Registration No. 333-20025
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
(Depositor)
(Exact name of registrant as specified in its charter)
Virginia 52-1865887
(State or other jurisdiction (I.R.S. employer identification
of incorporation or number)
organization)
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 I. 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 Francis R. Snodgrass., Esquire
Dominion Resources, Inc. Arter & Hadden
Riverfront Plaza, West Tower 1801 K Street, N.W.
901 East Byrd Street, 17th Floor Washington, D.C. 20006-1301
Richmond, Virginia 23219 (202)-775-7153
(804) 775-5807
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.|_|
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
filed as part of this Registration Statement may be used in connection with the
securities covered by Registration Statement No. 333-4127.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
TITLE OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
CERTIFICATE* PRICE*
==========================================================================================================================
<S> <C>
Asset Backed $2,500,000,000 100% $2,500,000,000 $ 757,575
Certificates
==========================================================================================================================
</TABLE>
* Estimated solely for the purpose of calculating the registration fee: $303.03
paid on January 17, 1997. Pursuant to Rule 429 under the Securities Act of
1933, $315,011,000 amount of Asset Backed Securities registered under
Registration Statement No. 333-4127 are being carried forward and the filing
fee of $108,624.48 associated with such Certificates was previously paid with
Registration Statement No. 333-4127.
<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus Dated February 19, 1997)
$-----------
(Approximate)
Saxon Asset Securities Trust 1997-_
$__________ _____% Class A-1 Certificates
$__________ _____% Class A-2 Certificates
$__________ _____% Class A-3 Certificates
$__________ _____% Class A-4 Certificates
$__________ _____% Class A-5 Certificates
$___________ Class A-6 Variable Rate Certificates
Mortgage Loan Asset Backed Certificates, Series 1997-_
Saxon Asset Securities Company
as Depositor
[LOGO]
The Mortgage Loan Asset Backed Certificates, Series 1997-_ (the
"Certificates"), will consist of the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates (the "Fixed Rate Certificates"), the Class A-6
Certificates (the "Variable Rate Certificates," and, collectively with the Fixed
Rate Certificates, the "Class A Certificates") and the Class R Certificates (the
"Subordinated Certificates"). Only the Class A Certificates are offered hereby.
The Pass-Through Rate for the Variable Rate Certificates is _____%
per annum for the first Distribution Date and adjusts monthly thereafter as
described herein.
For a discussion of significant matters affecting investment in the
Certificates, see "Risk Factors" beginning on page S-11 herein and beginning on
page 6 in the Prospectus.
The Certificates will represent undivided ownership interests in
pools of mortgage loans (the "Mortgage Loans") held by a trust (the "Trust")
created pursuant to a Trust Agreement dated as of ________ _, 1997 (the
"Agreement"), among Saxon Asset Securities Company (the "Depositor"),
_______________________________________, as Master Servicer (the "Master
Servicer"), and _____________., as trustee (the "Trustee"). The Mortgage Loans
will be acquired by the Depositor from Saxon Mortgage, Inc. ("SMI"), an
affiliate of the Depositor which originated or acquired the Mortgage Loans from
various mortgage banking institutions.
(Cover continued on next page)
THE CLASS A CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE MASTER
SERVICER, THE TRUSTEE, ANY SELLER OR ANY OF THEIR AFFILIATES.NEITHER
THE CLASS A CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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 THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Class A Certificates will be purchased by the Underwriters from the
Depositor and will be offered by the Underwriters from time to time in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. Proceeds to the Depositor are expected to be approximately
$___________, plus accrued interest, before deducting expenses payable by the
Depositor estimated to be $_______. See "Underwriting" herein.
The Class A Certificates are offered by the Underwriters, subject to prior
sale, withdrawal, cancellation or modification of the offer without notice, to
delivery and acceptance by the Underwriters and certain other conditions. It is
expected that delivery of the Class A Certificates in book-entry form will be
made on or about ________ _, 1997, only through the facilities of The Depository
Trust Company, CEDEL and Euroclear.
- ----------------------------------
---------------
-------------------
------------------------
The date of this Prospectus Supplement is ________ __, 1997
<PAGE>
(Cover continued from previous page)
The Mortgage Loans will be secured by first and second liens on
single family residential properties, including investment properties (which may
be condominiums, one family residences, two-to-four family residences or homes
in planned unit developments). The Mortgage Loans will be serviced by Meritech
Mortgage Services, Inc., an affiliate of the Depositor, and ____________.
The Class A Certificates will be unconditionally and irrevocably
guaranteed to the extent described herein pursuant to the terms of two separate
certificate guaranty insurance policies (the "Certificate Insurance Policies")
issued by ___________________.
The obligations of the Depositor, the Master Servicer and the
Trustee with respect to the Certificates will be limited to their respective
contractual obligations under the Agreement. The assets of the Trust will
include two pools (each, a "Mortgage Loan Group" or "Group") of Mortgage Loans
secured by first and second mortgages or deeds of trust (the "Mortgages") on
single family residential properties (the "Mortgaged Premises") to be conveyed
by the Depositor to the Trust on the Closing Date. Distributions in respect of
the Fixed Rate Certificates will generally be calculated with reference to a
pool of fixed-rate first and second lien Mortgage Loans (the "Fixed Rate
Group"). Distributions in respect of the Variable Rate Certificates will
generally be calculated with reference to a pool of variable-rate first lien
Mortgage Loans (the "Variable Rate Group"). See "DESCRIPTION OF THE CLASS A
CERTIFICATES--Overcollateralization and Crosscollateralization Provisions" in
this Prospectus Supplement.
The Agreement provides that additional fixed-rate and variable-rate
Mortgage Loans (the "Subsequent Mortgage Loans") may be purchased by the Trust
from the Depositor from time to time on or before ________ _, 1997, from funds
on deposit in the Pre-Funding Account. On the Closing Date approximately
$__________ will be deposited in the Pre-Funding Account to be used to acquire
fixed-rate Subsequent Mortgage Loans for the Fixed Rate Group and approximately
$__________ will be deposited in the Pre-Funding Account to be used to acquire
variable-rate Subsequent Mortgage Loans for the Variable Rate Group.
Distributions of principal and interest to each Class of the Class A
Certificates will be made on the 25th day of each month or, if the 25th day is
not a business day, the first business day thereafter (each, a "Distribution
Date"), beginning on ___________. Distributions on the Subordinated Certificates
are subordinate to distributions on the Class A Certificates to the extent
described herein.
An election will be made to treat certain assets of the Trust as a
real estate mortgage investment conduit (a "REMIC") for federal income tax
purposes. As described more fully herein, each Class of Class A Certificates
will constitute "regular interests" in the REMIC. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" in this Prospectus Supplement and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- REMIC Certificates" in the Prospectus. The Fixed Rate
Certificates and, prior to the end of Funding Period, the Variable Rate
Certificates will not constitute "mortgage related securities" for purposes of
SMMEA (as defined herein). See "LEGAL INVESTMENT CONSIDERATIONS" in this
Prospectus Supplement.
There is currently no secondary market for the Class A Certificates.
The Underwriters intend to make a secondary market in the Class A Certificates
but have no obligation to do so. There can be no assurance that a secondary
market for the Class A Certificates will develop or, if it does develop, that it
will continue.
All the Mortgage Loans were originated or acquired in accordance
with SMI's loan programs for non-conforming credits. See "RISK FACTORS -- Risk
of Higher Delinquencies Associated With Underwriting Standards" in this
Prospectus Supplement.
