Master Servicer,
the Trustee nor the Trust is under any obligation to register the
Purchased Certificates or make an exemption from such registration
available.
(b) In the event that the transfer is to be made within
three years of the date the Purchased Certificates were acquired by a
non-Affiliate of SASCO from SASCO or an Affiliate of SASCO, the Master
Servicer or the Trustee may require an Opinion of Counsel (which shall
not be an expense of SASCO, the Master Servicer or the Trustee) that
such transfer is not required to be registered under the Securities Act
or state securities laws.
(c) Any Certificateholder desiring to effect a transfer
shall, and does hereby agree to, indemnify SASCO, the Master Servicer
and the Trustee against any liability that may result if the transfer is
not exempt under federal or applicable state securities laws.
(d) The transfer of the Certificates may be subject to
additional restrictions, as set forth in Section 5.05 of the Standard
Terms of the Trust Agreement.
All capitalized terms used but not otherwise defined herein have
the respective meanings assigned thereto in the Trust Agreement, dated as of
[____________], 199[_], which incorporates by reference the Standard Terms
thereto, among Saxon Asset Securities Company, the Master Servicer and the
Trustee, pursuant to which the Purchased Certificates were issued.
E-2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Transferee
Agreement to be executed by its duly authorized representative as of the [____]
day of [____________], 199[_].
[TRANSFEREE]
By:____________________________
Name:__________________________
Title:_________________________
E-3
<PAGE>
Exhibit F
FORM OF BENEFIT PLAN AFFIDAVIT
Re: Saxon Asset Securities Company
Series 199[_]-[_] Trust (the "Trust")
Asset Backed Certificates, Class [___]
STATE OF [____________]
ss:
CITY OF [_____________]
Under penalties of perjury, I, the undersigned, declare that, to
the best of my knowledge and belief, the following representations are true,
correct, and complete.
1. I am a duly authorized officer of [____________] (the
"Purchaser"), whose taxpayer identification number is [____________], and on
behalf of which I have the authority to make this affidavit.
2. That the Purchaser is acquiring a Class [___] Certificate
representing an interest in the Trust, certain assets of which one or more real
estate mortgage investment conduit ("REMIC") elections are to be made under
Section 860D of the Internal Revenue Code of 1986, as amended (the "Code").
3. The Purchaser either:
(i) (A) is not a Plan Investor and (B) either (I) is not
an insurance company or (II) is an insurance company, in which
case none of the funds used by the Purchaser in connection with
its purchase of the Certificates constitute plan assets as
defined in the Plan Asset Regulations ("Plan Assets") and its
purchase of the Certificates shall not result in the Certificates
or the assets of the Trust being deemed to be Plan Assets;
(ii) is an insurance company and either (A) represents
that the funds used to purchase the Certificates are held in an
"insurance company pooled separate account" within the meaning of
United States Department of Labor Prohibited Transaction Class
Exemption 90-1 ("PTCE 90-1") and that each of the applicable
conditions set forth in PTCE 90-1 are met with respect to the
purchase and holding of the Certificates, or (B) represents that
the funds used to purchase the Certificates are held in an
"insurance company general account" as defined in United States
Department of Labor Prohibited Transaction Class Exemption 95-60
("PTCE 95- 60") and that each of the applicable conditions set
forth in PTCE 95-60 are met with respect to the purchase and
holding of the Certificates; or
(iii) has provided a Benefit Plan Opinion, obtained at the
Transferee's expense.
All capitalized terms used but not otherwise defined herein shall
have the meanings assigned to such terms in the Trust Agreement, dated as of
[____________], 199[_], which incorporates by reference the Standard Terms
thereto.
E-4
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Benefit Plan
Affidavit to be executed by its duly authorized representative as of the [____]
day of [____________], 199[_].
[PURCHASER]
By:____________________________
Name:__________________________
Title:_________________________
Personally appeared before me [____________________], known or
proved to me to be the same person who executed the foregoing instrument and to
be a [____________________] of the Purchaser, and acknowledged to me that he or
she executed the same as his or her free act and deed and as the free act and
deed of the Purchaser.
Subscribed and sworn before me this [____] day of [____________],
199[_].
------------------------------
Notary Public
My commission expires the [____] day of [____________], 199[_].
E-5
<PAGE>
Exhibit G
FORM OF RESIDUAL TRANSFEREE AGREEMENT
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES, SERIES 199[_]-[_], CLASS [R]
[____________], 199[_]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Attention: [____________________]
Ladies and Gentlemen:
In connection with the purchase on the date hereof of the
captioned Certificates (the "Residual Certificates"), the undersigned (the
"Transferee") hereby certifies and covenants to the transferor, SASCO, the
Master Servicer, the Trustee, and the Trust as follows:
1. Representations and Warranties. The Transferee represents and
warrants:
(a) The Transferee's taxpayer identification number is as
set forth on the signature page hereof;
(b) The Transferee is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which the
Transferee is organized, is authorized to invest in the Residual
Certificates and to enter into this Agreement, and has duly executed and
delivered this Agreement;
(c) The Transferee represents that (i) it understands that
the Residual Certificates represent for federal income tax purposes a
"residual interest" in one or more real estate mortgage investment
conduits (each, a "REMIC") and that, as the holder of the Residual
Certificates, it will be required to take into account, in determining
its taxable income, its pro rata share of the taxable income of each
such REMIC, (ii) it understands that it may incur federal income tax
liabilities with respect to the Residual Certificates in excess of any
cash flows generated by such Residual Certificates, (iii) it has the
financial wherewithal and intends to pay any tax imposed on the income
that it derives from the Certificates as they become due, and (iv) it
has historically paid its debts as they became due and intends to pay
its debts as they become due in the future;
(d) The Transferee (i) has knowledge in financial and
business matters and is capable of evaluating the merits and risks of an
investment in the Residual Certificates, (ii) has sought such
accounting, legal, and tax advice as it has considered necessary to make
an informed investment
G-1
<PAGE>
decision, and (iii) is able to bear the economic risk of an investment
in the Residual Certificates and can afford a complete loss of such
investment;
*(e) The Transferee is acquiring the Residual Certificates
for its own account as principal and not with a view to the resale or
distribution thereof, in whole or in part, in violation of Section 5 of
the Securities Act of 1933, as amended (the "Securities Act"); and
*(f) The Transferee confirms that SASCO has made available
to the Transferee the opportunity to ask questions of, and receive
answers from, SASCO concerning SASCO, the Trust, the purchase by the
Transferee of the Residual Certificates and all matters relating
thereto, and to obtain additional information relating thereto that
SASCO possesses or can acquire without unreasonable effort or expense.
2. Covenants. The Transferee covenants:
*(a) The Transferee will not make a public offering of the
Residual Certificates, and will not reoffer or resell the Residual
Certificates in a manner that would render the issuance and sale of the
Residual Certificates whether considered together with the resale or
otherwise, a violation of the Securities Act, or any state securities or
"Blue Sky" laws or require registration pursuant thereto;
(b) The Transferee agrees that, in its capacity as a
holder of the Residual Certificates, it will assert no claim or interest
in the Mortgage Loans by reason of owning the Residual Certificates
other than with respect to amounts that may be properly and actually
payable to the Transferee pursuant to the terms of the Trust Agreement
and the Certificates;
(c) If applicable, the Transferee will comply with respect
to the Residual Certificates in all material respects with applicable
regulatory guidelines relating to the ownership of mortgage derivative
products;
(d) Upon notice thereof, the Transferee agrees to any
future amendment to the provisions of the Trust Agreement relating to
the transfer of the Residual Certificates (or any interest therein) that
counsel to SASCO or the Trust may deem necessary to ensure that any such
transfer will not result in the imposition of any tax on the Trust;
(e) The Transferee hereby agrees that the Master Servicer
or an affiliate thereof will (i) supervise or engage in any action
necessary or advisable to preserve the status of each related REMIC as a
REMIC, (ii) be, and perform the functions of, each such REMIC's tax
matters person ("TMP"), and (iii) employ on a reasonable basis counsel,
accountants, and professional assistance to aid in the preparation of
tax returns or the performance of the above;
(f) The Transferee hereby agrees to cooperate with the TMP
and to take any action required of it by the REMIC Provisions in order
to create or maintain the REMIC status of each related REMIC;
(g) The Transferee hereby agrees that it will not take any
action that could endanger the REMIC status of any related REMIC or
result in the imposition of tax on any such REMIC unless counsel for, or
acceptable to, the TMP has provided an opinion that such action will not
result in the loss of such REMIC status or the imposition of such tax,
as applicable;
(h) The Transferee hereby agrees to be bound by all of the
provisions of the Trust Agreement applicable to the holders of a
Residual Certificate including, but not limited to, Section 5.05(c) of
the Standard Terms to the Trust Agreement (which relates to the transfer
of a Residual Certificate), and acknowledges that each Residual
Certificate will bear a legend setting forth the applicable restrictions
on transfer;
G-2
<PAGE>
(i) The Transferee hereby agrees that it shall pay any tax
or reporting costs borne by a REMIC as result of its purchase of the
Residual Certificates or any beneficial interest therein in violation of
Section 5.05(c) of the Standard Terms to the Trust Agreement to the
extent such tax or reporting costs are not paid by the Transferor or by
the Trustee out of amounts that otherwise would have been paid to the
Transferee;
(j) The Transferee hereby agrees to indemnify and hold
harmless SASCO, the Master Servicer, the Trustee, the Trust and each
other holder of a Residual Certificate from and against any tax
liability or reporting costs arising from its violation of the
restrictions on transfer contained in Section 5.05(c) of the Standard
Terms to the Trust Agreement or its breach of any of its
representations, warranties, or covenants contained herein; and
(k) The Transferee agrees that it will take no action to
question or invalidate the interest of the Trust in the Mortgage Loans
or seek or maintain any claim or interest in the Mortgage Loans having a
priority over the interest of the Trust in such Mortgage Loans.
The representations and covenants above marked with an * apply only to Residual
Certificates that are Private Certificates.
3. Acknowledgments.
(a) The Transferee acknowledges that, if the Residual
Certificates are Private Certificates, the Residual Certificates have
not been registered under the Securities Act or registered or qualified
under any state securities laws and that no transfer may be made unless
the Purchased Certificates are registered under the Securities Act and
under applicable state law or unless an exemption from such registration
is available. The Transferee further understands that neither SASCO, the
Master Servicer nor the Trust is under any obligation to register the
Certificate or make an exemption from such registration available.
(b) The Transferee acknowledges that if a Residual
Certificate is transferred to a Non-U.S. Person, the transfer will not
be recognized by the Withholding Agent (as defined below) unless the
Withholding Agent has received from the Transferee an affidavit
substantially in the form of Exhibit H-1 attached to the Standard Terms
to Trust Agreement.
(c) The Transferee acknowledges that if any United States
federal income tax is due at the time a Non-U.S. Person transfers a
Residual Certificate, the Trustee or its designated Paying Agent or
other person who is liable to withhold federal income tax from a
distribution on a Residual Certificate under sections 1441 and 1442 of
the Code and the Treasury regulations thereunder (the "Withholding
Agent") may (i) withhold an amount equal to the taxes due upon
disposition of the Certificate from future distributions made with
respect to the Certificate to the Transferee (after giving effect to the
withholding of taxes imposed on such Transferee), and (ii) pay the
withheld amount to the Internal Revenue Service unless satisfactory
written evidence of payment of the taxes due by the transferor has been
provided to the Withholding Agent.
(d) The Transferee acknowledges the Withholding Agent may
(i) hold distributions on a Certificate, without interest, pending
determination of amounts to be withheld, (ii) withhold other amounts
required to be withheld pursuant to United States federal income tax
law, if any, from distributions that otherwise would be made to such
Transferee on each Certificate it holds, and (iii) pay to the Internal
Revenue Service all such amounts withheld.
(e) The Transferee acknowledges that the transfer of all
or part of the Residual Certificates that have "tax avoidance potential"
(as defined in Treasury regulations section 1.860G- 3(a)(2) or any
successor provision) to a Non-U.S. Person will be disregarded for all
federal income tax purposes, and that Treasury regulations or other
administrative guidance issued by the Treasury may effectively prohibit
the transfer of the Residual Certificates to Non-U.S. Persons.
G-3
<PAGE>
(f) The Transferee acknowledges that the transfer of the
Residual Certificates to a U.S. Person will be disregarded for all
federal income tax purposes if a significant purpose of the transfer is
to impede the assessment or collection of the taxes and expenses
associated with such Certificates within the meaning of Treasury
regulation section 1.860E-1(c)(1).