TABLE OF CONTENTS
Prospectus Supplement
<PAGE>
Page
SUMMARY................................................................1
RISK FACTORS..........................................................12
USE OF PROCEEDS.......................................................14
THE MORTGAGE LOAN POOL................................................15
General.........................................................15
Conveyance of Subsequent Mortgage Loans.........................18
Conversion Option...............................................19
Interest Payments on the Mortgage Loans.........................19
Additional Information..........................................19
Servicing of the Mortgage Loans.................................20
Servicing and Other Compensation and
Payment of Expenses; Repurchase..............................21
Advances and Month End Interest.................................21
The Master Servicer.............................................21
PREPAYMENT AND YIELD CONSIDERATIONS...................................22
Mandatory Prepayment............................................23
Prepayments and Yields for Class A Certificates.................23
Payment Delay Feature of Fixed Rate Certificates................28
DESCRIPTION OF THE CLASS A CERTIFICATES...............................28
General.........................................................28
Available Funds.................................................28
Distributions...................................................29
Overcollateralization and Crosscollateralization Provisions.....31
Class A Distributions and Insured Payments......................33
Pre-Funding Account.............................................34
Capitalized Interest Account....................................34
Calculation of One Month LIBOR..................................34
Book Entry Registration of the Class A Certificates.............35
THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER........35
THE AGREEMENT.........................................................35
Formation of the Trust..........................................35
Reports to Certificateholders...................................36
Assignment of Mortgage Loans....................................37
Delivery and Substitution of Mortgage Loans.....................37
The Trustee, Certificate Registrar, Paying Agent
and the Custodian............................................37
Voting Rights...................................................37
Termination of the Trust........................................37
Optional Termination............................................38
Sale of Mortgage Loans..........................................38
Events of Default...............................................39
Governing Law...................................................39
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...............................39
REMIC Elections.................................................40
ERISA CONSIDERATIONS..................................................40
RATINGS...............................................................42
LEGAL INVESTMENT CONSIDERATIONS.......................................42
UNDERWRITING..........................................................44
REPORT OF EXPERTS.....................................................44
CERTAIN LEGAL MATTERS.................................................44
INDEX TO LOCATION OF PRINCIPAL DEFINED
TERMS..............................................................A-1
<PAGE>
TABLE OF CONTENTS (cont'd)
Prospectus
Page
Prospectus Summary.....................................................1
Risk Factors...........................................................6
Description of the Certificates........................................9
General..........................................................9
Classes of Certificates..........................................9
Book-Entry Procedures...........................................10
Global Clearance, Settlement and Tax Documentation Procedures...13
Allocation of Distributions.....................................16
Allocation of Losses and Shortfalls.............................17
Mortgage Assets.................................................17
Optional Termination............................................18
Maturity, Prepayment and Yield Considerations.........................18
The Trusts............................................................20
Assignment of Mortgage Assets...................................20
The Mortgage Loans--General.....................................21
Single Family Loans.............................................23
Junior Mortgage Loans...........................................23
Home Improvement Loans..........................................24
Home Equity Lines of Credit.....................................24
Repurchase of Converted Mortgage Loans..........................25
Repurchase of Delinquent Mortgage Loans.........................25
Substitution of Mortgage Loans..................................25
Mortgage-Backed Securities......................................26
Pre-Funding Account.............................................26
Asset Proceeds Account..........................................27
Credit Enhancement....................................................27
General.........................................................27
Subordination...................................................27
Certificate Guaranty Insurance Policies.........................28
Overcollateralization...........................................29
Cross Support...................................................29
Mortgage Pool Insurance Policies................................29
Special Hazard Insurance Policies...............................30
Bankruptcy Bonds................................................31
Reserve Funds...................................................31
Other Credit Enhancement........................................31
Origination of Mortgage Loans.........................................32
General.........................................................32
Representations and Warranties..................................33
Servicing of Mortgage Loans...........................................33
General.........................................................33
Payments on Mortgage Loans......................................34
Advances........................................................35
Collection and Other Servicing Procedures.......................35
Primary Mortgage Insurance Policies.............................36
Standard Hazard Insurance Policies..............................36
Maintenance of Insurance Policies; Claims Thereunder and
Other Realization Upon Defaulted Mortgage Loans..............38
Modification of Mortgage Loans..................................38
Evidence as to Servicing Compliance.............................39
Events of Default and Remedies..................................39
Master Servicer Duties..........................................39
Special Servicing Agreement.....................................40
The Agreement.........................................................40
The Trustee.....................................................40
Administration of Accounts......................................41
Reports to Certificateholders...................................41
Events of Default and Remedies..................................42
Amendment.......................................................42
Termination.....................................................43
Certain Legal Aspects of Mortgage Loans...............................43
General.........................................................43
The Mortgage Loans..............................................43
Foreclosure.....................................................44
Junior Mortgage Loans; Rights of Senior Mortgagees..............46
Right of Redemption.............................................47
Anti-Deficiency Legislation and Other Limitations on Lenders....48
Soldiers' and Sailors' Civil Relief Act of 1940.................48
Environmental Considerations....................................49
"Due-on-Sale" Clauses...........................................50
Enforceability of Certain Provisions............................50
The Depositor.........................................................51
Use of Proceeds.......................................................51
Certain Federal Income Tax Consequences...............................51
REMIC Certificates..............................................52
Securities Classified as Partnership Interests..................74
State and Local Taxation........................................74
State Tax Considerations..............................................75
ERISA Considerations..................................................75
Legal Investment Matters..............................................77
Plan of Distribution..................................................78
Available Information.................................................78
Incorporation of Certain Documents by Reference.......................79
Index to Location of Principal Defined Terms..........................80
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
--------------------
The Certificates offered by this Prospectus Supplement will be part of
a separate series of Certificates being offered by the Seller pursuant to its
Prospectus dated February 19, 1997, of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus Supplement and
the accompanying Prospectus. Reference is made to the "Index to Location of
Principal Defined Terms" in this Prospectus Supplement and in the Prospectus for
the definitions of certain capitalized terms.
Trust: Saxon Asset Securities Trust 1997-_ (the "Trust").
Certificates: The Mortgage Loan Asset Backed Certificates,
Series 1997-_ (the "Certificates") consist of the
Class A-1, Class A-2, Class A-3
Certificates "Class A-3, Class A-4 and
Class A-5 Certificates (the "Fixed Rate
Certificates") and the Class A-6 Certificates (the
" Certificates"Variable Rate Certificates" and,
together with the Fixed Rate Certificates, the
"Class A Certificates") and the Class R
Certificates (the "Subordinated Certificates").
The Certificates will be issued pursuant to a
trust agreement to be dated as of ________ _, 1997
(the "Agreement"), among the Depositor, the Master
Servicer and the Trustee. Only the Class A
Certificates are offered hereby.
Denominations: The Class A Certificates are issuable in book
entry form in minimum denominations of $1,000 in
original principal amount and integral multiples
thereof.
Depositor: Saxon Asset Securities Company (the "Depositor"),
a Virginia corporation and wholly owned limited
purpose financing subsidiary of Dominion Mortgage
Services, Inc. The Depositor's principal executive
offices are located at 4880 Cox Road, Glen Allen,
Virginia 23060, and its phone number is (804)
967-7400.
SMI: Saxon Mortgage, Inc. ("SMI"), a Virginia
corporation and an affiliate of the Depositor.
Master Servicer: ________________________________________, a
national banking association (the "Master
Servicer").
Custodian, Certificate
Registrar and Paying Agent: ________________________________________, a
national banking association (in such several
capacities, the "Custodian", the "Certificate
Registrar" and the "Paying Agent").
Trustee: ______________, a national banking association
(the "Trustee").
Servicers: Meritech Mortgage Services, Inc., an affiliate of
the Depositor, and ____ ______________________.
Closing Date: On or about ________ _, 1997.
Cut-Off Date: As of the close of business on ________ __, 1997.
S-1
<PAGE>
Certificates Offered: The Initial Certificate Principal Balances, the
Pass-Through Rates and the Last Scheduled
Distribution Dates for the Class A Certificates
are as follows:
<TABLE>
<CAPTION>
Initial Certificate Pass-Through Last Scheduled
Class Principal Balance(1) Rates Distribution Date(2)
<S> <C>
Class A-1 $________ ____%
Class A-2 $________ ____% ________ __, 20__
Class A-3 $________ ____% ___________, 20__
Class A-4 $________ ____% ________ __, 20__
Class A-5 $________ ____% ________ __, 20__
Class A-6 $________ (3) ________ __, 20__
</TABLE>
(1) The Initial Certificate Principal Balance of
each Class of Class A Certificates may be
increased or decreased by up to _% on the Closing
Date, depending upon the Initial Mortgage Loans
actually acquired by the Trust and the amount
deposited into the Pre-Funding Account.
Accordingly, any investor's commitments with
respect to a Class of decreased. Thereafter, the
"Certificate Principal Balance" of each Class of
Class A Certificates is the Initial Certificate
Principal Balance of each such Class, less all
amounts previously distributed to the Holders of
such Class on account of principal.
(2) It is expected that the actual last
Distribution Date for each Class of Certificates
will occur significantly earlier than such Last
Scheduled Distribution Dates. See "PREPAYMENT AND
YIELD CONSIDERATIONS" in this Prospectus
Supplement.
(3) For the first Distribution Date, the
Pass-Through Rate for the Variable Rate
Certificates is _____% per annum. On each
Distribution Date thereafter, the Variable Rate
Pass-Through Rate will be equal to the least of
(i) with respect to any Distribution Date which
occurs on or before the Initial Optional
Termination Date (as defined herein) the London
interbank offered rate for one-month United
States dollar deposits ("One Month LIBOR")
(calculated as described under "DESCRIPTION OF
THE CLASS A CERTIFICATES -- Calculation of One
Month LIBOR" in this Prospectus Supplement) as of
the second business day prior to the immediately
preceding Distribution Date plus ____% per annum
and for any Distribution Date that occurs on or
after the Initial Optional Termination Date, One
Month LIBOR plus ____% per annum, (ii) the
weighted average of the maximum lifetime Mortgage
Interest Rates on the Mortgage Loans in the
Variable Rate Group less approximately _____% per
annum and (iii) the "Variable Rate Available
Funds Cap", which is defined as a per annum rate
equal to (I) the quotient of the total scheduled
interest on the Mortgage Loans in the Variable
Rate Group during the related Due Period divided
by the Certificate Principal Balance of the
Variable Rate Certificates less (II)
approximately _____% per annum prior to the
thirteenth Distribution Date and approximately
_____% thereafter.
If on any Distribution Date the Variable Rate
Pass-Through Rate is based upon the Variable Rate
Available Funds Cap, the excess of (i) the amount
of interest the Variable Rate Certificates would
have been entitled to receive on such
Distribution Date had the Variable Pass-Through
Rate not been calculated based on the Variable
Rate Available Funds Cap over (ii) the amount of
interest such Certificates received on such
Distribution Date based on the Variable Rate
Available Funds Cap, together with the unpaid
portion of any such excess from prior
Distribution Dates (and interest accrued thereon
at the then applicable Pass-Through Rate, without
giving effect to the Variable Rate Available
Funds Cap), is the "Variable Rate Certificates
Carryover". Any Variable Rate Certificates
Carryover will be paid on future Distribution
Dates as set forth under "DESCRIPTION OF THE
CLASS A CERTIFICATES -- Distributions" in this
Prospectus Supplement. The rating of the Variable
Rate Certificates does not address the likelihood
of the payment of the amount of any Variable Rate
Certificates Carryover and the applicable
Certificate Insurance Policy does not guarantee
payment of any such amount.