IN WITNESS WHEREOF, the undersigned has caused this Agreement to
be validly executed by its duly authorized representative as of the [____] day
of [____________], 199[_].
[TRANSFEREE]
By:____________________________
Name:__________________________
Title:_________________________
Taxpayer ID #__________________
G-4
<PAGE>
Exhibit H-1
FORM OF NON-U.S. PERSON AFFIDAVIT
AND AFFIDAVIT PURSUANT TO SECTIONS
860D(a)(6)(A) and 86OE(e)(4)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
Re: Saxon Asset Securities Company
Series 199[_]-[_] Trust (the "Trust")
Asset Backed Certificates, Class [R]
STATE OF [____________]
ss:
CITY OF [_____________]
Under penalties of perjury, I, the undersigned, declare that to
the best of my knowledge and belief, the following representations are true,
correct and complete:
1. I am a duly authorized officer of [____________________] (the
"Transferee") and on behalf of which I have the authority to make this
affidavit.
2. The Transferee is acquiring all or a portion of the Class [R]
Certificates (the "Residual Certificates"), which represent a residual interest
in one or more real estate mortgage investment conduits (each, a "REMIC") for
which elections are to be made under Section 860D of the Internal Revenue Code
of 1986, as amended (the "Code").
3. The Transferee is a foreign person within the meaning of
Treasury Regulation Section 1.860G-3(a)(1) (i.e., a person other than (i) a
citizen or resident of the United States, (ii) a corporation or partnership that
is organized under the laws of the United States or any jurisdiction thereof or
therein, or (iii) an estate or trust that is subject to United States federal
income tax regardless of the source of its income) who would be subject to
United States income tax withholding pursuant to Section 1441 or 1442 of the
Code and the Treasury regulations thereunder on income derived from the Residual
Certificates (a "Non-U.S. Person").
4. The Transferee agrees that it will not hold the Residual
Certificates in connection with a trade or business in the United States, and
the Transferee understands that it will be subject to United States federal
income tax under sections 871 and 881 of the Code in accordance with section
860G of the Code and any Treasury regulations issued thereunder on "excess
inclusions" that accrue with respect to the Residual Certificates during the
period the Transferee holds the Residual Certificates.
5. The Transferee understands that the federal income tax on
excess inclusions with respect to the Residual Certificates may be withheld in
accordance with section 860G(b) of the Code from distributions that otherwise
would be made to the Transferee on the Residual Certificates and, to the extent
that such tax has not been imposed previously, that such tax may be imposed at
the time of disposition of any such Residual Certificate pursuant to section
860G(b) of the Code.
6. The Transferee agrees (i) to file a timely United States
federal income tax return for the year in which disposition of a Residual
Certificate it holds occurs (or earlier if required by law) and will pay any
United States federal income tax due at that time and (ii) if any tax is due at
that time, to provide satisfactory written evidence of payment of such tax to
the Trustee or its designated paying agent or other person who is liable to
withhold federal income tax from a distribution on the Residual Certificates
under sections 1441 and 1442 of the Code and the Treasury regulations thereunder
(the "Withholding Agent").
H-1-1
<PAGE>
7. The Transferee understands that until it provides written
evidence of the payment of tax due upon the disposition of a Residual
Certificate to the Withholding Agent pursuant to paragraph 6 above, the
Withholding Agent may (i) withhold an amount equal to such tax from future
distributions made with respect to the Residual Certificate to subsequent
transferees (after giving effect to the withholding of taxes imposed on such
subsequent transferees), and (ii) pay the withheld amount to the Internal
Revenue Service.
8. The Transferee understands that (i) the Withholding Agent may
withhold other amounts required to be withheld pursuant to United States federal
income tax law, if any, from distributions that otherwise would be made to such
transferee on each Residual Certificate it holds and (ii) the Withholding Agent
may pay to the Internal Revenue Service amounts withheld on behalf of any and
all former holders of each Residual Certificate held by the Transferee.
9. The Transferee understands that if it transfers a Residual
Certificate (or any interest therein) to a United States Person (including a
foreign person who is subject to net United States federal income taxation with
respect to such Residual Certificate), the Withholding Agent may disregard the
transfer for federal income tax purposes if the transfer would have the effect
of allowing the Transferee to avoid tax on accrued excess inclusions and may
continue to withhold tax from future distributions as though the Residual
Certificate were still held by the Transferee.
10. The Transferee understands that a transfer of a Residual
Certificate (or any interest therein) to a Non-U.S. Person (i.e., a foreign
person who is not subject to net United States federal income tax with respect
to such Residual Certificate) will not be recognized unless the Withholding
Agent has received from the transferee an affidavit in substantially the same
form as this affidavit containing these same agreements and representations.
11. The Transferee understands that distributions on a Residual
Certificate may be delayed, without interest, pending determination of amounts
to be withheld.
12. The Transferee is not a "Disqualified Organization" (as
defined below), and the Transferee is not acquiring a Residual Certificate for
the account of, or as agent or nominee of, or with a view to the transfer of
direct or indirect record or beneficial ownership to, a Disqualified
Organization. For the purposes hereof, a Disqualified Organization is any of the
following: (i) the United States, any State or political subdivision thereof,
any foreign government, any international organization, or any agency or
instrumentality of any of the foregoing; (ii) any organization (other than a
farmer's cooperative as defined in Section 521 of the Code) that is exempt from
federal income taxation (including taxation under the unrelated business taxable
income provisions of the Code); (iii) any rural telephone or electrical service
cooperative described in Section 1381(a) (2) (C) of the Code; or (iv) any other
entity so designated by Treasury rulings or regulations promulgated or otherwise
in effect as of the date hereof. In addition, a corporation will not be treated
as an instrumentality of the United States or of any state or political
subdivision thereof if all of its activities are subject to tax and, with the
exception of the Federal Home Loan Mortgage Corporation, a majority of its board
of directors is not selected by such governmental unit.
13. The Transferee agrees to consent to any amendment of the
Trust Agreement that shall be deemed necessary by SASCO (upon the advice of
counsel to SASCO) to constitute a reasonable arrangement to ensure that no
interest in a Residual Certificate will be owned directly or indirectly by a
Disqualified Organization.
14. The Transferee acknowledges that Section 860E(e) of the Code
would impose a substantial tax on the transferor or, in certain circumstances,
on an agent for the Transferee, with respect to any transfer of any interest in
any Residual Certificate to a Disqualified Organization.
H-1-2
<PAGE>
Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Trust Agreement, dated as of
[____________], 199[_], which incorporates by reference the Standard Terms
thereto, among Saxon Asset Securities Company, the Master Servicer and the
Trustee.
IN WITNESS WHEREOF, the undersigned has caused this instrument to
be executed by its duly authorized representative as of the [____] day of
[____________], 199[_].
[TRANSFEREE]
By:____________________________
Name:__________________________
Title:_________________________
Personally appeared before me [____________________], known or
proved to me to be the same person who executed the foregoing instrument and to
be a [____________________] of the Transferee, and acknowledged to me that he or
she executed the same as his or her free act and deed and as the free act and
deed of the Transferee.
Subscribed and sworn before me this [____] day of [____________],
199[_].
------------------------------
Notary Public
My commission expires the [____] day of [____________], 199[_].
H-1-3
<PAGE>
Exhibit H-2
FORM OF U.S. PERSON AFFIDAVIT
PURSUANT TO SECTIONS 860D(a)(6)(A) and 860E(e)(4)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
Re: Saxon Asset Securities Company
Series 199[_]-[_] Trust (the "Trust")
Asset Backed Certificates, Class [R]
STATE OF [____________]
ss:
CITY OF [_____________]
Under penalties of perjury, I, the undersigned, declare that to
the best of my knowledge and belief, the following representations are true,
correct and complete:
1. I am a duly authorized officer of [____________________] (the
"Transferee") and on behalf of which I have the authority to make this
affidavit.
2. The Transferee is acquiring all or a portion of the Class [R]
Certificates (the "Residual Certificates"), which represent a residual interest
in one or more real estate mortgage investment conduits (each, a "REMIC") for
which elections are to be made under Section 860D of the Internal Revenue Code
of 1986, as amended (the "Code").
3. The Transferee either is (i) a citizen or resident of the
United States, (ii) a domestic partnership or corporation, (iii) an estate or
trust that is subject to United States federal income tax regardless of the
source of its income, or (iv) a foreign person who would be subject to United
States income taxation on a net basis on income derived from the Residual
Certificates (a "U.S. Person").
4. The Transferee is a not a "Disqualified Organization" (as
defined below), and the Transferee is not acquiring a Residual Certificate for
the account of, or as agent or nominee of, or with a view to the transfer of
direct or indirect record or beneficial ownership to, a Disqualified
Organization. For the purposes hereof, a Disqualified Organization is any of the
following: (i) the United States, any state or political subdivision thereof,
any foreign government, any international organization, or any agency or
instrumentality of any of the foregoing; (ii) any organization (other than a
farmer's cooperative as defined in section 521 of the Code) that is exempt from
federal income taxation (including taxation under the unrelated business taxable
income provisions of the Code); (iii) any rural telephone or electrical service
cooperative described in section 1381(a)(2)(C) of the Code; or (iv) any other
entity so designated by Treasury rulings or regulations promulgated or otherwise
in effect as of the date hereof. In addition, a corporation will not be treated
as an instrumentality of the United States or of any state or political
subdivision thereof if all of its activities are subject to tax and, with the
exception of the Federal Home Loan Mortgage Corporation, a majority of its board
of directors is not selected by such governmental unit.
5. The Transferee agrees to consent to any amendment of the Trust
Agreement that shall be deemed necessary by SASCO (upon the advice of counsel to
SASCO) to constitute a reasonable arrangement to ensure that no interest in a
Residual Certificate will be owned directly or indirectly by a Disqualified
Organization.
6. The Transferee acknowledges that Section 860E(e) of the Code
would impose a substantial tax on the transferor or, in certain circumstances,
on an agent for the Transferee, with respect to any transfer of any interest in
any Residual Certificate to a Disqualified Organization.
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<PAGE>
Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Trust Agreement, dated as of
[____________], 199[_], which incorporates by reference the Standard Terms
thereto, among Saxon Asset Securities Company, the Master Servicer and the
Trustee.
IN WITNESS WHEREOF, the undersigned has caused this instrument to
be executed by its duly authorized representative as of the [____] day of
[____________], 199[_].
[TRANSFEREE]
By:____________________________
Name:__________________________
Title:_________________________
Personally appeared before me [____________________], known or
proved to me to be the same person who executed the foregoing instrument and to
be a [____________________] of the Transferee, and acknowledged to me that he or
she executed the same as his or her free act and deed and as the free act and
deed of the Transferee.
Subscribed and sworn before me this [____] day of [____________],
199[_].
------------------------------
Notary Public
My commission expires the [____] day of [____________], 199[_].
H-2-2
EXHIBIT 99.1
FORM OF
FINANCIAL GUARANTY INSURANCE POLICY
[CERTIFICATE GUARANTY INSURER]
TRUST: As described in Policy No.: [ ]
Endorsement No. 1 Date of Issuance: [ ]
CERTIFICATES: $[ ]
Original Principal Amount,
Saxon Asset Securities Company
Asset Backed Certificates
Series 199[_]-[_], Class [ ]
[CERTIFICATE GUARANTY INSURER] (the "Certificate Guaranty Insurer"),
for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY GUARANTEES to
the Trustee for the benefit of each Holder, subject only to the terms of this
Policy (which includes each endorsement hereto), the full and complete payment
of Guaranteed Distributions with respect to the Certificates of the Trust
referred to above.
For the further protection of each Holder, the Certificate Guaranty
Insurer irrevocably and unconditionally guarantees payment of the amount of any
distribution of principal or interest with respect to the Certificates made
during the Term of this Policy to such Holder that is subsequently avoided in
whole or in part as a preference payment under applicable law.
Payment of any amount required to be paid under this Policy will be
made following receipt by the Certificate Guaranty Insurer of notice as
described in Endorsement No. 1 hereto.
The Certificate Guaranty Insurer shall be subrogated to the rights of
each Holder to receive distributions with respect to each Certificate held by
such Holder to the extent of any payment by the Certificate Guaranty Insurer
hereunder.
Except to the extent expressly modified by Endorsement No. 1 hereto,
the following terms shall have the meanings specified for all purposes of this
Policy. "Holder" means the registered owner of any Certificate as indicated on
the registration books maintained by or on behalf of the Trustee for such
purpose or, if the Certificate is in bearer form, the holder of the Certificate.
"Trustee," "Guaranteed Distributions" and "Term of this Policy" shall have the
meanings set forth in Endorsement No. 1 hereto.
This Policy sets forth in full the undertaking of the Certificate
Guaranty Insurer, and shall not be modified, altered or affected by any other
agreement or instrument, including any modification or amendment thereto. Except
to the extent expressly modified by an endorsement hereto, the premiums paid in
respect of this Policy are nonrefundable for any reason whatsoever. This Policy
may not be canceled or revoked during the Term of this Policy. An acceleration
payment shall not be due under this Policy unless such acceleration is at the
sole option of the Certificate Guaranty Insurer. [THIS POLICY IS NOT COVERED BY
THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.]
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In witness whereof, the Certificate Guaranty Insurer has caused this
Policy to be executed on its behalf by its Authorized Officer.
[CERTIFICATE GUARANTY INSURER]
By
Authorized Officer
[ADDRESS OF CERTIFICATE GUARANTY INSURER]
[( ) - ]
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ENDORSEMENT NO. 1 TO
FINANCIAL GUARANTY INSURANCE POLICY
[NAME OF CERTIFICATE GUARANTY INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities Company,
as Seller, [ ], as Master Servicer, and
[ ], as Trustee
POLICY NO.: [ ]
CERTIFICATES: $[ ] Original Principal Amount, Saxon Asset
Securities Company Asset Backed Certificates, Series
199[_]-[_], Class [ ] Certificates
DATE OF
ISSUANCE: [ ], 199[_]
The obligation of the Certificate Guaranty Insurer under this Policy is
subject to the following conditions and agreements (the "Conditions"):
1. Definitions. For all purposes of this Policy, the terms
specified below shall have the meanings or constructions provided below.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings provided in the Trust Agreement unless the context shall otherwise
require.
"Business Day" means any day other than (i) a Saturday or
Sunday, or (ii) a day on which banking institutions in the City of New York, New
York or [ ] are authorized or obligated by law or executive order to be closed.
"Guaranteed Distributions" means, with respect to each
Distribution Date, [principal and interest due on the Class [ ] Certificates on
such Distribution Date (other than Non-Supported Interest Shortfalls and Relief
Act Shortfalls allocated to the Class [ ] Certificates).] Guaranteed
Distributions shall not include, nor shall coverage be provided under this
Policy in respect of, any taxes, withholding or other charge imposed by any
governmental authority.
"Policy" means this Financial Guaranty Insurance Policy and
includes each endorsement hereto.
"Receipt" and "Received" mean actual delivery to the
Certificate Guaranty Insurer and to the Fiscal Agent (as defined below), if any,
at or prior to 12:00 noon, New York City time, on a Business Day. Delivery
either on a day that is not a Business Day, or after 12:00 noon, New York City
time, on a Business Day shall be deemed to be Received on the next succeeding
Business Day. If any notice or certificate given hereunder by the Trustee is not
in proper form or is not properly completed, executed or delivered, it shall be
deemed not to have been Received, and the Certificate Guaranty Insurer or its
Fiscal Agent, if any, shall promptly so advise the Trustee (in which case the
Trustee may submit an amended notice or certificate).
"Standard Terms" means the [ ] 199[_]-[_] Edition of the
Standard Terms to Trust Agreement, Saxon Asset Securities Company Asset Backed
Certificates.
"Term of this Policy" means the period from and including the
Date of Issuance to and including the date on which (i) the principal balance or
notional balance, as the case may be, of all the Certificates is zero, (ii) any
period during which any payment on the Certificates could have been avoided in
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whole or in part as a preference payment under applicable bankruptcy,
insolvency, receivership or similar law has expired, and (iii) if any
proceedings requisite to avoidance as a preference payment have been commenced
prior to the occurrence of (i) and (ii), a final and non-appealable order in
resolution of each such proceeding has been entered.
"Trust Agreement" means the Trust Agreement dated as of [ ],
199[_] among Saxon Asset Securities Company, as Seller, [ ], as Master Servicer,
and [ ], as Trustee, together with the Standard Terms.
"Trustee" means [ ] in its capacity as Trustee under the Trust
Agreement and any successor in such capacity.
2. Notices and Conditions to Payment in Respect of Guaranteed
Distributions. Following Receipt by the Certificate Guaranty Insurer of a notice
and certificate from the Trustee in the form attached as Exhibit A to this
Endorsement, the Certificate Guaranty Insurer will pay any amount payable
hereunder in respect of Guaranteed Distributions out of the funds of the
Certificate Guaranty Insurer on the later to occur of (i) 12:00 noon, New York
City time, on the second Business Day following such Receipt; and (ii) 12:00
noon, New York City time, on the Distribution Date to which such claim relates.
Payments due hereunder in respect of Guaranteed Distributions will be disbursed
by wire transfer of immediately available funds to the Policy Payments Account
established pursuant to the Trust Agreement or, if no such Policy Payments
Account has been established, to the Trustee.
The Certificate Guaranty Insurer shall be entitled to pay any
amount hereunder in respect of Guaranteed Distributions, whether or not any
notice and certificate shall have been Received by the Certificate Guaranty
Insurer as provided above. The Certificate Guaranty Insurer's obligations
hereunder in respect of Guaranteed Distributions shall be discharged to the
extent funds are disbursed by the Certificate Guaranty Insurer as provided
herein whether or not such funds are properly applied by the Trustee.
3. Notices and Conditions to Payment in Respect of Guaranteed
Distributions Avoided as Preference Payments. If any Guaranteed Distribution is
avoided as a preference payment under applicable bankruptcy, insolvency,
receivership or similar law, the Certificate Guaranty Insurer will pay such
amount out of the funds of the Certificate Guaranty Insurer on the later of (i)
the date when due to be paid pursuant to the Order referred to below or (ii) the
first to occur of (A) the fourth Business Day following Receipt by the
Certificate Guaranty Insurer from the Trustee of (1) a certified copy of the
order of the court or other governmental body which exercised jurisdiction to
the effect that the relevant Certificateholder is required to return principal
or interest distributed with respect to the Certificate during the Term of this
Policy because such distributions were avoidable as preference payments under
applicable bankruptcy law (the "Order"), (2) a certificate of the relevant
Certificateholder that the Order has been entered and is not subject to any stay
and (3) an assignment duly executed and delivered by the relevant
Certificateholder, in such form as is reasonably required by the Certificate
Guaranty Insurer and provided to the relevant Certificateholder by the
Certificate Guaranty Insurer, irrevocably assigning to the Certificate Guaranty
Insurer all rights and claims of the relevant Certificateholder relating to or
arising under the Certificate against the debtor which made such preference
payment or otherwise with respect to such preference payment or (B) the date of
Receipt by the Certificate Guaranty Insurer from the Trustee of the items
referred to in clauses (1), (2) and (3) above if, at least four Business Days
prior to such date of Receipt, the Certificate Guaranty Insurer shall have
Received written notice from the Trustee that such items were to be delivered on
such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Trustee or any Certificateholder
directly (unless a Certificateholder has previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order, in which case such payment shall be disbursed to the Trustee for
distribution to such Certificateholder upon proof of such payment reasonably
satisfactory to the Certificate Guaranty Insurer). In connection with the
foregoing, the Certificate Guaranty Insurer shall have the rights provided
pursuant to Section [___] of the Trust Agreement.
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4. Governing Law. This Policy shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
5. Fiscal Agent. At any time during the Term of this Policy,
the Certificate Guaranty Insurer may appoint a fiscal agent (the "Fiscal Agent")
for purposes of this Policy by written notice to the Trustee at the notice
address specified in the Trust Agreement specifying the name and notice address
of the Fiscal Agent. From and after the date of receipt of such notice by the
Trustee, (i) copies of all notices and documents required to be delivered to the
Certificate Guaranty Insurer pursuant to this Policy shall be simultaneously
delivered to the Fiscal Agent and to the Certificate Guaranty Insurer and shall
not be deemed Received until Received by both and (ii) all payments required to
be made by the Certificate Guaranty Insurer under this Policy may be made
directly by the Certificate Guaranty Insurer or by the Fiscal Agent on behalf of
the Certificate Guaranty Insurer. The Fiscal Agent is the agent of the
Certificate Guaranty Insurer only and the Fiscal Agent shall in no event be
liable to any Holder for any acts of the Fiscal Agent or any failure of the
Certificate Guaranty Insurer to deposit, or cause to be deposited, sufficient
funds to make payments due under this Policy.
6. Waiver of Defenses. To the fullest extent permitted by
applicable law, the Certificate Guaranty Insurer agrees not to assert, and
hereby waives, for the benefit of each Holder, all rights (whether by
counterclaim, setoff or otherwise) and defenses (including, without limitation,
the defense of fraud), whether acquired by subrogation, assignment or otherwise,
to the extent that such rights and defenses may be available to the Certificate
Guaranty Insurer to avoid payment of its obligations under this Policy in
accordance with the express provisions of this Policy.
7. Notices. All notices to be given hereunder shall be in
writing (except as otherwise specifically provided herein) and shall be mailed
by registered mail or personally delivered or telecopied to the Certificate
Guaranty Insurer as follows:
[CERTIFICATE GUARANTY INSURER]
[ADDRESS]
Attention: [ ]
Telecopy No.:[( ) - ]
Confirmation:[( ) - ]
The Certificate Guaranty Insurer may specify a different address or addresses by
writing mailed or delivered to the Trustee.
8. Priorities. In the event any term or provision of the face
of this Policy is inconsistent with the provisions of this Endorsement, the
provisions of this Endorsement shall take precedence and shall be binding.
9. Exclusions From Insurance Guaranty Funds. [This Policy is
not covered by the Property/Casualty Insurance Security Fund specified in
Article 76 of the New York Insurance Law.] [This Policy is not covered by the
Florida Insurance Guaranty Association created under Part II of Chapter 631 of
the Florida Insurance Code.] [In the event the Certificate Guaranty Insurer were
to become insolvent, any claims arising under this Policy are excluded from
coverage by the California Insurance Guaranty Association, established pursuant
to Article 14.2 of Chapter 1 of Part 2 of Division 1 of the California Insurance
Code.]
10. Surrender of Policy. The Holder shall surrender this
Policy to the Certificate Guaranty Insurer for cancellation upon expiration of
the Term of this Policy.
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IN WITNESS WHEREOF, the Certificate Guaranty Insurer has
caused this Endorsement No. 1 to be executed by its Authorized Officer.
[CERTIFICATE GUARANTY INSURER]
By
Authorized Officer
-6-
Exhibit A
To Endorsement 1
NOTICE OF CLAIM AND CERTIFICATE
[CERTIFICATE GUARANTY INSURER]
[ADDRESS]
The undersigned, a duly authorized officer of [ ] (the
"Trustee"), hereby certifies to [CERTIFICATE GUARANTY INSURER] (the "Certificate
Guaranty Insurer"), with reference to Financial Guaranty Policy No. [ ] dated [
] (the "Policy") issued by the Certificate Guaranty Insurer in respect of the
Saxon Asset Securities Company Asset Backed Certificates, Series 199[_]-[_],
Class [ ] Certificates (the "Certificates"), that:
(i) The Trustee is the Trustee under the Trust Agreement for
the Holders.
(ii) The sum of all amounts on deposit (or scheduled to be on
deposit) in the Asset Proceeds Account and available for distribution
to the Holders of the Certificates pursuant to the Trust Agreement will
be $[ ] (the "Shortfall") less than the Guaranteed Distributions with
respect to the Distribution Date.
(iii) The Trustee is making a claim under the Policy for the
Shortfall to be applied to distributions of principal or interest or
both with respect to the Certificates.
(iv) The Trustee agrees that, following receipt of funds from
the Certificate Guaranty Insurer, it shall (A) hold such amounts in
trust and apply the same directly to the payment of Guaranteed
Distributions on the Certificates when due; (B) not apply such funds
for any other purpose; (C) not commingle such funds with other funds
held by the Trustee and (D) maintain an accurate record of such
payments with respect to each Certificate and the corresponding claim
on the Policy and proceeds thereof and, if the Certificate is required
to be surrendered for such payment, shall stamp on each such
Certificate the legend "$ [ ] paid by the Certificate Guaranty Insurer
and the balance hereof has been canceled and reissued" and then shall
deliver such Certificate to the Certificate Guaranty Insurer.