Trust Assets: The assets of the Trust initially will include
two pools (each, a "Mortgage Loan Group" or
"Group") of mortgage loans (the "Initial Mortgage
Loans") secured by mortgages or deeds of trust
(the "Mortgages") on single family residential
properties (the "Mortgaged Premises") to be
conveyed to the Trust on the Closing Date.
S-2
<PAGE>
Distributions in respect of the Fixed Rate
Certificates will generally be calculated with
reference to a pool of fixed-rate first and
second lien Mortgage Loans (the "Fixed Rate
Group"). Distributions in respect of the Variable
Rate Certificates generally will be calculated
with reference to a pool of variable-rate first
lien Mortgage Loans (the "Variable Rate Group").
See "DESCRIPTION OF THE CLASS A CERTIFICATES --
Overcollateralization and Crosscollateralization
Provisions" in this Prospectus Supplement.
On the Closing Date, approximately $__________
(the "Original Pre-Funded Amount") will be
deposited in the Pre-Funding Account (as defined
herein). It is intended that additional Mortgage
Loans (the "Subsequent Mortgage Loans") be
purchased by the Trust from the Depositor from
time to time on or before ________ _, 1997, from
funds on deposit in the Pre-Funding Account. Each
Subsequent Mortgage Loan so acquired by the Trust
will be assigned to one (and only one) of either
the Fixed Rate Group or the Variable Rate Group.
As a result, the aggregate principal balance of
the Mortgage Loans in the Fixed Rate Group and
the Variable Rate Group will increase by an
amount equal to the aggregate principal balance
of the Subsequent Mortgage Loans so purchased and
the amount in the Pre-Funding Account will
decrease by an offsetting amount.
The Initial Mortgage Loans and the Subsequent
Mortgage Loans are referred to collectively as
the "Mortgage Loans".
All the Mortgage Loans will be originated or
acquired by SMI in accordance with its mortgage
loan program as described in the Prospectus. As a
general matter, SMI's mortgage loan program
consists of the origination and packaging of
mortgage loans relating to non-conforming
credits. A non-conforming credit means a mortgage
loan which is ineligible for purchase by Federal
National Mortgage Association ("FNMA") due to
credit characteristics that do not meet FNMA
guidelines. Mortgage loans originated under SMI's
mortgage loan program are likely to experience
rates of delinquency, bankruptcy and loss that
are higher than mortgage loans originated under
FNMA guidelines.
On the Closing Date, cash will be deposited in
the name of the Paying Agent in the Capitalized
Interest Account (as defined herein) to be
applied by the Trustee to cover shortfalls in
interest attributable to the provisions allowing
for the purchase of Subsequent Mortgage Loans.
Initial Mortgage Loans: Wherever reference is made herein to the
characteristics of the Mortgage Loans (or to the
Mortgage Loans in a Group) or to a percentage
thereof, the reference is based on the Scheduled
Principal Balances of the Initial Mortgage Loans
(or the Initial Mortgage Loans in a Group) as of
the Cut-Off Date. The characteristics of the
Mortgage Loans as a whole will change upon the
acquisition of Subsequent Mortgage Loans. See
"THE MORTGAGE LOAN Pool -- Additional
Information" in this Prospectus Supplement.
The Initial Mortgage Loans consisted of _____
fixed-rate and variable-rate Mortgage Loans on
single-family residential properties, including
investment properties (which may be condominiums,
one family residence, two-to-four family
S-3
<PAGE>
residences or homes in planned unit developments)
of which less than __% were 30 days or more
delinquent in monthly payments. See "RISK FACTORS
-- Risk of Higher Delinquencies Associated with
Underwriting Standards" in this Prospectus
Supplement.
Fixed Rate Group. The following summarizes the
characteristics of the Initial Mortgage Loans in
the Fixed Rate Group (percentages are based on
the aggregate Scheduled Principal Balance of the
Fixed Rate Group):
<TABLE>
<CAPTION>
<S> <C>
Aggregate Schedule Principal Balances $______________
Average Scheduled Principal Balances $______________
Range of Scheduled Principal Balance $_____ to $_____
Range of Mortgage Interest Rates ____% to ____%
Weighted Average Mortgage Interest Rate ____%
Weighted Average Loan-to-Value Ratio ____%
Weighted Average Remaining Term to Stated Maturity ___ months
Range of Remaining Term to Stated Maturity __ to ___ months
Second Liens ____%
Balloon Mortgage Loans ____%
Mortgaged Premises
One-family detached dwellings ____%
Planned unit developments ____%
Condominiums ____%
Weighted Average Servicing Fee Rate ____%
</TABLE>
Variable Rate Group. The following summarizes the
characteristics of the Initial Mortgage Loans in
the Variable Rate Group (percentages are based on
the aggregate Scheduled Principal Balances of the
Variable Rate Group):
<TABLE>
<CAPTION>
<S> <C>
Aggregate Scheduled Principal Balances $________________
Average Scheduled Principal Balance $________________
Range of Scheduled Principal Balance $______ to $_____
Mortgage Interest Rates(1)
By Type of Index:
Six Month LIBOR ____%
One Year CMT ____%
3/27 and 2/28/LIBOR ____%
Gross Margin Range:
Six Month LIBOR ____% to ____%
One Year CMT ____% to ____%
3/27 and 2/28/LIBOR ____% to ____%
Current Weighted Average Mortgage Interest Rate ____%
Range of Current Mortgage Interest Rates ____% to ____%
Weighted Average Maximum Lifetime Mortgage Interest Rate ____%
Range of Maximum Lifetime Mortgage Interest Rates ____% to ____%
Weighted Average Lifetime Minimum Mortgage Interest Rate ____%
Range of Minimum Lifetime Mortgage Interest Rates ____% to ____%
Weighted Average Loan-to-Value Ratio ____ months
Weighted Average Remaining Term to Maturity ____ months
Mortgage Premises
One-family detached dwelling ____%
One-family attached dwelling ____%
Planned unit developments ____%
Condominiums ____%
Weighted Average Servicing Fee Rate ____%
</TABLE>
S-4
<PAGE>
(1) All the Mortgage Loans in the Variable Rate
Group are expected to be subject to periodic
interest rate Substantially all the Mortgage
Loans had interest rates which were not fully
indexed (i.e., the Mortgage Interest Rates did
not equal the sum of the gross margin and the
applicable index.
See "THE MORTGAGE LOAN POOL -- Characteristics of
the Initial Mortgage Loans" in this Prospectus
Supplement.
Distributions, Generally: Distributions on the Certificates will be made on
the 25th day of each calendar month, or if such
day is not a business day, the next succeeding
business day (each, a "Distribution Date")
commencing on ________ __, ____, to the holders
of record as of the last business day of the
month immediately preceding the calendar month in
which such Distribution Date occurs, or the
Closing Date in the case of the first
Distribution Date (each a "Record Date").
Distributions of Interest: On each Distribution Date, the interest due with
respect to the Fixed Rate Certificates will be
the interest which has accrued thereon at the
related Pass-Through Rate during the calendar
month immediately preceding the calendar month in
which such Distribution Date occurs; and the
interest due with respect to the Variable Rate
Certificates will be the interest which has
accrued thereon at the then applicable Variable
Rate Pass-Through Rate from and including the
preceding Distribution Date (or from the Closing
Date in the case of the first Distribution Date)
to and including the day prior to the current
Distribution Date. Each period referred to in
the prior sentence relating to the accrual of
interest is the "Accrual Period" for the related
Class of Class A Certificates and the amount of
interest due on a Class of Class A Certificates
on a Distribution Date less any Variable Rate
Certificates Carryover is the "Class A Current
Interest" for such Class of Class A Certificates
on such Distribution Date.
All calculations of interest on the Fixed Rate
Certificates will be made on the basis of a
360-day year assumed to consist of twelve 30-day
months. All calculations of interest on the
Variable Rate Certificates will be made on the
basis of the actual number of days and a year of
360 days.
Distributions of Principal: On each Distribution Date, the Holders of the
Class A Certificates are entitled to receive
monthly distributions in reduction of their
Certificate Principal Balances which
distributions (i) will generally reflect
collections of principal in respect of the
Mortgage Loans in the related Group on each
Distribution Date and (ii) until certain
overcollateralization levels have been reached,
will include excess interest; provided, however,
any such amounts payable to the Fixed Rate
Certificates will be payable first to the Class
A-1 Certificates, until the Certificate Principal
Balances thereof have been reduced to zero, then
to the Class A-2 Certificates until the
Certificate Principal Balances thereof have been
reduced to zero, then to the Class A-3
Certificates until the Certificate Principal
Balances thereof have been reduced to zero, then
S-5
<PAGE>
to the Class A-4 Certificates until the
Certificate Principal Balances thereof have been
reduced to zero, and then to the Class A-5
Certificates. See "DESCRIPTION OF THE CLASS A
CERTIFICATES-- Distributions" and "--
Overcollateralization and Crosscollateralization
Provisions" in this Prospectus Supplement.
Credit Enhancement: The Credit Enhancement provided for the benefit
of the Holders of the Class A Certificates
consists of (x) excess interest, (y) the
overcollateralization and crosscollateralization
mechanics which utilize the internal cash flows
of the Trust and (z) the Certificate Insurance
Policies.
Overcollateralization and Crosscollateralization.