(v) The Trustee, on behalf of the Certificateholders, hereby
assigns to the Certificate Guaranty Insurer the rights of the
Certificateholders with respect to the Trust Estate to the extent of
any payments under the Policy, including, without limitation, any
amounts due to the Certificateholders in respect of securities law
violations arising from the offer and sale of the Trust Estate. The
foregoing assignment is in addition to, and not in limitation of,
rights of subrogation otherwise available to the Certificate Guaranty
Insurer in respect of such payments. The Trustee shall take such action
and deliver such instruments as may be reasonably requested or required
by the Certificate Guaranty Insurer to effectuate the purpose or
provisions of this clause (v).
(vi) The Trustee, on its behalf and on behalf of the
Certificateholders, hereby appoints the Certificate Guaranty Insurer as
agent and attorney-in-fact for the Trustee and each such
Certificateholder in any legal proceeding with respect to the Trust
Fund. The Trustee hereby agrees the Certificate Guaranty Insurer may at
any time during the continuation of any proceeding by or against the
Seller under the United States Bankruptcy Code or any applicable
bankruptcy, insolvency,
A-1
receivership, rehabilitation or similar law (an "Insolvency
Proceeding") direct all matters relating to such Insolvency Proceeding,
including without limitation, (A) all matters relating to any claim in
connection with an Insolvency Proceeding seeking the avoidance as a
preferential transfer of any payment with respect to the Trust Fund (a
"Preference Claim"), (B) the direction of any appeal of any order
relating to any Preference Claim at the expense of the Certificate
Guaranty Insurer and (C) the posting of any surety, supersedeas or
performance bond pending any such appeal. In addition, the Trustee
hereby agrees that the Certificate Guaranty Insurer shall be subrogated
to, and the Trustee on its behalf and on behalf of each
Certificateholder, hereby delegates and assigns, to the fullest extent
permitted by law, the rights of the Trustee and each Certificateholder
in the conduct of any Insolvency Proceeding, including, without
limitation, all rights of any party to an adversary proceeding or
action with respect to any court order issued in connection with any
such Insolvency Proceeding.
(vii) Payment should be made by wire transfer directed to the
Policy Payments Account.
Capitalized terms used in this Notice of Claim and Certificate
and not otherwise defined herein shall have the meanings provided in the Policy
unless the context shall otherwise require.
A-2
IN WITNESS WHEREOF, the Trustee has executed and delivered
this Notice of Claim and Certificate as of the [ ] day of [ ], 199[_].
[TRUSTEE], as Trustee
By
Its
- -------------------------------------------------------------------------------
For the Certificate Guaranty Insurer or Fiscal Agent Use Only
Wire transfer sent [ ] by [ ]
Confirmation Number [ ]
A-3
EXHIBIT 99.2
FORM OF
MORTGAGE POOL INSURANCE POLICY
[POOL INSURER] Policy No.: [ ]
[ADDRESS]
[TELEPHONE]
Insured's Identification Effective Date
Number: [ ] of Policy: [ ]
[MORTGAGE POOL INSURER], a [ ] corporation (the "Company"), agrees to
pay to [ ], as Trustee for Saxon Asset Securities Company Asset Backed
Certificates, Series 199[ ]-[ ], the Insured identified below, in consideration
of the premium paid or to be paid as specified herein, the loss sustained by
reason of the default in payments by a Borrower on any Residential Mortgage
Agreement insured under this policy and listed in the attached Schedule, subject
to the terms and conditions contained herein;
INSURED: [ ], as Trustee for Saxon Asset Securities Company Asset
Backed Certificates, Series 199[ ]-[ ]
[ADDRESS]
PREMIUM RATE AND
PAYMENT DUE DATES: [ ]% per annum of the Aggregate Outstanding Balance of loans
in the Pool, to be calculated and paid monthly at [ ]% of the total monthly
amortized principal balances of the Residential Mortgage Agreements.
Total Initial Principal Balances: $[ ] (Maximum Dollar Amount of Loans)
Aggregate Loss Percentage: [ ][ ]%
Aggregate Loss Limit: $[ ]
Security: Saxon Asset Securities Company Asset Backed Certificates, Series
199[ ]-[ ]
Special Conditions:
1. [COMPLETE IF APPLICABLE]
2.
3.
THIS POLICY PROVIDES SUPPLEMENTAL COVERAGE IN EXCESS OF ANY PRIMARY MORTGAGE
GUARANTY INSURANCE POLICIES ON INDIVIDUAL MORTGAGE AGREEMENTS IN THE POOL.
SEE CONDITIONS 7, 8 AND 9 HEREIN.
The obligation of the Company under this Policy is subject to the
following conditions and agreements (the "Conditions"):
1. Definitions. For all purposes of this Policy, the terms
specified below shall have the meanings or constructions provided below.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings provided in the [Trust Agreement] unless the context shall otherwise
require.
1
"Approved Sale" is (i) a sale of a property acquired by the
Insured because of a Default by the Borrower and to which the Company has given
prior approval, (ii) a foreclosure or trustee's sale of a property to a third
party at a price equal to or exceeding the maximum amount specified by the
Company to be bid by the Insured, (iii) the acquisition of a property by the
insurer pursuant to a Primary Policy, or (iv) the acquisition of a property by
the Company pursuant to Condition 8(d) herein.
"Borrower" is the Person required to repay the debt obligation
created pursuant to a Mortgage Agreement insured under this Policy.
"Company" means the Insurer.
"Default" occurs when the Borrower becomes in arrears in an
amount equal to or greater than one (1) monthly principal and interest payment
due under the terms of the Mortgage Agreement or violates any other term or
condition of the Mortgage Agreement which is a basis for a foreclosure action.
"Four (4) Months in Default" occurs when the Borrower becomes
in arrears in an amount equal to or greater than four (4) monthly principal and
interest payments due under the terms of the Mortgage Agreement.
"Good and Merchantable Title" is title free and clear of all
liens, encumbrances, covenants, conditions, restrictions and easements except
for municipal and zoning ordinances and exceptions to title set forth in Federal
Housing Administration Reg. Section 203-389 and Section 314.02 of the Federal
National Mortgage Association Conventional Selling Contract Supplement, both to
the extent in effect at the effective date of this Policy, and except for any
other impediments which will not have an adverse effect on the marketability of
the title.
"Initial Principal Balance" is the unpaid principal balance of
a Mortgage Agreement at the time of purchase in connection with the sale of the
Security.
"Insured" is the Person designated on the face of this Policy.
The Insured may contract with any other Person to perform the Insured's
obligations under this Policy.
"Mortgage Agreement" is any note and any mortgage, bond, deed
of trust, or other instrument used in connection with the Borrower's loan and
evidencing a first lien or charge on Residential real property.
"Person" is any individual, corporation, partnership,
association or other entity.
"Policy" is this policy of insurance and all applications,
commitments, endorsements and schedules relating hereto, all of which are
incorporated by reference herein.
"Primary Mortgage Guaranty Insurance Policy" or "Primary
Policy" is a policy, certificate, or guarantee, issued with respect to an
individual Mortgage Agreement insured under this Policy, by a mortgage guaranty
insurance company or government agency or instrumentality which provides the
coverage required by Condition 7 herein. The existence of any and all such
Primary Policies with respect to individual Mortgage Agreements is indicated on
the Schedule.
"Qualified" means the Company is duly qualified under
applicable state laws as a mortgage guaranty insurance company, duly authorized
to write the insurance provided by this Policy, and is approved as an insurer by
the Federal Home Loan Mortgage Corporation.
"Residential" is a type of building or condominium unit which
is designed for occupancy by not more than four families.
2
"Schedule" is the listing of Residential Mortgage Agreements
which are insured under this Policy.
"Security" is the bond(s), certificate(s), or other security
instrument(s) identified or referred to on the face of this Policy.
"Total Initial Principal Balances" is the sum of the Initial
Principal Balances of all of the Mortgage Agreements purchased in connection
with the sale of the Security.
"Total Amortized Principal Balances" is the sum of the unpaid
principal balances of the Mortgage Agreements purchased in connection with the
sale of the Security, outstanding at the beginning of the month after giving
effect to scheduled principal payments due on or before the first day of such
month.
Any pronouns, when used herein, shall mean the single or
plural, masculine or feminine, as the case may be.
2. Effective Date, Policy Period, Termination and
Cancellation. The effective date of this Policy shall be the date specified on
the face hereof. This Policy shall continue in force until (i) each Mortgage
Agreement in the Schedule has either been paid in full, is no longer represented
by the Security or is otherwise liquidated, or (ii) the Security is redeemed. If
at any time the Company ceases to be Qualified, the Insured may terminate the
Policy upon written notice to the Company. The Company shall use all diligent
effort to remain Qualified. Except as provided in this Condition 2 and Condition
3 herein, there is no right of cancellation under this Policy.
3. Premiums
(a) The premium for this Policy shall be paid to the
Company in the manner and at the premium rate specified on the face
hereof. Failure to pay any installment of the premium within thirty
(30) business days after receipt of notice from the Company that such
installment is due and unpaid will terminate the liability of the
Company with respect to the coverage contained in this Policy, which
Policy shall be cancelled. The Company will provide the Insured with
prior written notice mailed to the last known address of the Insured at
least ten (10) days in advance of the effective date of such
cancellation. Except as provided herein, there shall be no refund of
premiums under this Policy.
(b) If the Aggregate Losses under this Policy reach
the Aggregate Loss Limit specified in Condition 8(f) herein, the total
premium under this Policy is due and shall remain due; provided,
however, that the premium shall continue to be calculated and paid in
accordance with Condition 3(a) above.
4. Assumptions. If a Mortgage Agreement listed in the Schedule
is assumed, the coverage under this Policy shall remain in force if the original
Borrower is not released from personal liability. If the original Borrower by an
assumption is released from personal liability on a Mortgage Agreement listed in
the Schedule, the liability of the Company for coverage under this Policy as to
such Mortgage Agreement shall terminate unless the Company approves the
assumption in writing. The Insured shall provide the Company with the
information and documentation required by the Company. The Company shall not
unreasonably withhold approval of an assumption.
5. Notice of Prepayments and Assumptions. Unless otherwise
mutually agreed by the Insured and the Company, the Insured shall quarterly
(within fifteen (15) days after the last day of March, June, September and
December) provide the Company with: (i) a listing of those Mortgage Agreements
which have been prepaid in full or which have been assumed, and (ii) a listing
of those Mortgage Agreements which are no longer covered by Primary Mortgage
Guaranty Insurance Policies pursuant to Condition 7 herein.
3
6. Notice of Default. Within ten (10) days after the Insured
receives notice or otherwise becomes aware that:
(a) A Borrower is Four (4) Months in Default, as defined
herein, or
(b) Proceedings to acquire title to a Borrower's property have
been commenced,
whichever event occurs first, notice thereof shall be given to the Company by
the insured upon the form furnished by the Company; provided, however, that
failure of the Company to furnish forms shall not relieve the Insured of the
obligation to give notice in any reasonable form within the required time.
Thereafter, the Insured shall report monthly to the Company in summary form the
status of the Borrower's account, until a claim is submitted to the Company or
until the Borrower is less than Four (4) Months in Default. Failure by the
Insured to give any notice or file any report required under this Policy, within
the time period specified, shall not constitute failure to comply with a
material condition of this Policy provided that such failure is remedied within
ten (10) days of receipt of notice thereof from the Company.
Notice of Default shall also be given to the Insurer of any
Primary Policy in accordance with the terms and conditions of such Primary
Policy, but in no event later than the time Notice of Default is given to the
Company under this Policy.
7. Primary Policies. As a condition precedent to payment of
any Loss as may be determined to be due under this Policy, the Insured shall
maintain a Primary Policy which is acceptable to the Company and which provides
coverage against losses resulting from Default of the Borrower on each Mortgage
Agreement insured under this Policy that has a loan-to-value ratio in excess of
eighty percent (80%) at the time of origination. The Primary Policy shall, as a
minimum, provide coverage on the amount of the Mortgage Agreement in excess of
seventy-five percent (75%) of original fair market value of the property,
defined as of the lesser of either sale price or appraised value at the time of
origination. Such Primary Policy must remain in force until the unpaid principal
balance of the Mortgage Agreement is reduced to eighty percent (80%) of original
fair market value.
8. Loss Computation and Conditions
(a) Advances - In the event of Default, it shall be a
condition precedent to payment of a claim on any Mortgage Agreement
that the Insured advance: (1) hazard insurance premiums, (2) Primary
Policy premiums as required under Condition 7 herein, (3) real estate
property taxes, (4) property protection and preservation expenses, (5)
property sales expenses, and (6) foreclosure costs including court
costs and reasonable attorneys fees.
(b) Restoration - In the event of Default, if there
is any physical loss or damage to the property from any cause, whether
by accidental means or otherwise, it shall be a condition precedent to
payment of a claim on the Mortgage Agreement that the Insured restore
the property to its condition at the time of the issuance of this
Policy, reasonable wear and tear excepted.
(c) Computation of Loss - Subject to the requirement
of a Primary Policy pursuant to Condition 7 herein and to the Aggregate
Loss Limit contained in (f) below, the amount of Loss payable to the
Insured on each individual claim shall be:
The Total Of:
(1) The amount of the unpaid principal balance at
the time of an Approved Sale of the property;
(2) the amount of the accumulated delinquent
interest computed to the date of claim settlement at the
Mortgage Agreement rate of interest, and
(3) the amount of advances made by the Insured under
(a) above,
Less:
(1) the net proceeds upon an Approved Sale of the
property, and
(2) any amount received by the Insured pursuant to
any applicable Primary Policy as required by Condition 7
herein.
(d) Claim Payment Option - Subject to the requirement
of a Primary Policy pursuant to Condition 7 herein and the Aggregate
Loss Limit contained in (f) below, in lieu of paying the loss
4
determined by the computation in (c) above, the Company may, at its
option, pay the Insured the total of the amounts under (1), (2) and (3)
of (c) above, less any amount received by the Insured pursuant to any
applicable Primary Policy as required by Condition 7 herein. As a
condition precedent to the payment of any claim for Loss under this
claim payment option, the Insured shall provide the Company with Good
and Merchantable Title to the property unless it had been Conveyed
pursuant to a Primary Policy. Within thirty (30) days after the
property is sold by the Company, the Company shall give written notice
to the Insured of the net amount received from such sale.
(e) Discharge of Obligation - Any claim payment by
the Company pursuant to (c) or (d) above shall be a full and final
discharge of its obligation with respect to such claim under the terms
of this Policy.
(f) Aggregate Loss Limit - Notwithstanding the
provisions of (c) and (d) above, the Aggregate Loss Limit of the
Company under this Policy is equal to the Aggregate Loss Percentage of
the Total Initial Principal Balances of the Mortgage Agreements as
indicated on the face of this policy. The Aggregate Losses are the sum
of Losses paid by the Company pursuant to (c) and (d) above, reduced by
any net amount the Company receives upon disposal of any property. When
the Aggregate Losses paid by the Company under this Policy reach an
amount equal to the Aggregate Loss Limit, the liability of the Company
to pay any additional claims for Losses ceases until the Aggregate
Losses are reduced to an amount below the Aggregate Loss Limit.
9. Submission and Payment of Claims
(a) Claims with a Primary Policy - If a Primary
Policy is required on a Mortgage Agreement pursuant to Condition 7
herein, it shall be a condition precedent to submission and payment of
a claim on such Mortgage Agreement under this Policy that the Insured
first submit and settle any all claims for loss under the Primary
Policy. If the Insured negotiates a claim settlement on a basis other
than on conditions stated in the Primary Policy, the Insured must
obtain the consent of the Company to such settlement. A claim for Loss
may be filed with the Company on the appropriate form provided by the
Company within sixty (60) days after any and all claim(s) for loss have
been settled and paid under the Primary Policy or within sixty (60)
days after the Insured has conveyed title to the Property pursuant to
an Approved Sale, whichever occurs later. The Company shall not
unreasonably withhold the approval necessary for such an Approved Sale.
The Company is not liable under this Policy for any amount(s) of claims
for losses under a Primary Policy.
(b) Claims without a Primary Policy - Unless
otherwise mutually agreed, a claim for loss may be filed with the
Company on the appropriate form provided by the Company within sixty
(60) days after the Insured has conveyed title to the property pursuant
to an Approved Sale. The Company shall not unreasonably withhold the
approval necessary for such an Approved Sale.
5
(c) Failure to File - Failure to file a claim for
Loss within sixty (60) days after a claim could first be filed under
(a) or (b) above shall be deemed an election by the Insured to waive
any right to claim payment under the terms of this Policy, provided
that such sixty (60) day period shall not commence until the
appropriate form has been provided by the Company to the Insured.
10. Where Notice is Given. All notices, claims, tenders,
reports and other data required to be submitted to the Company by the Insured
shall be mailed postpaid to: [MORTGAGE POOL INSURER] [ADDRESS]. The Company may
change this address by giving written notice to the Insured. All notices to the
Insured shall be mailed postpaid to the Insured at its address shown on the face
of this Policy.
11. To Whom Provisions Applicable. The provisions of this
Policy shall inure to the benefit of and be binding upon the Company, the
Insured, and any of their respective successors and assigns.
12. Suit. No suit or action on this Policy for recovery of any
claim shall be sustained in any court of law or equity unless all material
conditions of this Policy have been complied with, except that a condition may
be specifically waived by the Company in writing. A suit against the Company
must be commenced within three (3) years after the loss can be determined.
13. Waiver of Conditions. No condition of the Policy,
amendment or endorsement thereto shall be deemed waived, altered or otherwise
compromised unless stated in writing and duly executed. Each of the conditions
of this Policy is severable, and a waiver, alteration or compromise of one
condition shall not be construed as a waiver, alteration or compromise of any
other condition.
14. Conflict with Laws. Any provision of this Policy which is
in conflict with the laws of the jurisdiction in which it is effective is hereby
amended to conform with the minimum requirements of such laws.
IN WITNESS WHEREOF, The Company has caused its Corporate Seal
to be hereto affixed and these presents to be signed by its duly authorized
officers.
[MORTGAGE POOL INSURER]
Authorized Signature
6
ENDORSEMENT NO. [ ] TO
MORTGAGE POOL INSURANCE POLICY
[MORTGAGE POOL INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities
Company, as Seller, [ ], as Master Servicer,
and [ ], as Trustee
POLICY NO.: [ ]
CERTIFICATES: $[ ] Original Principal Amount, Saxon Asset
Securities Company Asset Backed Certificates, Series
199[_]-[_], Class [ ] Certificates
DATE OF
ISSUANCE: [ ], 199[_]
The obligation of the Company under this Policy is subject to the
following conditions and agreements (the "Conditions"):
With respect to the above captioned Mortgage Pool Insurance
Policy (the "Policy"), [ ] hereby agrees to the following WAIVER OF RIGHTS:
Notwithstanding any provisions to the contrary in the Policy,
the Company will pay Claims properly submitted thereunder despite the existence
of any legal or equitable rights of denial, adjustments, or rescission arising
out of fraud, dishonesty, or misrepresentation in connection with the
origination of the insured Mortgage Agreements. The Company further agrees that
it will not adjust, deny, or rescind its coverage under the Policy because of
the adjustment, denial, or rescission of coverage by the mortgage insurer giving
primary coverage in connection with any insured Mortgage Agreement. Provided,
however, that the Company's obligations shall in no event extend to losses
arising through the nonpayment of any claim by the primary mortgage insurer(s).
This Waiver shall only be enforceable to the extent that:
1. For the first year of coverage, the Company's aggregate Loss
payments for Mortgage Agreements evidencing fraud, dishonesty, or
misrepresentation ("Fraud Loss"), less net liquidation proceeds, if any, do not
exceed [ ]% of the initial principal balances of the Mortgage Agreements insured
pursuant to the Policy; and
2. For a second year of coverage, the Company's Fraud Loss
payments do not exceed the lesser of (i) [ ]% of the initial principal balances
of the Mortgage Agreements insured pursuant to the Policy, or (ii) the excess of
the [ ]% Fraud Loss limit set forth in Paragraph 1 over the actual Fraud Loss
paid in the first year of coverage; and
3. For each of the third through fifth years of coverage, the
Company's Fraud Loss payments do not exceed the lesser of (i) [ ]% of the
initial principal balances of the Mortgage Agreements insured pursuant to the
Policy, or (ii) the excess of the [ ]% Fraud Loss limit set forth in Paragraph 1
over the actual Fraud Loss paid in the years of coverage preceding the then
current year.
7
IN WITNESS WHEREOF, The Company has caused its Corporate Seal to
be hereto affixed and these presents to be signed by its duly authorized
officers.
[MORTGAGE POOL INSURER]
Authorized Signature
8
ENDORSEMENT NO. [ ] TO
MORTGAGE POOL INSURANCE POLICY
[MORTGAGE POOL INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities
Company, as Seller, [ ], as Master Servicer,
and [ ], as Trustee
POLICY NO.: [ ]
CERTIFICATES: $[ ] Original Principal Amount, Saxon Asset
Securities Company Asset Backed Certificates, Series
199[_]-[_], Class [ ] Certificates
DATE OF
ISSUANCE: [ ], 199[_]
A new Condition 9(d) is hereby inserted in the above-captioned Mortgage Pool
Insurance Policy as follows:
9 (d) Advance Claims Payment -
(1) Security - The specific Security to which
this Endorsement applies is: Saxon Asset Securities Company
Asset Backed Certificates, Series 199[ ]-[ ].
(2) Amount and Payment - The Insured shall notify
the Company setting forth (A) each insured Mortgage Agreement on
which a monthly payment has become fifteen (15) days past due
and in respect of which the servicer or master servicer has
failed to make required advance(s) pursuant to the Trust
Agreement for the Security; and (B) the amount (or portion) of
advance claims which the Insured will request the Company to
pay. The advance claim payment shall be determined for each such
delinquent insured Mortgage Agreement and shall be an amount
equivalent to the aggregate of the unpaid monthly payments of
principal and interest on such insured Mortgage Agreement.
The Company shall, within four (4) days of the receipt of any
request for advance claims payment in respect to such insured
Mortgage Agreements, pay to the Insured the requested amount.
(3) Limitation on Advance Claim Payment - Prior
to the commencement of foreclosure proceedings the Company shall
be obligated to pay under this Policy to the Insured advance
claim payments with respect to any such delinquent, insured
Mortgage Agreements for a period not to exceed four (4) months,
provided that the servicer or master servicer has failed to make
required advances under the Pooling and Servicing Agreement for
the Security. The Company shall be obligated to make advance
claim payments beyond the four (4) months period in respect of
such delinquent, insured Mortgage Agreements provided that (i)
the failure of the servicer or master servicer to make required
advances continues and (ii) foreclosure proceedings with respect
to such delinquent, insured Mortgage Agreements have been
commenced and are being diligently pursued. However, this
limitation on advances will not apply, if and only in the event
that the commencement or pursuit of foreclosure proceedings is
stayed as a result of a bankruptcy proceeding.
9
(4) Limiting Advance Claim Payments - In the
event the Company makes advance claim payments which are not
credited against a payment of a subsequent claim under Condition
9, the Insured shall remit to the Company within fifteen (15)
days of collection recoveries of such advance claim payments
from any source. The recovery by the Insured of amounts shall be
first allocated to the Company, and the remainder, if any, shall
be retained by the Insured. To the extent such amounts are not
recovered or remitted by the Insured, the Company may reduce any
future claim payments under this Policy.
(5) Report of Disposition - So long as advance
claim payments shall be outstanding, the Insured shall notify
the Company of the collections on, or liquidation or other
disposition of, the Insured Mortgage Agreement to which such
advance claim payments relate and the recoveries made by the
Insured for the purpose of enabling the Company to ascertain its
rights and the amounts which may be due. Such report shall be
made by the Insured within fifteen (15) days after the Insured
becomes aware of such liquidation, disposition or recovery.
IN WITNESS WHEREOF, The Company has caused its Corporate Seal to
be hereto affixed and these presents to be signed by its duly authorized
officers.
[MORTGAGE POOL INSURER]
Authorized Signature
10
EXHIBIT 99.3
FORM OF
SPECIAL HAZARD INSURANCE POLICY
[SPECIAL HAZARD INSURER] Policy No.: [ ]
[ADDRESS]
[TELEPHONE]
Insured's Identification Effective Date
Number: [ ] of Policy: [ ]
[SPECIAL HAZARD INSURER], a [ ] corporation (the "Company"), agrees to
pay to the Insured identified below, in consideration of the premium paid as
specified herein, the amount of Loss, subject to the terms and conditions herein
contained.
INSURED: [ ]
[ADDRESS]
PREMIUM: $[ ]
Total Initial Principal Balance: $[ ]
Aggregate Loss Percentage: [ ][ ]%
Aggregate Loss Limit: $[ ]
Endorsements attached at issuance: [ ]
The obligation of the Company under this Policy is subject to the
following conditions and agreements (the "Conditions"):
1. Definitions. For all purposes of this Policy, the terms
specified below shall have the meanings or constructions provided below.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings provided in the Trust Agreement unless the context shall otherwise
require.
"Advances" are as defined in Paragraph 9(a).
"Aggregate Loss Limit" is as defined in Paragraph 9(f).