The cashflow provisions of the Trust and the
requirements of the Certificate Insurer are
expected to result in an increased rate of
amortization of the Class A Certificates relative
to the amortization of the related Mortgage Loans
through the application of excess interest to the
payment of the principal of Class A Certificates
until the required level of overcollateralization
is achieved. In addition, the cashflow provisions
of the Agreement require, under certain
circumstances, that excess interest generated by
one Mortgage Loan Group be used to fund
shortfalls with respect to the other Mortgage
Loan Group or to accelerate the amortization of
the Class A Certificates related to the other
Mortgage Loan Group. As a result of the
application of excess interest to pay down Class
A Certificates, there is expected to be an excess
of the aggregate Scheduled Principal Balances of
the Mortgage Loans in each Mortgage Loan Group
over the Certificate Principal Balances of the
related Class A Certificates. Once the required
level of overcollateralization is reached, and
subject to the provisions described in the next
paragraph, the increased rate of amortization of
the Class A Certificates will cease, unless
necessary to maintain the required level of
overcollateralization.
The Agreement, together with the requirements of
the Certificate Insurer provides that, to the
extent required by the Certificate Insurer and
subject to certain floors, caps and triggers, the
required level of overcollateralization with
respect to a Mortgage Loan Group may increase or
decrease over time. An increase would result in a
temporary period of faster amortization of the
related Class A Certificates to increase the
actual level of overcollateralization to its
required level; a decrease would result in a
temporary period of slower amortization to reduce
the actual level of overcollateralization to its
required level.
See "DESCRIPTION OF THE CLASS A CERTIFICATES --
Overcollateralization and Crosscollateralization
Provisions" in this Prospectus Supplement.
S-6
<PAGE>
The Certificate Insurance Policies. The Depositor
will obtain the Certificate Insurance Policies,
which are noncancelable, in favor of the Trustee
on behalf of the Holders of each Class of the
Class A Certificates. On each Distribution Date,
subject to the terms of the related Certificate
Insurance Policy, the Certificate Insurer will be
required to make available to the Trustee the
amount by which the related Class A Current
Interest and any Subordination Deficit (as
defined herein), if any, for the related Mortgage
Loan Group exceeds the Total Available Funds for
such Group (as defined herein) after deducting
the amount necessary to pay the related premium
amount to the Certificate Insurer for such
Mortgage Loan Group as of such Distribution Date.
The Certificate Insurance Policies do not
guarantee to Holders of the related Class A
Certificates any specified rate of prepayments or
any Variable Rate Certificates Carryover. See
"THE CERTIFICATE INSURANCE POLICIES AND THE
CERTIFICATE INSURER" in this Prospectus
Supplement and "DESCRIPTION OF CREDIT
ENHANCEMENT" in the Prospectus.
Certificate Insurer: __________________________ (the "Certificate
Insurer").
Pre-Funding Account: On the Closing Date, the Original Pre-Funded
Amount (approximately $__________) will be
deposited in the Pre-Funding Account which will
be in the name of the Trustee on behalf of the
Trust. Approximately $__________ of such
aggregate amount will be funded from the sale of
the Fixed Rate Certificates and an amount of
approximately $__________ of such aggregate
amount will be funded from the sale of the
Variable Rate Certificates and may be used to
acquire Subsequent Mortgage Loans for addition to
the Fixed Rate Group and the Variable Rate Group,
respectively. The Original Pre-Funded Amount
will be reduced during the Funding Period by the
amount thereof used to purchase Subsequent
Mortgage Loans in accordance with the Agreement.
Until the earlier of (i) the date on which the
amount on deposit in the Pre-Funding Account is
less than $100,000, (ii) the date on which an
Event of Default occurs under the Agreement and
(iii) ________ _, 1997 (the "Funding Period"),
the Pre-Funded Amount will be maintained in the
Pre-Funding Account. The amount on deposit in the
Pre-Funding Account at any time, less any
interest and other investment earnings on amounts
on deposit therein (the "Pre-Funding Account
Earnings"), is the "Pre-Funded Amount".
Subsequent Mortgage Loans added to the Fixed Rate
Group or the Variable Rate Group on any date
(each, a "Subsequent Sales Date") must satisfy
the criteria for such Group set forth in the
Agreement. Any Pre-Funded Amount remaining at the
end of the Funding Period with respect to either
Group will be distributed to the Holders of the
related Certificates then entitled to receive
distributions of principal on the Distribution
Date that immediately follows the end of the
Funding Period in reduction of the Certificate
Principal Balance of such Holders' Certificates,
as specified herein under "DESCRIPTION OF THE
CLASS A CERTIFICATES -- Distributions" in this
Prospectus Supplement. Pre-Funding Account
Earnings will be deposited in the Capitalized
Interest Account. The Pre-Funding Account will be
an asset of the Trust but will not be an asset of
the REMIC (as defined herein).
S-7
<PAGE>
Capitalized Interest Account: On the Closing Date, cash will be deposited in
the Capitalized Interest Account which account
will be in the name of the Trustee on behalf of
the Trust. The amount on deposit in the
Capitalized Interest Account, including
reinvestment income thereon, will be used by the
Paying Agent to fund on each Distribution Date to
and including the Distribution Date immediately
following the end of the Funding Period the
excess of (i) the sum of (a) the applicable Class
A Current Interest for such Distribution Date and
(b) the related premium amount to the Certificate
Insurer for such Distribution Date over (ii) the
Interest Funds (as defined herein) for the
related Mortgage Loan Group and Master Servicer
Remittance Date. Amounts remaining in the
Capitalized Interest Account at the end of the
Funding Period will be paid to the Seller. The
Capitalized Interest Account will be an asset of
the Trust but will not be an asset of the REMIC
(as defined herein).
Mandatory Prepayment of
Certificates: If, at the end of the Funding Period, not all the
approximately $__________ and $__________ funded
from the sale of the Fixed Rate Certificates and
Variable Rate Certificates, respectively, has
been used to acquire Subsequent Mortgage Loans
with respect to the related Group, then the Class
A Certificates of the related Group will receive
a prepayment not later than ________ __, 1997.
The Agreement does not permit Pre-Funding Account
moneys funded from the sale of one Group of Class
A Certificates to be used to acquire Subsequent
Mortgage Loans relating to the other Group of
Class A Certificates.
Although no assurance can be given, it is
intended that the principal amount of Subsequent
Mortgage Loans sold to the Trust and added to the
Fixed Rate Group or the Variable Rate Group will
require application of substantially all the
Original Pre-Funded Amount, and it is not
intended that there be any material amount of
principal prepaid to the Holders of the Fixed
Rate or Variable Rate Certificates from the
Pre-Funding Account.
Advances and Month-End
Interest: Each Servicer will be obligated to make advances
("Advances") with respect to delinquent payments
of interest (at the related Mortgage Interest
Rate less the Servicing Fee, as defined below)
and scheduled principal due on each Mortgage Loan
serviced by it to the extent that the Master
Servicer determines, in good faith, that such
Advances will be recoverable from Insurance
Proceeds, Liquidation Proceeds or subsequent
payments with respect to such Mortgage Loan. See
"SERVICING OF MORTGAGE LOANS -- Advances" in the
Prospectus.
In addition, the Servicers will be required to
deposit in its Custodial Account on or before
each of its remittance dates, an amount equal to
Month End Interest (as defined herein) with
respect to the preceding prepayment period.
Servicing Fee: Each Servicer will be entitled to (i) a monthly
servicing fee with respect to each Mortgage Loan
serviced by it (the "Servicing Fee"), which fee
will be payable from an amount equal to
one-twelfth of a fixed percentage per annum (the
"Servicing Fee Rate") multiplied by the Scheduled
Principal Balance of such Mortgage Loan on the
first day of the Due Period (the period from and
S-8
<PAGE>
including the second day of a month to and
including the first day of the following month)
with respect to each Distribution Date and (ii)
additional servicing compensation described
herein. See "THE MORTGAGE LOAN POOL-- Servicing
and Other Compensation and Payment of Expenses"
in this Prospectus Supplement and "SERVICING OF
THE MORTGAGE LOANS" in the Prospectus.
Master Servicing Fee: The Master Servicer will be entitled to a monthly
fee with respect to each Mortgage Loan (the
"Master Servicing Fee"), payable on each
Distribution Date, in an amount equal to
one-twelfth of _____% per annum (the "Master
Servicing Fee Rate") multiplied by the Scheduled
Principal Balance of such Mortgage Loan on the
first day of the Due Period with respect to each
Distribution Date. The Master Servicer will pay
the Trustee, the Paying Agent, the Certificate
Registrar and the Custodian their monthly fees
out of the Master Servicing Fee. See "THE
MORTGAGE LOAN POOL-- The Master Servicer" in this
Prospectus Supplement and "SERVICING OF MORTGAGE
LOANS-- Master Servicer Duties" in the
Prospectus.
Optional Termination: The Holders of Class R Certificates will have the
right to purchase all the Mortgage Loans when the
aggregate Scheduled Principal Balances of the
Mortgage Loans have declined to less than 10% of
the sum of (a) the aggregate Scheduled Principal
Balances of the Initial Mortgage Loans as of the
Closing Date and (b) the Original Pre-Funded
Amount (the "Maximum Collateral Amount"). Any
such repurchase will result in the early
retirement of the Certificates. See "THE
AGREEMENT -- Optional Termination" in this
Prospectus Supplement.
Ratings: It is a condition of the original issuance of the
Class A Certificates that the Class A
Certificates receive ratings of AAA by Standard &
Poor's Ratings Service, a Division of The
McGraw-Hill Companies, Inc. ("Standard &
Poor's"), and Aaa by Moody's Investors Service,
Inc. ("Moody's"). A security rating is not a
recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at
any time by the assigning entity. See "PREPAYMENT
AND YIELD CONSIDERATIONS" and "RATINGS" in this
Prospectus Supplement and "MATURITY, PREPAYMENT
AND YIELD Considerations" in the Prospectus.