"Aggregate Loss Percentage" is the percentage specified on the
face of this Policy.
"Aggregate Losses" are as defined in Paragraph 9(f).
"Borrower" is the Person required to repay the debt obligation
created pursuant to a Mortgage Agreement.
"Default" occurs when the Borrower becomes in arrears in an
amount equal to or greater than one (1) monthly payment due under the terms of
the Mortgage Agreement or violates any other term or
1
condition of the Mortgage Agreement which is a basis for a foreclosure action.
"Four (4) Months in Default" occurs when the Borrower becomes
in arrears in an amount equal to or greater than four (4) monthly payments due
under the terms of the Mortgage Agreement.
"Good and Merchantable Title" is title free and clear of all
liens, encumbrances, covenants, conditions, restrictions and easements
(hereinafter referred to as Liens), except for: (i) the lien of any public bond,
assessment or tax, when no installment, call or payment of or under such bond,
assessment or tax is delinquent, (ii) any Liens which were reflected in the
appraisal provided to the Company and to which there was no objection, any
municipal and zoning ordinances and exceptions to title set forth in Federal
Housing Administration Reg. Sec. 203.389 and acceptable to the Federal National
Mortgage Association under its mortgage purchasing standards for first-lien
single family mortgages in effect at the effective date of this Policy, and
(iii) any other impediments which will not have a materially adverse effect on
the marketability of the title.
"Initial Principal Balance" is the unpaid principal balance of
an insured Mortgage Agreement at the later of (i) the effective date of this
Policy and (ii) the date the Mortgage Agreement became an Insured Mortgage
Agreement.
"Insured" is the Person designated on the face of this Policy.
The insured may contract with any other Person to perform the Insured's
obligations under this Policy.
"Insured Mortgage Agreement" is any Mortgage Agreement which
is purchased from the proceeds of the Security and which the Company has
underwritten and approved and to which coverage under this policy has been
extended.
"Insurer" is the Company.
"Loss" is the direct physical Loss or damage to Mortgaged
Property which occurs during the term of this policy either (i) prior to the
Insured's acquiring Good and Merchantable Title because of a Default by the
Borrower or (ii) while the Insured has Good and Merchantable Title that was
acquired because of a Default by the Borrower.
"Mortgage Agreement" is any note and any mortgage, bond, deed
of trust or other instrument which constitutes a first lien or charge on
Residential real property and which collateralizes the Borrower's debt
obligation.
"Mortgaged Property" is the property subject to an Insured
Mortgage Agreement.
"Other Insurance" is as defined in Paragraph 9(c).
"Person" is any individual, corporation, partnership,
association or other entity.
"Policy" is this policy of insurance plus all applications,
commitments, endorsements and schedules related hereto, all of which are
attached hereto and incorporated herein.
"Residential" is a type of building which is designed for
occupancy by not more than four families or a condominium unit.
"Schedule" is the listing or listings of insured Mortgage
Agreements under this policy.
"Security" is the bond, certificate or other security
instrument noted or referred to on the face of this policy.
"Total Initial Principal Balance" is the sum of the Initial
Principal Balances of all the Insured
2
Mortgage Agreements together with the amount, if any, of additional Mortgage
Agreements intended to be purchased with unexpended proceeds of the Security.
Any pronouns, when used herein, shall mean the single or
plural, masculine or feminine, as the case may be.
2. Effective Date, Policy Period, Termination and
Cancellation. The effective date of this Policy shall be the date specified on
the face hereof. This Policy shall continue in force until (i) each Insured
Mortgage Agreement either has been paid in full or is no longer represented by
the Security or (ii) the Security is redeemed. Except as provided in this
Paragraph 2 and in Paragraph 3, there shall be no right of cancellation under
this Policy.
3. Premiums
(a) The premium for this Policy shall be paid in the
manner and at the rate specified on the face hereof. The provisional
premium stated in Endorsement No. 1 is due on the effective date of
this Policy. Failure to pay the premium within fifteen (15) business
days from the mailing date of the cancellation notice will terminate
the liability of the Company with respect to this Policy.
(b) If the Aggregate Loss under this Policy reaches
the Aggregate Loss Limit as defined in Condition 9(f), then the total
premium under this Policy is due and shall remain due; provided,
however, that the premium shall continue to be calculated and paid in
the manner specified on the face hereof.
4. Notice or Prepayment/Assumption. Unless otherwise mutually
agreed by the Company and the Insured, the Insured shall quarterly (within
fifteen (15) days after the last day of March, June, September and December)
provide the Company with a listing of those Insured Mortgage Agreements which
have been prepaid in full or which have been assumed.
5. Limits of Liability
(a) The Company's liability for Loss on the
individual properties secured by the Mortgage Loan Agreements shall be
the Actual Loss Sustained as defined in Paragraph 9(b).
(b) The Company's total aggregate liability for Loss
during the term of this Policy shall not exceed the greatest of 1% of
the Total Initial Principal Balance or two times the largest Principal
Balance of any Insured Mortgage Agreement or $[ ], and adjusted in
accordance with Premium Endorsement No. 1.
The total aggregate limit of liability is the sum of Losses
paid by the Company pursuant to Paragraph 9 - Loss Procedures, and subject to
the provisions of Paragraph 9(f) - Aggregate Loss Limit.
6. Perils Insured Against. This Policy insures against Loss
that is caused by all risks of direct physical Loss or damage which occurs to
the Mortgaged Property from any cause, except as hereinafter excluded, and which
occurs during the term of this Policy either (i) prior to the Insured's
acquiring Good and Merchantable Title because of a Default by a Borrower or (ii)
while the Insured has Good and Merchantable Title that was acquired because of a
Default by the Borrower.
7. Perils Excluded. This Policy does not insure against Loss
or damage caused by or resulting from:
3
(a) the perils of fire, lightning, windstorm, hail,
explosion, riot, riot attending a strike, civil commotion, aircraft,
vehicles, smoke, sprinkler leakage, vandalism or malicious mischief,
except to the extent of that portion of the Loss which was uninsured
because of the application of a coinsurance clause of another insurance
policy covering these perils;
(b) errors in design, faulty workmanship or faulty
materials, unless the collapse of the property or a part thereof ensues
and then only for the ensuing Loss;
(c) nuclear or chemical reaction or nuclear radiation
or radioactive or chemical contamination, all whether controlled or
uncontrolled, and whether such Loss be direct or indirect, proximate or
remote or be in whole or in part caused by, contributed to or
aggravated by a peril insured against in this Policy;
(d) (1) hostile or warlike action in time of peace or
war, including action in hindering, combating or defending
against an actual, impending or expected attack (i) by any
government or sovereign power (de jure or de facto), or by any
authority maintaining or using military, naval or air forces;
or (ii) by military, naval or air forces; or (iii) by an agent
of any such government, power, authority or forces;
(2) any weapon of war or facility for
producing same employing atomic fission, radioactive force or
chemical or biological contaminants, whether in time of peace
or war;
(3) insurrection, rebellion, revolution,
civil war, usurped power or action taken by governmental
authority in hindering, combating or defending against such an
occurrence, seizure or destruction under quarantine or customs
regulations, confiscation by order of any government or public
authority, or risks of contraband or illegal transportation or
trade.
(e) Infidelity, conversion or any dishonest act on
the part of any Insured or an Insured's agent or employee.
(f) It is understood and agreed that this Policy
excludes loss caused by normal wear and tear, marring or scratching,
gradual deterioration, inherent vice, or latent defect, rust, mold, wet
or dry rot, animals, birds, vermin, insects, or inadequate maintenance
of part or all of mortgaged property on or off designated premises.
8. Notice of Default. Within ten (10) days after the Insured
becomes aware that:
(a) a Borrower is Four (4) Months in Default, as
defined herein, or
(b) proceedings to acquire title to a Borrower's
property have been commenced by the Insured or its agents, successors
or assigns, whichever event occurs first,
notice thereof shall be given to the Company by the Insured upon the
form furnished by the Company; provided, however, that failure of the
Company to furnish forms shall not relieve the Insured of the
obligation to give notice in any reasonable form within the required
time. Thereafter, the Insured shall report monthly to the Company in
summary form the status of the Borrower's account, until a claim is
submitted to the Company or until the Borrower's account is current.
Failure by the Insured to give notice or file any report required under
this Policy within the time period specified shall not constitute
failure to comply with a material condition of this Policy; provided
that such failure is remedied within ten (10) days of receipt of a
notice thereof from the Company.
4
9. Loss Proceeds
(a) Advances -- In the event of Default, it shall be
a condition to payment of a claim on any Insured Mortgage Agreement
that the Insured advance: (i) hazard insurance premiums and (ii) as
necessary and approved in advance by the Company (A) real estate
property taxes and property protection and preservation expenses, and
(B) foreclosure costs; including court costs and reasonable attorney's
fees.
(b) Actual Loss Sustained -- Applicable whenever the
Insured has not collected from Other Insurance, means the lesser of:
(1) the cost of repair or replacement with
material of like quality and kind within a reasonable time
after such damage; or
(2) the unpaid principal balance on a
Mortgage Agreement at the time of acquisition of Mortgaged
Property by the Insured by foreclosure or deed in lieu of
foreclosure, plus accumulated delinquent interest computed to
the date of claim payment by the Company at the Mortgage
Agreement rate of interest (excluding applicable late charges
and penalty interest), plus Advances, less any net proceeds if
there be any from the sale of the property.
(3) in Paragraph 9(b)(1)(2) above, the
Actual Loss Sustained shall be the Loss after crediting any
applicable funds received by the Insured as a result of Loss
or damage to the related Mortgaged Property.
(c) Other Insurance -- If at the time of Loss or
damage there is available to the Insured any other valid and
collectible insurance which would apply in the absence of this Policy,
the insurance under this Policy shall apply only as excess insurance
over such Other Insurance.
(d) Claim Payment -- Subject to the Aggregate Loss
Limit contained in Paragraph 9(f) below, the Company shall pay to the
insured the amount of the Loss computed in accordance with Paragraph
9(b) above. As a condition precedent to the payment of any claim for
Loss in accordance with B(2) above, the Insured shall provide the
Company with Good and Merchantable Title to the Mortgaged Property.
(e) Discharge of Obligation -- Any claim payment by
the Company pursuant to Paragraph 9(d) above shall be a full and final
discharge of its obligation with respect to such claim under the terms
of this Policy.
(f) Aggregate Loss Limit -- Notwithstanding the
provisions of Paragraph 9(b) and 9(d) above, the Aggregate Loss Limit
of the Company under this Policy is equal to the Aggregate Loss
Percentage of the Total Initial Principal Balance of the Insured
Mortgage Agreements. The Aggregate Losses are the sum of Losses paid by
the Company pursuant to Paragraph 9(d) above, reduced by any net
proceeds the Company receives upon disposal of any Mortgaged Property.
Any Loss paid hereunder shall reduce the amount of this Policy
available for additional claims. When the Aggregate Losses paid by the
Company under this policy equal the Aggregate Loss Limit, the liability
of the Company to pay any additional claims for Loss shall cease until
the Aggregate Losses are reduced below the Aggregate Limit Loss.
(g) Appraisal -- If the Insured and the Company fail
to agree as to the amount of any claim, each shall, on the written
demand of either, made within sixty (60) days after receipt of proof of
claim by the Company, select a competent and disinterested appraiser,
and the appraisal shall
5
be made at a reasonable time and place. The appraisers shall first
select a competent and disinterested umpire, and failing for fifteen
(15) days to agree upon such umpire, then, on the request of the
Insured or the Company, such umpire shall be selected by a judge of a
court of record in the state in which such appraisal is pending. The
appraisers shall then appraise the claim, stating separately the Actual
Loss Sustained in accordance with Paragraph 9(b), and failing to agree
shall submit their differences to the umpire. An award in writing of
any two shall determine the amount of claim. The Insured and the
Company shall each pay its chosen appraiser and shall bear equally the
other expenses of the appraisal and the umpire. The Company shall not
be held to have waived any of its rights by any act relating to
appraisal.
(h) Maintenance and Examination of Records -- The
Insured shall maintain and, as often as may be reasonably required
during the term of this Policy and for one year thereafter, produce for
examination by the Company or its duly authorized representative, all
the books and records of the Insured with respect to the Insured
Mortgage Agreements and their outstanding unpaid balances at the end of
each Policy year.
(i) Claims Against Third Parties -- The Insured
shall, if known, give notice to the Company as to any party against
whom a subrogation claim may be asserted.
(j) Preservation of Mortgaged Property -- When Loss
occurs to Mortgaged Property from a period covered by this Policy and
notice of foreclosure has been given to the mortgagor, the Insured
shall use reasonable means to protect the Mortgaged Property from
further Loss if it has the right to do so (whether or not the Loss is
covered by this Policy). Any further covered Loss due to the Insured's
failure to protect the Mortgaged Property shall not be recoverable
under this Policy. The Company will reimburse the Insured for expenses
thus reasonably incurred. Such expenses shall be in addition to the
limit of liability of this Policy.
(k) Impairment of Recovery Rights -- Any act or
agreement by the Insured whereby any right to the Insured to recover in
whole or in part for Loss or damage to property covered hereunder
against any other party liable therefor, is released or impaired or
lost without the consent of the Company, shall render that particular
claim uncollectible, but the Company's right to retain or recover the
premium shall not be affected. The Company is not liable for any Loss
or damage which, without its written consent has been settled or
compromised by the Insured.
(l) Abandonment -- There can be no abandonment to
this Company of any Mortgaged Property.
(m) Subrogation -- The Company may require from the
Insured an assignment of all right of recovery against any party for
Loss to the extent that payment therefor is made by the Company.
(n) Examination Under Oath -- The Insured, as often
as may be reasonably required, shall exhibit to any person designated
by the Company all that remains in any Mortgaged Property herein
described, and shall submit, and insofar as is within its power, cause
its employees and others to submit to examinations under oath by any
person named by the Company and subscribe to the same; and, as often as
may be reasonably required, shall produce for examination all writings,
books of account, bills, invoices and other vouchers, or certified
copies thereof if the originals be lost, at such reasonable time and
place as may be designated by the Company or its representatives, and
shall permit extracts and copies thereof to be made. No such
examination under oath or examination of books or documents, nor any
other act of the Company or any of its employees or representatives in
connection with the investigation of any Loss or claim hereunder, shall
be deemed a waiver of any defense which the Company might otherwise
have asserted with respect to any Loss or claim, but all such
6
examinations and acts shall be deemed to have been made or done without
prejudice to the Company's liability.
10. Submitting And Paying Claims
(a) Filing Claims -- Unless otherwise mutually
agreed, a claim for Loss may be filed with the Company on the
appropriate form provided by the Company within sixty (60) days after
either: (i) the Insured has acquired Good and Merchantable Title to the
Mortgaged Property or (ii) the Mortgaged Property is damaged by a peril
insured against under this Policy, which damage occurred while the
Insured had Good and Merchantable Title that had been acquired because
of a Default by the Borrower.
(b) Failure to File -- Failure to file a claim for
Loss within sixty (60) days after a claim for Loss should have been
filed under (a) above shall be deemed an election by the Insured to
waive any right to claim payment under the terms of this Policy;
provided, however, that the failure to file a claim for Loss is filed
within one (1) year after the time required by Paragraph 10(a) above
unless (i) the Company is prejudiced thereby and (ii) it was reasonably
possible for the Insured to meet the time limit.
(c) Payment of Claim -- Any claim payment due the
Insured shall be payable within thirty (30) days after an acceptable
proof of Loss is received by the Company. The date of a claim
settlement is the date on which the Company issues a claim payment.
11. Notice. All notices, claims, tenders, reports and other
data required to be submitted to the Company by the Insured shall be mailed
postage prepaid to the administrative office of the Company at [ ] [ ], or to
its authorized agent. The Company may change this address by giving written
notice to the Insured. All notices to the Insured shall be mailed postage
prepaid to the address on the face of this Policy unless the Company is
otherwise notified in writing. The Company and the Insured may mutually agree
that notice shall be sent to additional Persons.
12. Provisions Applicable. The provisions of this Policy shall
inure to the benefit of and be binding upon the Company, the Insured and their
respective successors and assigns.
13. Suit. No suit or action on this Policy for recovery of any
claim shall be sustained in any court of law or equity unless all material
conditions of this Policy shall have been complied with, except that a condition
may be specifically waived by the Company in writing. A suit against the Company
must be commenced within three (3) years after the Loss can be determined.
14. Waiver of Conditions. No condition of the Policy,
amendment or endorsement thereto shall be deemed waived, altered or otherwise
compromised unless stated in writing and duly executed. Each of the conditions
of this Policy is severable, and a waiver, alteration or compromise of one
condition shall not be construed as a waiver, alteration or compromise of any
other condition.
15. Representations.
(a) Knowledge of Agent -- The knowledge of an agent
of the Company shall be knowledge of the Company. Any fact which
breaches a Condition of this Policy and is known to an agent of the
Company shall not void this Policy or prevent a recovery thereunder in
the event of a claim for Loss.
(b) Misrepresentation -- No misrepresentation or
breach of affirmative warranty
7
made by or on behalf of the Insured shall affect the Company's
obligation under this Policy unless (i) the Company relies on the fact
misrepresented or falsely warranted and (ii) the fact misrepresented or
falsely warranted contributed to the Loss.
(c) Breach -- No failure to abide by a Condition
prior to a Loss or no breach of a promissory warranty affects the
Company's obligation under this Policy unless such failure to breach
exists at the time of the Loss and either (i) increases the risk at the
time of Loss or (ii) contributes to the Loss. The provisions of this
Condition do not apply to the failure to tender payment of premium.
16. Conflict with Laws. Any provision of this Policy which is
in conflict with the laws of the jurisdiction in which it is effective is hereby
amended to conform with the minimum requirements of such laws.
17. Misrepresentation and Fraud. This entire Policy shall be
void, if, whether before or after a Loss, the Insured has concealed or
misrepresented any material fact or circumstance concerning this insurance or
the subject thereof, or the interest of the Insured therein, or in the case of
any fraud, attempted fraud, or false swearing by the Insured relating thereto.
18. Governing Law. This Policy shall be deemed to be issued in
the State of New York, and the rights and liabilities created hereunder shall be
determined in accordance with the laws of the State of New York applicable to
requirements made and to be performed in such State.
19. Venue. Any action or proceeding of any kind against the
Company arising out of, by reason of, or relating to the Policy must be brought
in a State or Federal court of competent jurisdiction in the State of New York.
The Insured consents to the jurisdiction and venue of such courts and waives any
defenses or objections to such jurisdiction and venue, including any defenses or
objections based upon the convenience of forum in such courts.
8
ENDORSEMENT NO. [ ] TO
SPECIAL HAZARD INSURANCE POLICY
[SPECIAL HAZARD INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities Company,
as Seller, [ ], as Master Servicer, and
[ ], as Trustee
POLICY NO.: [ ]
DATE OF
ISSUANCE: [ ], 199[ ]
THE PREMIUM FOR THE PERIOD [ ] to [ ] is $[ ]
AND IS SUBJECT TO MINIMUM EARNED PREMIUM AS FOLLOWS:
1. The premium for annual periods during which loans are no
longer eligible for origination will be calculated at the beginning of each
anniversary date of this Policy at the fixed yearly rate of [ ]% of the total
outstanding principal balance of the Insured Mortgage Agreements for the month
immediately preceding the month in which such anniversary date occurs. The
minimum premium for any annual period shall be $1,000.
2. For subsequent annual periods the Insured shall, within 30
days of each anniversary date of this Policy, furnish the Company with a written
statement of the total outstanding principal balance of the Insured Mortgage
Agreements as of such anniversary date.
3. If the Insured has failed to report the total outstanding
principal balance of the Insured Mortgage Agreements for any policy year, the
Company at its sole discretion, and after 30 days' notice, may compute the
actual premium by substituting for such unreported outstanding balance the Total
Initial Principal Balance.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
EFFECTIVE DATE:
Authorized Signature
9
ENDORSEMENT NO. [ ] TO
SPECIAL HAZARD INSURANCE POLICY
FLOOD INSURANCE REQUIRED
[SPECIAL HAZARD INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities Company,
as Seller, [ ], as Master Servicer, and
[ ], as Trustee
POLICY NO.: [ ]
DATE OF
ISSUANCE: [ ], 199[ ]
The Insured shall cause to be maintained on any Insured
Mortgage Property designated as eligible for the National Flood Insurance
Program, flood insurance in an amount which is at least equal to the lesser of:
1. the unpaid principal balance of the unrelated Mortgage
Agreement; and
2. the maximum insurance available on any one structure under
the National Flood Insurance program.
Maintenance of a blanket policy so insuring the related
Mortgaged Property shall be conclusively deemed to satisfy the obligation set
forth above. If such coverage is not maintained and a Loss occurs which would
have been covered by the National Flood Insurance Program, the claim will be
reduced by the amount that such flood insurance policy would have covered.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
EFFECTIVE DATE:
Authorized Signature
10
ENDORSEMENT NO. [ ] TO
SPECIAL HAZARD INSURANCE POLICY
[SPECIAL HAZARD INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities Company,
as Seller, [ ], as Master Servicer, and
[ ], as Trustee
POLICY NO.: [ ]
DATE OF
ISSUANCE: [ ], 199[ ]
Paragraph 9(f) of this Policy is deleted in its entirety and
is replaced by a new Paragraph 9(f), which reads as follows:
"9. Loss Procedures --
(f) Aggregate Loss Limit -- Notwithstanding the
provisions of Paragraphs 9(b) and (d) above, the Aggregate Loss Limit
of the Company under this Policy is an amount equal to the greater of:
(i) the Aggregate Loss Percentage and (ii) twice the principal balance
reflected on the schedule for the Insured Mortgage Agreement having the
largest principal balance reflected on the Schedule of any Insured
Mortgage Agreement and (iii) the total of the principal balance
reflected on the Schedule for the Insured Mortgage Agreements having
the highest concentration in any one zip code of any Insured Mortgage
Agreements. The aggregate Losses are the sum of Losses paid by the
Company pursuant to Paragraph 9(d) above, reduced by any net proceeds
the Company receives upon disposal of any Mortgaged Property. When the
Aggregate Losses paid by the Company under this Policy equal the
Aggregate Loss Limit, the liability of the Company to pay any
additional claims for Loss shall cease until the Aggregate Losses are
reduced below the Aggregate Loss Limit."
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
EFFECTIVE DATE:
Authorized Signature
11
ENDORSEMENT NO. [ ] TO
SPECIAL HAZARD INSURANCE POLICY
[SPECIAL HAZARD INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities Company,
as Seller, [ ], as Master Servicer, and
[ ], as Trustee
POLICY NO.: [ ]
DATE OF
ISSUANCE: [ ], 199[ ]
The Security referred to in the Policy is:
Saxon Asset Securities Company Asset Backed Certificates,
Series 199[ ]-[ ], Class [ ]
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
EFFECTIVE DATE:
Authorized Signature
12
ENDORSEMENT NO. [ ] TO
SPECIAL HAZARD INSURANCE POLICY
[SPECIAL HAZARD INSURER]
TRUST: Established pursuant to the Trust Agreement dated as of
[ ], 199[ ] among Saxon Asset Securities Company,
as Seller, [ ], as Master Servicer, and
[ ], as Trustee
POLICY NO.: [ ]
DATE OF
ISSUANCE: [ ], 199[ ]
The definition of "Insured Mortgage Agreement" in Paragraph 1
of this policy is deleted in its entirety and replaced by the following:
"Insured Mortgage Agreement" is any Mortgage Agreement which
is listed on the Schedule, dated [ ], 199[ ].