Book-Entry Registration of the
Class A Certificates: The Class A Certificates will initially be issued
in book-entry form. Persons acquiring beneficial
ownership interests in such Class A Certificates
("Beneficial Holders") may elect to hold their
interests through The Depository Trust Company
("DTC"), in the United States, or CEDEL Bank,
S.A. ("CEDEL") or the Euroclear System
("Euroclear"), in Europe. Transfers within DTC,
CEDEL or Euroclear, as the case may be, will be
made in accordance with the usual rules and
operating procedures of the relevant system. So
long as the Class A Certificates are Book-Entry
Certificates (as defined herein), such
Certificates will be evidenced by one or more
Certificates registered in the name of Cede & Co.
("Cede"), as the nominee of DTC or one of the
European Depositaries (as defined below).
Cross-market transfers between persons holding
directly or indirectly through DTC, on the one
hand, and counterparties holding directly or
indirectly through CEDEL or Euroclear, on the
other, will be effected in DTC through Citibank
S-9
<PAGE>
N.A. Citibank") or Chase Manhattan Bank ("Chase",
and together with Citibank, the "European
Depositaries"), the relevant depositaries of
CEDEL and Euroclear, respectively, and each a
participating member of DTC. No Beneficial
Holder will be entitled to receive a definitive
certificate representing such person's interest,
except in the event that Definitive Certificates
(as defined herein) are issued under the limited
circumstances described herein. All references
in this Prospectus Supplement to any Class A
Certificates reflect the rights of Beneficial
Holders only as such rights may be exercised
through DTC and its participating organizations
for so long as such Class A Certificates are held
by DTC. See "DESCRIPTION OF THE CLASS A
CERTIFICATES--Book-Entry Registration of the
Class A Certificates" and "--Global Clearance,
Settlement and Tax Documentation Procedures" in
the Prospectus.
Federal Income Tax Aspects: For Federal income tax purposes an election will
be made to treat the Trust (exclusive of the
Pre-Funding Account and the Capitalized Interest
Account) as a "real estate mortgage investment
conduit" (the "REMIC"). Each Class of Class A
Certificates will be designated as "regular
interests" in the REMIC and generally will be
treated as debt instruments of the Trust for
federal income tax purposes. The REMIC will also
issue the Class R Certificates, which will be
designated as the sole class of "residual
interests" in the REMIC. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" in this Prospectus
Supplement and in the Prospectus.
ERISA Considerations: Fiduciaries of employee benefit plans subject to
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or plans subject to
Section 4975 of the Internal Revenue Code of 1986
(the "Code") should carefully review with their
legal advisors whether the purchase or holding of
the Class A Certificates could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or the Code. See "ERISA
CONSIDERATIONS" in this Prospectus Supplement and
in the Prospectus.
Legal Investment
Considerations: Upon the termination of the Funding Period, the
Variable Rate Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") for so long as they are rated in one of
the two highest rating categories by one or more
nationally recognized statistical rating
organizations. As such, the Variable Rate
Certificates will be legal investments for
certain entities to the extent provided in SMMEA,
subject to state laws overriding SMMEA. In
addition, institutions whose investment
activities are subject to review by federal or
state regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of mortgage related
securities. Furthermore, certain states have
enacted legislation overriding the legal
investment provisions of SMMEA.
Although the Fixed Rate Certificates are expected
to be rated "AAA" by Standard & Poor's and "Aaa"
by Moody's, the Fixed Rate Certificates will not
constitute "mortgage related securities" for
purposes of SMMEA because some of the Mortgage
Loans in the Fixed Rate Group are secured by
second liens. Accordingly, many institutions with
S-10
<PAGE>
legal authority to invest in comparably rated
securities may not be legally authorized to
invest in the Fixed Rate Certificates.
S-11
<PAGE>
RISK FACTORS
Prospective investors in the Class A Certificates should consider
the following factors (as well as the factors set forth under "RISK FACTORS" in
the Prospectus) in connection with the purchase of the Class A Certificates.
Risk of Mortgage Loan Interest Rates Reducing Variable Rate
Pass-Through Rate. Subject to the Variable Rate Available Funds Cap, the
Variable Rate Pass-Through Rate is based upon the value of an index (One Month
LIBOR) which is different from the value of the indices applicable to the
Mortgage Loans in the Variable Rate Group, as described under "THE MORTGAGE POOL
- -- Variable Rate Group" in this Prospectus Supplement (either as a result of the
use of a different index rate, determination date, rate adjustment date or rate
cap or floor). The Variable Rate Group contains Mortgage Loans the interest
rates of which adjust semi-annually based upon Six Month LIBOR or annually based
on a One Year CMT Index or semi-annually based upon Six Month LIBOR beginning
two or three years after origination whereas the Pass-Through Rate on the
Variable Rate Certificates adjusts monthly based upon One Month LIBOR, subject
to the Variable Rate Available Funds Cap. Consequently, the Variable Rate
Pass-Through Rate for any Distribution Date may not equal the rate determined on
the basis of One Month LIBOR plus the applicable margin on the Variable Rate
Certificates during the related Accrual Period. In particular, the Variable Rate
Pass-Through Rate adjusts monthly, while the interest rates of the Mortgage
Loans in the Variable Rate Group adjust less frequently, with the result that
the Variable Rate Available Funds Cap may be lower than the otherwise applicable
Variable Rate Pass-Through Rate for extended periods in a rising interest rate
environment. In addition, One Month LIBOR and the indices applicable to such
Mortgage Loans may respond to different economic and market factors, and there
is not necessarily any correlation between them. Thus, it is possible, for
example, that One Month LIBOR may rise during periods in which such indices are
stable or are falling or that, even if One Month LIBOR and such indices rise
during the same period, One Month LIBOR may rise much more rapidly than such
indices. If the Variable Pass-Through Rate on any Distribution Date is limited
by application of the Variable Rate Available Funds Cap, a Variable Rate
Certificates Carryover will result and, to the extent funds are available on
subsequent Distribution Dates in accordance with the priority of payment
provisions set forth in the Agreement, will be distributed to the Variable Rate
Certificates.
Risk of Early Prepayment of Principal Associated with the
Pre-Funding Account. If the principal amount of eligible Subsequent Mortgage
Loans available during the Funding Period is less than 100% of the Original
Pre-Funded Amount, the Depositor will have insufficient Subsequent Mortgage
Loans to sell to the Trust for addition to the Fixed Rate Group and the Variable
Rate Group on the Subsequent Sales Dates, thereby resulting in a prepayment of
principal to Holders of the Fixed Rate Certificates and/or the Variable Rate
Certificates as described herein. See "Social, Economic and Other Factors"
below.
To the extent that amounts on deposit in the Pre-Funding Account
have not been fully applied to the purchase of Subsequent Mortgage Loans by the
Trust for inclusion in the Fixed Rate Group or the Variable Rate Group by the
end of the Funding Period, the Holders of the Fixed Rate Certificates and/or the
Variable Rate Certificates will receive a prepayment of principal in an amount
equal to the Pre-Funded Amount, remaining in the Pre-Funding Account on the
first Distribution Date following the end of the Funding Period (in no event
later than ________ __, 1997). Although no assurances can be given, the
Depositor intends that the principal amount of Subsequent Mortgage Loans sold to
the Trust require the application of substantially all the Original Pre-Funded
Amount and that there be no material principal prepayment to the Holders of the
Fixed Rate Certificates or the Variable Rate Certificates from the Original
Pre-Funded Amount.
Subsequent Mortgage Loans may have different characteristics than
the Initial Mortgage Loans. Therefore, following the transfer of Subsequent
Mortgage Loans to the Fixed Rate Group or the Variable Rate Group, the aggregate
characteristics of the Mortgage Loans then held in such Group may vary from
those of the Initial Mortgage Loans in such Group. See "THE MORTGAGE LOAN
POOL--Conveyance of Subsequent Mortgage Loans.
Risk of Higher Delinquencies Associated with Underwriting Standards.
All the Mortgage Loans will be originated or acquired by SMI in accordance with
its mortgage loan program as described in the Prospectus. As a general matter,
SMI's mortgage loan program consists of the origination and packaging of
mortgage loans relating to non-conforming credits. A non-conforming credit means
a mortgage loan which is ineligible for purchase by Federal National Mortgage
Association ("FNMA") due to credit characteristics that do not meet FNMA
12
<PAGE>
guidelines. Mortgage loans originated under SMI's mortgage loan program are
likely to experience rates of delinquency, bankruptcy and loss that are higher
than mortgage loans originated under FNMA guidelines. Nevertheless,
approximately __% and approximately __% (by aggregate Scheduled Principal
Balances as of the Cut-Off Date) of the Mortgage Loans in the Fixed Rate Group
and Variable Rate Group, respectively, had a first monthly payment due on or
before _______ _, 1997. Therefore, it was not possible for any Mortgage Loan
other than such Mortgage Loans to have had a monthly payment that was delinquent
30 days or more.
Risk of Higher Default Rates Associated with California Real
Property. Because the Mortgaged Premises for approximately __% of the Initial
Mortgage Loans (approximately __% by Scheduled Principal Balance) in the
Variable Rate Group and approximately __% of the Initial Mortgage Loans
(approximately __% by Scheduled Principal Balance) in the Fixed Rate Group are
located in California, an overall decline in the California residential real
estate market could adversely affect the values of the Mortgaged Premises
securing such Mortgage Loans, causing the Scheduled Principal Balances of the
related Mortgage Loans to equal or exceed the value of such Mortgaged Premises.