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
EFFECTIVE DATE:
Authorized Signature
13
EXHIBIT 99.4
FORM OF
BANKRUPTCY BOND
BOND NO.:[ ] Effective Date: [ ], 199[_]
Anniversary Date: [ ], 20[ ]
KNOW ALL MEN BY THESE PRESENTS, that those certain Mortgagors
or their successors or assigns (hereinafter referred to as "Mortgagor/Principal"
or "Mortgagors/Principals"), listed on the attached mortgage loan schedule,
marked Exhibit "A", which identifies all of the mortgage loans subject to the
Agreement as defined and referred to hereinafter, and by this reference made a
part hereof under the terms of those certain Promissory Notes (the "Contracts")
secured by mortgages or deeds of trust (the "Mortgages") on those certain [one
to four family] residential properties (the "Properties") as set forth in
Exhibit "A", and [
], a corporation organized under the laws of the State of [ ] and authorized
to transact business as a surety in the State of [ ], as Surety ("Surety"), are
held and firmly bound unto [ ], with its principal place of business located at
[ ] as Obligee ("Obligee") under the terms of the Contracts, for its use and
benefit, subject to conditions 1-20 set forth below, in an amount not to exceed:
(a) during each of the first ten years of this Bond (the "Initial
Policy Years") the greater of (i) $[ ] or (ii) $[ ] which is One Percent
(1.0%) of the initial outstanding principal amount of the
Contracts, as of [ ], 199[_]; provided, however, with respect to (i) and (ii)
above, the following amount is to be subtracted: claims previously paid during
the applicable Initial Policy Year minus net recoveries made during such
applicable Initial Policy Year, from whatever source (however such recoveries
are not to exceed the amount of claims theretofore paid); and
(b) thereafter, the amount for each twelve (12) month period beginning
on the day following the expiration date of the tenth Initial Policy Year (the
"Subsequent Policy Years") shall be the greater of (i) $100,000, (ii) One
Percent (1.0%) of the then outstanding principal amount of the Contracts at the
beginning of each Subsequent Policy Year (computed as of the first day of the
first month of each Subsequent Policy Year) or (iii) the sum of the net claims
paid during the twelve months immediately preceding such Subsequent Policy Year;
provided, however, with respect to (i), (ii) and (iii) above, the following
amount is to be subtracted: claims previously paid during the applicable
Subsequent Policy Year minus net recoveries made during such applicable
Subsequent Policy Year, from whatever source (however such recoveries are not to
exceed the amount of claims theretofore paid);
for the payment whereof Mortgagors/Principals and Surety bind themselves, their
heirs, executors, administrators, successors and assigns, jointly and severally,
firmly by these presents. The Initial Policy Year and the Subsequent Policy Year
shall together hereinafter be defined as the "Policy Year." It is understood
that coverage for each Policy Year is not cumulative and is to be computed
separately with no carry back or carry forward or any unused coverage or
recovery with respect to any Policy Year.
WHEREAS, Mortgagors/Principals have entered into certain
Contracts secured by Mortgages on the Properties, said Mortgages being
identified in the attached Exhibit A;
WHEREAS, the Obligee has assigned the Mortgages to [ ] as
Trustee (the "Trustee"), with its principal place of business located at [ ]
under the terms of the Trust Agreement dated as of [ ], 199[_] (the "Agreement")
for the Saxon Asset Securities Company Asset Backed Certificates, Series
199[_]-[_];
-1-
WHEREAS, Mortgagors/Principals have agreed to perform all of
their duties and obligations and make any and all payments required under the
terms of the respective Contracts;
NOW, THEREFORE, the conditions of this Obligation are such
that if any one of the following occurs: (i) the Mortgagors/Principals shall
faithfully perform all of their duties and obligations and make all payments
required under the Contracts; (ii) all of the Mortgages securing the Contracts
have been paid in full; or (iii) all of the Mortgages are released from the
Agreement; then the obligation under this Bond shall be null and void, otherwise
it shall remain in full force and effect.
The obligation of Surety under this Bond is subject to the following
conditions and agreements (the "Conditions"):
1. The Surety shall be obligated to make payments hereunder
only in the event of all of the following:
(a) a filing by one or more of the
Mortgagors/Principals obligated under the Contracts pursuant to the
Bankruptcy Code, as amended form time to time (11 U.S.C.) (the
"Filing"); and
(b) the Filing results in one or more of the
Properties being retained by the respective Mortgagor/Principal (as a
Debtor under the Filing); and
(c) the Filing results in one or more of the
Properties being valued by the Bankruptcy Court or in the Bankruptcy
case in an amount less than the then outstanding indebtedness under the
respective Contract and Mortgage (the "Deficient Valuation").
The amount of the difference between the outstanding principal
indebtedness under the Contract and Mortgage and the Deficient Valuation made by
the Bankruptcy Court is hereinafter referred to as the "Principal Differential."
2. No assignment, modification or other change in the
provisions of the Contracts or any other related document between
Mortgagor/Principal and Obligee which would in any way increase Surety's
obligations or risks under this Bond shall be binding or effective as to Surety
unless Surety agrees to such assignment, modification or other change in
writing.
3. The Obligee or its designee shall immediately notify the
Surety in writing in the event Obligee or its designee or its agent receives a
notice of a Filing involving any of the Mortgagors/Principals as a debtor and
under no circumstance shall said notice be given to Surety any later than the
commencement of any hearing scheduled for the respective Mortgagor/Principal
pursuant to Section 341 of the Bankruptcy Code or such other comparable hearing
under any other section of the Bankruptcy Code (such hearing under Section 341
or other section being hereinafter referred to as the "Hearing"). The Obligee or
its designee shall also file a proof of claim within such time as the Bankruptcy
Court directs, but under no circumstances later than the commencement of the
Hearing. The proof of claim and its filing shall be in accordance with the
Bankruptcy Code and all Rules and Orders, and shall include the interest of the
Surety.
4. In the event any of the Properties are proposed to be
valued by the Bankruptcy Court or in the bankruptcy case or proceeding in an
amount less than the outstanding indebtedness under the respective Contract and
Mortgage, the Obligee or its designee shall timely and properly challenge the
valuation, unless Surety agrees in writing that such challenge is not necessary.
The Obligee or its designee must attend the Hearing, must timely and properly
object to the valuation, must attend the subsequent valuation hearing and/or
-2-
trial, must object to any valuation which is less than the outstanding
indebtedness under the respective Contract and Mortgage, and must take all other
reasonable and prudent action to protect the interests of Surety and the holder
of the Contract, as may be directed by Surety from time to time.
5. If, due to or in connection with a Filing or proceeding,
one or more of the Properties receives a Deficient Valuation, Obligee or its
designee shall submit to Surety a signed statement (the "Default Notice")
stating all of the following:
(a) the Principal Differential;
(b) the payment history of the Contract and Mortgage
since the date of the Filing including the following: the date of last
full payment made by the respective Mortgagor/Principal under the
Contract and Mortgage, the date and amounts of any partial payments
made subsequent to the date of the last full payment, and the due date
and amount of any payments not made prior to the date of the last full
payment;
(c) the amount of interest which would have been due
since the date of the Filing computed at the interest rate charged
under the Contract (the "Contract Rate") from the Mortgagor/Principal
with respect to the Principal Differential had it not been the subject
of a Deficient Valuation;
(d) the per diem interest charge at the Contract Rate
on the Principal Differential;
(e) an amortization schedule based on the original
terms of the respective Contract and Mortgage;
(f) an amortization schedule based on the Deficient
Valuation; and
(g) other such information as the Surety may require.
6. Surety shall pay jointly to the Trustee and Obligee, within
fifteen (15) days after receipt of the Default Notice:
(a) at the option of the Surety, either (i) the
amount of the Principal Differential in a lump sum, or (ii) on a
monthly basis, the amount of the Principal Differential during such
month, which would have otherwise been amortized pursuant to the
Contract plus accrued interest on the Principal Differential ("Accrued
Interest") with such monthly payments to terminate upon payment in full
of the related Mortgage, or upon final claims settlement payments under
all mortgage insurance policies; and
(b) the amount of interest computed at the Contract
Rate owed on the Principal Differential from the date of the Filing to
the date of payment made under (a)(i) above or the date of the first
payment made under (a)(ii) above ("Initial Lost Interest");
provided, however, that the failure of the Obligee or Trustee to receive the
above referenced Principal Differential and Accrued Interest (if any) and
Initial Lost Interest payment (the "Deficient Funds") occurred solely due to the
effect of the Deficient Valuation. The above-described payments to be made
jointly to the Trustee and Obligee shall be made by Surety and shall satisfy all
obligations of Surety hereunder owed to
-3-
Obligee and Trustee. Separate Default Notices shall be submitted to Surety each
time Deficient Funds occur as the result of the filing of a petition in
Bankruptcy by one or more Mortgagors/Principals.
7. Obligee shall make a claim hereunder no later than twenty
(20) days after the date on which the Bankruptcy court makes a Deficient
Valuation or after a hearing by the Bankruptcy Court on the Deficient Valuation
issue, whichever occurs later, unless Surety agrees in writing to extend the
time for filing a claim.
8. Notice shall be sent by registered or certified United
States mail, postage prepaid, or by telex or telegram, addressed as follows:
if to Surety:
[NAME]
[ADDRESS]
if to Mortgagor/Principal:
[NAME]
[ADDRESS]
if to Obligee:
[NAME]
[ADDRESS]
if to Trustee:
[NAME]
[ADDRESS]
or such other place or person as they may, from time to time, designate in
writing.
9. No agreement by Surety and no course of dealing between
Surety and Obligee shall be effective to change or modify or to discharge, in
whole or in part, this Bond, unless in writing and executed by Surety.
10. No waiver of any rights or powers of Surety or Obligee or
consent by either of them shall be valid unless in writing signed by an
authorized officer or agent thereof. The waiver of any right by Surety or
Obligee or failure to exercise promptly any right shall not be construed as a
waiver of any other right to exercise the same at any time thereafter.
11. The first year's premium for this Bond is $[ ], payable by
the Obligee upon delivery of this Bond. Thereafter, the annual premium shall be
the greater of (i) $[1,000] or (ii) [0.0001] per annum applied to the
outstanding principal balances of mortgages being serviced under the Contract as
of the first day of January of each year of the Bond. After the Initial Policy
Year, the annual premium is payable by the Obligee on the [25th] day following
the anniversary date of this Bond. The premium shall be fully earned when
received, and there shall be no refund of any premium under this Bond.
-4-
12. This Bond is irrevocable, absolute and continuing and
shall remain in full force and effect so long as the Agreement (and any
supplements or amendments thereto) remains in full force and effect, except in
the event the premium required hereunder is not paid when due. There shall be no
right of cancellation under this Policy, except for non-payment of premium.
13. (a) The premium for this Bond shall be due and owing as
long as the Bond is in full force and effect. Surety will furnish notice to
Obligee and the Trustee of the amount of premium due each year not less than ten
(10) days prior to the due date of such premium.
(b) The Obligee shall provide Surety with the balance
outstanding under the Contracts and such other information as Surety
may be required to compute the applicable premium. Such information
shall be furnished to Surety by [ ] of each year and shall be computed
based on the [ ] balances. Failure of the Obligee to provide such
information within thirty (30) days after receipt of notice that such
information is due will entitle Surety to charge the Obligee an
estimated premium based on Surety's records, and with Surety's only
refund obligation to refund any excess premium (without interest
thereon) upon the Obligee providing such information as may be
necessary to compute the correct premium as of its due date, and
without the Obligee being relieved of its obligation to pay any further
premium if the estimated premium was less than the correct premium.
(c) Failure to pay any premium within thirty (30)
days after receipt of notice from Surety that such premium is due and
unpaid will terminate the liability of Surety with respect to the
coverage contained in this Bond.
14. In the event of a Bankruptcy of the Obligee, nothing
herein contained shall be interpreted so as to obligate the Surety to assume any
additional responsibilities, including but not limited to collection of funds
for distribution to the Trustee and/or Certificateholders.
15. Whenever the Surety makes payment to the Trustee and
Obligee on behalf of the Principal in settlement of a claim or obligation under
this Bond, the Surety is then subrogated to the rights and claims of the Trustee
and Obligee against the Principal to sue the Principal and pursue whatever other
remedies of law or equity which were available to the Trustee and Obligee with
respect thereto. Without limiting the foregoing, the Obligee shall file with the
Bankruptcy Court an assignment of its proof of claim and make claim in the
Bankruptcy Court in the amount of the claim made under this Bond or whatever
portion thereof is so subject to a claim in Bankruptcy on behalf of the Surety.
Upon payment from the Bankruptcy Court, Obligee shall reimburse to the Surety
the full amount received from the Bankruptcy Court as a result of Obligee's
claim.
16. Notwithstanding the fact that payments under the terms of
this Bond are to be made by Surety to Trustee, the obligations and duties of
Obligee and all other conditions of this Bond must be fully met for a claim to
be filed and fully payable.
17. For all purposes of this Bond, including all Endorsements
hereto, any addition to the principal amount of the Contracts resulting from the
accrual and deferral of interest set forth in a schedule in the original
Contracts, shall be deemed to be principal under this Bond.
18. Notwithstanding any other provision contained herein,
Surety shall be under no obligation to make any payment, or portion thereof,
which has previously been made by Mortgagor/Principal.
19. The Trustee shall be a party to this Agreement for the
purpose of receipt of payment hereunder and for no other purpose.
-5-
20. This Bond shall be effective as of 12:01 a.m. standard
time at the address of the Obligee on [ ], 199[_] and shall continue in full
force and effect during the term of the Contract.
[OBLIGEE]
(Corporate Seal) By
Its
Witness:
[SURETY]
(Corporate Seal) By
Its
Witness:
[TRUSTEE]
(Corporate Seal) By
Its
Witness:
-6-