The standard hazard insurance policy required to be maintained under
the terms of each Mortgage Loan does not insure against physical damage arising
from earth movement (including earthquakes, landslides and mudflows). See
"SERVICING OF MORTGAGE LOANS -- Standard Hazard Insurance Policies" in the
Prospectus. Accordingly, if any such event causes losses in respect of the
Mortgage Loans, the protection afforded by the overcollateralization and
crosscollateralization of the Certificates is insufficient and the Certificate
Insurer is unable to meet its obligations under the related Certificate
Insurance Policy, the Holders of the Class A Certificates could experience a
loss on their investment.
Risk of Higher Default Rates Associated with Second Liens. Because
approximately ___% of the aggregate Scheduled Principal Balance of the Mortgage
Loans in the Fixed Rate Group are secured by second liens subordinate to the
rights of the mortgagee or beneficiary under the related first mortgage or deed
of trust, the proceeds from any liquidation, insurance or condemnation
proceedings with respect to such Mortgage Loans will be available to satisfy the
outstanding balance of a Mortgage Loan only to the extent that the claims of
such first mortgagee or beneficiary have been satisfied in full, including any
related foreclosure costs. In addition, a second mortgagee may not foreclose on
the property securing a second mortgage unless it forecloses subject to the
first mortgage, in which case it must either pay the entire amount due on the
first mortgage to the first mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on the first mortgage in the event the
mortgagor is in default thereunder. The Trust will have no source of funds (and
may not be permitted under the REMIC provisions of the Code) to satisfy the
first mortgage or make payments due to the first mortgagee. See "MORTGAGE LOAN
POOL - Advances and Month-End Investment" herein.
An overall decline in the residential real estate market, the
general condition of Mortgage Premises, or other factors, could adversely affect
the values of the Mortgage Premises such that the outstanding balances of the
Mortgage Loans, together with any senior liens on the Mortgage Premises, equal
or exceed the value of the Mortgage Premises. A decline in the value of Mortgage
Premises would affect the interest of the Trust in the Mortgage Premises before
having any effect on the interest of the related first mortgagee, and could
cause the Trust's interest in the Mortgage Premises to be extinguished. If such
a decline occurs, the actual rates of delinquencies, foreclosures and losses on
the Mortgage Loans could be higher than those currently experienced in the
mortgage lending industry in general. In addition, adverse economic conditions
(which may or may not affect real property values) may affect the timely payment
by borrowers of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to the Trust.
Risk of Higher Default Rates for Balloon Loans. Approximately __% of
the aggregate Scheduled Principal Balance of the Mortgage Loans in the Fixed
Rate Group are "balloon loans" that provide for the payment of the unamoritized
principal balance 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, 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 Depositor 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 and
13
<PAGE>
because the ability to repay such amounts is frequently dependent upon the
ability to obtain refinancing, it is possible that the default risk associated
with Balloon Loans is greater than that associated with fully-amortizing
Mortgage Loans. Neither the Servicers nor the Master Servicer will be required
to advance defaulted payments at maturity on Balloon Loans.
Other Legal Considerations; Litigation. Applicable state laws
generally regulate interest rates and other charges, require certain
disclosures, and require licensing of SMI and the other originators. In
addition, other state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection of
the Mortgage Loans. SMI has represented that all applicable federal and state
laws were complied with in connection with the origination of the Initial
Mortgage Loans and will be complied with in connection with the Subsequent
Mortgage Loans. If such representation is breached in respect of any Mortgage
Loan in a manner that materially and adversely affects Certificateholders or the
Certificate Insurer, SMI will be obligated to repurchase the affected Mortgage
Loan at a price equal to the unpaid principal balance thereof plus accrued
interest or to substitute a new mortgage loan in place of the affected Mortgage
Loan. Unscheduled recoveries of principal on Mortgage Loans due to any such
repurchase by SMI may, depending on the magnitude thereof and the availability
of funds therefor, accelerate the timing of principal distributions to holders
of the related Certificates and thereby affect the yields and weighted average
lives of such Certificates, especially those purchased at a premium. See
"PREPAYMENT AND YIELD CONSIDERATIONS" herein. In addition, depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Trust to collect all or part of the principal of or interest on
the Mortgage Loans, may entitle the borrower to a refund of amounts previously
paid and, in addition, could subject the Depositor to damages and administrative
enforcement. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS -- Anti-Deficiency
Legislation and Other Limitations on Lenders" in the Prospectus.
On November 12, 1996, SMI was served with a complaint in which the
plaintiff alleged: (a) it obtained in March 1996 a mortgage loan from a broker
which the broker subsequently sold to SMI; (b) although the amount paid by SMI
to the broker was disclosed on the HUD-1 settlement sheet, that amount was not
made available prior to closing in the good faith estimate; and (c) any such
payment by SMI is impermissible under applicable law, regardless of disclosure.
The complaint requests certification of a class of similarly situated persons
and damages equal to three times the settlement charges. SMI is one of a number
of major mortgage lending institutions subject to this type of lawsuit. SMI does
not believe that the complaint will have any material adverse effect on its
business and intends to file an answer denying liability. To the extent that a
class of plaintiffs is certified which includes borrowers under the Mortgage
Loans, and SMI subsequently suffers an adverse judgment, the related Mortgage
Loans may be subject to repurchase as described in the preceding paragraph.
Risk of SMI Insolvency. SMI believes that the transfer of the
Mortgage Loans by SMI to the Depositor and by the Depositor to the Trust
constitute sales by SMI to the Depositor and by the Depositor to the Trust and,
accordingly, that the Mortgage Loans will not be part of the assets of SMI or
the Depositor in the event of the insolvency of SMI and will not be available to
the creditors of SMI. Nevertheless, in the event of an insolvency, it is
possible that a bankruptcy trustee or a creditor of SMI may argue that the
transaction between SMI and the Depositor was a pledge of such Mortgage Loans in
connection with a borrowing by SMI rather than a true sale. Such an attempt,
even if unsuccessful, could result in delays in distributions on the
Certificates.
On the Closing Date, the Trustee, the Depositor, the Rating Agencies
and the Certificate Insurer will have received an opinion of Arter & Hadden,
counsel to the Depositor, with respect to the true sale of the Mortgage Loans
from SMI to the Depositor and from the Depositor to the Trust, in form and
substance satisfactory to the Certificate Insurer and the Rating Agencies.
USE OF PROCEEDS
The Depositor will sell the Mortgage Loans to the Trust concurrently
with the delivery of the Certificates. Net proceeds from the sale of the Class A
Certificates less the Original Pre-Funded Amount and the amount deposited in the
Capitalized Interest Account will (together with the Class R Certificates
retained by the Depositor or its affiliates) represent the purchase price to be
paid by the Trust to the Depositor for the Mortgage Loans.
14
<PAGE>
THE MORTGAGE LOAN POOL
General
All the Mortgage Loans will be originated or acquired by SMI in
accordance with its mortgage loan program as described in the Prospectus. As a
general matter, SMI's mortgage loan program consists of the origination and
packaging of mortgage loans relating to non-conforming credits. A non-conforming
credit means a mortgage loan which is ineligible for purchase by Federal
National Mortgage Association ("FNMA") due to credit characteristics that do not
meet FNMA guidelines. Mortgage loans originated under SMI's mortgage loan
program are likely to experience rates of delinquency, bankruptcy and loss that
are higher than mortgage loans originated under FNMA guidelines. Subsequent
Mortgage Loans are intended to be purchased by the Trust for inclusion in the
Fixed Rate Group and the Variable Rate Group from the Depositor from time to
time during the Funding Period from funds on deposit in the Pre-Funding Account.
The Initial Mortgage Loans and the Subsequent Mortgage Loans are referred to
herein collectively as the "Mortgage Loans".
The pool is expected initially to consist of approximately _____
Mortgage Loans evidenced by promissory notes (the "Notes") secured by Mortgages
on the Mortgaged Premises, __% of which by aggregate Scheduled Principal Balance
are located in the State of California. The Mortgaged Premises consist of
single-family residences (which may be detached, attached, part of a two- to-
four family dwelling, a condominium unit, townhouse, manufactured housing, or a
unit in a planned unit development). The Mortgaged Premises may be
owner-occupied (which includes second and vacation homes) or non-owner occupied
investment properties. The Mortgage Loans are secured by first and second lien
mortgages on the Mortgaged Premises.
The Mortgage Loans satisfy certain criteria including: remaining
terms to stated maturity of no more than 360 months; a Mortgage Interest Rate as
of the Cut-Off Date of at least _____% with respect to the Fixed Rate Group and
at least ____% with respect to the Variable Rate Group; and a loan-to-value
ratio not in excess of 95%. Substantially all the Mortgage Loans will have been
originated less than six months prior to the Cut-Off Date.
Each Mortgage Loan in the Trust will be assigned to one of the two
Mortgage Loan Groups comprised of Mortgage Loans which bear fixed interest rates
only, in the case of the Fixed Rate Group, and Mortgage Loans which bear
variable interest rates only, in the case of the Variable Rate Group. Subject to
the cross-collateralization provisions described herein, the Fixed Rate
Certificates represent undivided ownership interests in all Mortgage Loans
contained in the Fixed Rate Group, and the Variable Rate Certificates represent
undivided ownership interests in all Mortgage Loans contained in the Variable
Rate Group.
15
<PAGE>
Characteristics of the Initial Mortgage Loans
The information in the following tables (including the textual
information beneath each table) has been derived solely from the Mortgage Loan
Pool as constituted as of the Cut-Off Date and reflects only the characteristics
of the Initial Mortgage Loans and does not include information with respect to
the Subsequent Mortgage Loans. Totals may not sum to 100% due to rounding.
1) Current Scheduled Principal Balance
Variable Rate Group Fixed Rate Group
----------------------- -------------------------
Percent by Percent by Percent by Percent by
No. of Scheduled No. of Scheduled
Current Scheduled Mortgage Principal Mortgage Principal
Principal Balance Loans Balance Loans Balance
- ------------------ ----------- ----------- ----------- ------------
$50,000 and below
50,001 - 100,000
100.001 - 150,000
150,001 - 200,000
200,001 - 250,000
250,001 - 300,000
300,001 - 350,000
350,001 - 400,000
400,001 - 450,000
450,001 - 500,000
500,001 - 550,000
550,001 - 600,000
600,001 - 650,000
650,001 - 700,000
700,001 - 750,000
750,001 - 800,000
850,000 - 900,000
900,001 - 950,000
950,001 -1,000,000
over 1,000,000
Totals: 100 100 100 100
=== === === ===
The average Scheduled Principal Balance is (a) $_____ for the Initial Mortgage
Loans, (b) $______ for the Variable Rate Group and (c) $______ for the Fixed
Rate Group. The maximum and minimum Scheduled Principal Balances of the Initial
Mortgage Loans are $_________ and $_______, respectively.
2) Current Mortgage Interest Rates
Variable Rate Group Fixed Rate Group
----------------------- -------------------------
Percent by Percent by Percent by Percent by
No. of Scheduled No. of Scheduled
Current Scheduled Mortgage Principal Mortgage Principal
Principal Balance Loans Balance Loans Balance
- ------------------ ---------- ----------- ---------- ----------
5.500 - 5.999
6.000 - 6.499
6.500 - 6.999
7.000 - 7.499
7.500 - 7.999
8.000 - 8.499
8.500 - 8.999
9.000 - 9.499
9.500 - 9.999
10.000 - 10.499
10.500 - 10.999
11.000 - 11.499
11.500 - 11.999
112.000 - 12.499
12.500 - 12.999
13.000 - 13.499
13.500 - 13.999
14.000 - 14.499
Totals: 100 100 100 100
=== === === ===
The weighted average current Mortgage Interest Rate is (a) ____% per annum, for
the Initial Mortgage Loans, (b) ____% per annum for the Variable Rate Group and
(c) _____% per annum for the Fixed Rate Group.
3) Maximum Lifetime Mortgage Interest Rates of the Variable Rate Group
Maximum Lifetime Percent by No. of Percent by Scheduled
Mortgage Interest Rates Mortgage Loans Principal Balance
----------------------- -------------- -----------------
11.500 - 11.999
12.000 - 12.499
12.500 - 12.999
13.000 - 13.499
13.500 - 13.999
14.000 - 14.499
14.500 - 14.999
15.000 - 15.499
15.500 - 15.999
16.000 - 16.499
16.500 - 16.999
17.000 - 17.499
17.500 - 17.999
18.000 - 18.499
18.500 - 18.999
19.000 - 19.499
19.500 - 19.999
Totals: 100 100
=== ===
The weighted average maximum lifetime Mortgage Interest Rate for the Variable
Rate Group is ______% per annum.
4) Minimum Lifetime Mortgage Interest Rates of the Variable Rate Group
Minimum Lifetime Percent by No. of Percent by Scheduled
Mortgage Interest Rates Mortgage Loans Principal Balance
----------------------- -------------- -----------------
3.000 - 3.499
3.500 - 3.999
4.000 - 4.499
4.500 - 4.999
5.000 - 5.499
5.500 - 5.999
6.000 - 6.499
6.500 - 6.999
7.000 - 7.499
7.500 - 7.999
8.000 - 8.499
8.500 - 8.999
9.000 - 9.499
9.500 - 9.999
10.000 - 10.499
10.500 - 10.999
11.000 - 11.499
11.500 - 11.999
12.000 - 12.499
12.500 - 12.999
Totals: 100 100
=== ===
The weighted average minimum lifetime Mortgage Interest Rate for the Variable
Rate Group is ____% per annum. In no case will the minimum lifetime Mortgage
Interest Rate be less than the applicable Gross Margin.
16
<PAGE>
5) Next Interest Adjustment Date on Variable Rate Group
Interest Percent by No. of Percent by Scheduled
Adjustment Date Mortgage Loans Principal Balance
--------------- ----------------- --------------------
April 1, 1997
May 1, 1997
June 1, 1997
July 1, 1997
August 1, 1997
September 1, 1997
October 1, 1997
November 1, 1997
May 1, 1998
June 1, 1998
July 1, 1998
August 1, 1998
September 1, 1998
October 1, 1998
April 1, 1999
May 1, 1999
July 1, 1999
August 1, 1999
September 1, 1999
October 1, 1999
November 1, 1999
Totals: 100 100
=== ===
The weighted average next Interest Adjustment Date for the Variable Rate Group
is __________ __, 1997.
6) Gross Margins on Variable Rate Group
Percent by No. of Percent by Scheduled
Gross Margin (%) Mortgage Loans Principal Balance
---------------- -------------- -----------------
2.750 - 2.999
3.000 - 3.249
3.250 - 3.499
3.500 - 3.749
3.750 - 3.999
4.000 - 4.249
4.250 - 4.499
4.500 - 4.749
4.750 - 4.999
5.000 - 5.249
5.250 - 5.499
5.500 - 5.749
5,750 - 5.999
6.000 - 6.249
6.250 - 6.499
6.500 - 6.749
6.750 - 6.999
7.000 - 7.249
7.250 - 7.499
7.500 - 7.749
7.750 - 7.999
Totals: 100 100
=== ===
The weighted average Gross Margin for the Variable Group Rate is ____% per
annum.
7) Remaining Terms to Stated Maturity
Variable Rate Group Fixed Rate Group
------------------- ----------------
Percent by Percent by Percent by Percent by
No. of Scheduled No. of Scheduled
Remaining Terms Mortgage Principal Mortgage Principal
(Months) Loans Balance Loans Balance
-------- ----- ------- ----- -------
118 - 120
175 - 179
180
235 - 240
299 - 353
354
355
356
357
358
359
360
Totals: 100 100 100 100
=== === === ===
The weighted average remaining term to stated maturity for the Fixed Rate Group
is ___ months.
The weighted average remaining term to stated maturity for the Variable Rate
Group is approximately ___ months.
8) Original Loan-to-Value Ratios(1)
Variable Rate Group Fixed Rate Group
------------------- ----------------
Percent by Percent by Percent by Percent by
No. of Scheduled No. of Scheduled
Original Loan-to- Mortgage Principal Mortgage Principal
Value Ratios Loans Balance Loans Balance
------------ ----- ------- ----- -------
50.00 and below
50.01 - 55.00
55.01 - 60.00
60.01 - 65.00
65.01 - 70.00
70.01 - 75.00
75.01 - 80.00
80.01 - 85.00
85.01 - 90.00
90.01 - 95.00
Totals: 100 100 100 100
=== === === ===
(1) The Loan-to-Value Ratio of a Mortgage Loan (including second lien Mortgage
Loans) is equal to the ratio (expressed as a percentage) of the original
Scheduled Principal Balance of the Mortgage Loan and the fair market value of
the Mortgaged Premises at the time of origination. The fair market value is the
lower of (i) the purchase price and (ii) the appraised value in the case of
purchases and is the appraised value in all other cases.
The weighted average original loan-to-value ratio for the Fixed Rate Group is
_____%.
The weighted average original loan-to-value ratio for the the Variable Rate
Group is _____%.
17
<PAGE>
9) Mortgage Loan Purpose
Variable Rate Group Fixed Rate Group
------------------- ----------------
Percent by Percent by Percent by Percent by
No. of Scheduled No. of Scheduled
Mortgage Principal Mortgage Principal
Loan Purpose Loans Balance Loans Balance
------------ ----- ------- ----- -------
Purchase
Refinance (Cash-Out)
Refinance (No Cash- Out)
Totals: 100 100 100 100
=== === === ===
10) Occupancy Type of Mortgaged Premises
Variable Rate Group Fixed Rate Group
------------------- ----------------
Percent by Percent of Percent by Percent by
No. of Scheduled No. of Scheduled
Mortgage Principal Mortgage Principal
Occupancy Type (1) Loans Balance Loans Balance
- ------------------ ----- ------- ----- -------
Primary Home
Second Home
Investor
Totals: 100 100 100 100
=== === === ===
(1) As represented by the borrowers on their Mortgage Loan applications.
11) Property Types of Mortgage Premises
Variable Rate Group Fixed Rate Group
------------------- ----------------
Percent by Percent by Percent by Percent by
No. of Scheduled No. of Scheduled
Mortgage Principal Mortgage Principal
Property Type Loans Balance Loans Balance
- ------------- ----- ------- ----- -------
Single-Family
Detached
Single-Family
Attached
De Minimis PUD
Planned Unit
Development
Low Rise
Condominium
Manufactured
Housing
High Rise
Condominium
Townhouse
2-4 Family
Totals: 100 100 100 100
=== === === ===
12) Origination Program
Variable Rate Group Fixed Rate Group
------------------- ----------------
Percent by Percent of Percent by Percent by
No. Of Scheduled No. Of Scheduled
Mortgage Principal Mortgage Principal
Origination Program Loans Balance Loans Balance
------------------- ----- ------- ----- -------
Full Documentation
Limited Documentation
Stated Income
Totals:
13) State Distribution of Mortgage Premises
Variable Rate Group Fixed Rate Group
------------------- ----------------
Percent by Percent of Percent by Percent by
No. of Scheduled No. of Scheduled
Mortgage Principal Mortgage Principal
State Loans Balance Loans Balance
----- ----- ------- ----- -------
Arizona
California
Colorado
Florida
Georgia
Illinois
Maryland
Missouri
New Jersey
Nevada
Ohio
Oklahoma
Oregon
Pennsylvania
Tennessee
Texas
Utah
Utah
Virginia
Washington
Other*
Totals: 100 100 100 100
=== === === ===
*Others may include: Alabama, District of Columbia, Delaware, Hawaii, Idaho,
Iowa, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Maine, Michigan,
Minnesota, Mississippi, Montana, Nebraska, North Carolina, New Mexico, New York,
Rhode Island, South Carolina, West Virginia, Wisconsin and Wyoming.
Conveyance of Subsequent Mortgage Loans
The Agreement permits the Trust to acquire approximately $__________
and $__________ in aggregate Scheduled Principal Balance of Subsequent Mortgage
Loans for addition to the Fixed Rate Group and Variable Rate Group,
respectively. Accordingly, the statistical characteristics of the Mortgage Loan
Pool and the Fixed Rate Group and the Variable Rate Group will change upon the
acquisition of Subsequent Mortgage Loans. Pursuant to the Agreement, however,
the Depositor has covenanted to deliver Subsequent Mortgage Loans for inclusion
that will not materially change the statistical characteristics of the Fixed
Rate Group or the Variable Rate Group.
The obligation of the Trust to purchase Subsequent Mortgage Loans on
a Subsequent Sales Date is subject to the requirements of the Agreement.
18
<PAGE>
Conversion Option
Less than ___% of the Initial Mortgage Loans in the Variable Rate
Group are expected to be convertible, upon the fulfillment of certain
conditions, from a variable rate to a fixed rate at the option of the Mortgagor.
Should interest rates decline so that the fixed rates applicable upon conversion
are significantly lower than the then current variable rates, or are
significantly lower than the applicable maximum lifetime variable rates on
convertible Mortgage Loans in the Variable Rate Group, borrowers may have a
significant financial incentive to effect conversions.
The Depositor is obligated to purchase any such converted Mortgage
Loan from the Trustee at a purchase price equal to 100% of its Scheduled
Principal Balance plus 30 days' interest thereon at the applicable rate in
effect immediately prior to such conversion. If any such converted Mortgage Loan
is not repurchased from the Trustee, the Master Servicer will attempt to sell
such Mortgage Loan, but only at a price at which the Trustee would receive a net
amount at least equal to the price at which the Depositor is obligated to
repurchase such Converted Mortgage Loan. Until sold at such a price, such
converted Mortgage Loan will remain in the Variable Rate Group, but with a fixed
rate. The ratings assigned to the Certificates do not represent an assessment of
the ability of the Depositor to purchase converted Mortgage Loans when the
Depositor is required to do so.
Interest Payments on the Mortgage Loans
Each Mortgage Loan will provide for monthly payments by the obligor
on the related Note (the "Mortgagor") according to the actuarial method
("Actuarial Loans"). Actuarial Loans provide that interest is charged to the
Mortgagors thereunder, and payments are due from such Mortgagors, as of a
scheduled day of each month which is fixed at the time of origination. Scheduled
monthly payments made by the Mortgagors on the actuarial loans either earlier or
later than the scheduled due dates thereof will not affect the amortization
schedule or the relative application of such payments to principal and interest.
Additional Information
The description in this Prospectus Supplement of the Mortgage Pool
and the Mortgaged Premises is based upon the pool of Initial Mortgage Loans, as
constituted at the close of business on the Cut-Off Date. Initial Mortgage Loans
may be removed from either mortgage pool prior to closing as a result of
incomplete documentation or non-compliance with representations and warranties
set forth in the Agreement, if the Depositor deems such removal necessary or
appropriate and the Depositor may substitute other Initial Mortgage Loans
subject to certain terms and conditions set forth in the Agreement including the
consent of the Certificate Insurer. None of the substitution of Mortgage Loans,
the addition of the Mortgage Loans not included in the Initial Mortgage Loans or
the acquisition of the Subsequent Mortgage Loans are expected to cause material
variances from the information set forth herein.
A current report on Form 8-K will be available to purchasers of the
Class A Certificates and will be filed with the Commission, together with the
Agreement within fifteen days after the initial issuance of the Class A
Certificates. Any Mortgage Loans that are added to, or removed from, the
Mortgage Pool as set forth in the preceding paragraph, will be noted in the
current report on Form 8-K. A current report on Form 8-K will also be filed
within fifteen days of the end of the Funding Period reflecting Subsequent
Mortgage Loans added to the Trust. Also, the Depositor intends to file certain
additional yield tables and other computational materials with the Commission in
a report on Form 8-K. Such tables and materials were prepared by the
Underwriters at the request of certain prospective investors, based on
assumptions provided by, and satisfying the special requirements of, such
prospective investors. Such tables and assumptions may be based on assumptions
that differ from the Modeling Assumptions; see "PREPAYMENT AND YIELD
CONSIDERATIONS" in this Prospectus Supplement. Accordingly, such tables and
other materials may not be relevant to or appropriate for investors other than
those specifically requesting them.
19
<PAGE>
Servicing of the Mortgage Loans
General. The Mortgage Loans will be serviced by Meritech Mortgage
Services, Inc. ("Meritech"), an affiliate of the Depositor, and by
________________ ("__________"; __________ and Meritech are referred to
collectively as the "Servicers"). The Servicers are (a) HUD-approved originators
and (b) approved by and in good standing with FNMA and FHLMC. The Servicers will
provide customary servicing functions with respect to the Mortgage Loans
pursuant to Servicing Agreements among the Depositor, each Servicer and the
Master Servicer. Among other things, each Servicer is obligated under certain
circumstances to advance delinquent payments of principal and interest with
respect to the Mortgage Loans and to pay Month-End Interest with respect to
Mortgage Loans serviced by it. Each Servicing Agreement requires each related
Servicer to obtain approvals of the Master Servicer with respect to certain
servicing activities. See "SERVICING OF THE MORTGAGE LOANS" in the Prospectus.
Meritech Loan Servicing Activities. Meritech commenced its
servicing operations in 1960 and operated under the name Cram Mortgage Service,
Inc. prior to September 1994. The principal offices of Meritech are located in
Fort Worth, Texas.
As of December 31, 1996, Meritech serviced a portfolio of
approximately ______ one- to- four family residential mortgage loans totalling
approximately $_____ million. The following tables set forth certain unaudited
information concerning the delinquency experience (including loans in
foreclosure) and mortgage loans foreclosed with respect to Meritech's
conventional loan servicing portfolio as of the end of the indicated period. The
indicated periods of delinquency are based on the number of days past due on a
contractual basis. No mortgage loan is considered delinquent for these purposes
until 30 days past due on a contractual basis.
<TABLE>
<CAPTION>
Percentage of Total Percentage of Total Percentage of Total
Portfolio as of Portfolio as of Portfolio as of
December 30, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
By By Dollar By By Dollar By By Dollar
No. of Amount of No. of Amount of No. of Amount of
Loans Loans Loans Loans Loans Loans
<S> <C>
Period of delinquency
(including loans in
foreclosure)
30 to 59 days [To be supplied]
60 to 89 days
90 days or more
Percentage of Total
Portfolio Delinquent(1)
Percentage of Total
Portfolio Foreclosed
</TABLE>
- ---------------------------------------------
(1)Totals may not sum due to rounding.
The above statistics represent the recent experience of Meritech.
There can be no assurance, however, that the delinquency and foreclosure
experience of the Mortgage Loans will be comparable. In addition, the foregoing
statistics are based on all the one- to four-family residential mortgage loans
in Meritech's servicing portfolio, including mortgage loans with a variety of
payment and other characteristics, including geographic locations and
underwriting standards. Not all the mortgage loans in Meritech's servicing
portfolio constitute non-conforming credits. Accordingly, there can be no
assurance that the delinquency and foreclosure experience of the Mortgage Loans
in the future will correspond to the future delinquency and foreclosure
experience of Meritech's one- to- four family conventional residential mortgage
loan servicing portfolio. The actual delinquency and foreclosure experience of
the Mortgage Loans will depend, among other things, upon the value of real
estate securing such Mortgage Loans and the ability of borrowers to make
required payments.
__________ Servicing Activities. [To be supplied]
20
<PAGE>
Servicing and Other Compensation and Payment of Expenses; Repurchase
The Servicing Fee Rate applicable to each Mortgage Loan equals one
twelfth of a fixed percentage per annum of the Scheduled Principal Balance of
such Mortgage Loan with respect to each Distribution Date. As of the Cut-Off
Date, the weighted average Servicing Fee Rate for the Mortgage Loans in the
Fixed Rate Group is approximately ____% per annum and the weighted average
Servicing Fee Rate for Mortgage Loans in the Variable Rate Group is
approximately ____% per annum. In addition, late payment fees with respect to
the Mortgage Loans, and any interest or other income earned on collections with
respect to the Mortgage Loans pending remittance to the Asset Proceeds Account,
will be paid to or retained by each Servicer as additional servicing
compensation. Each Servicer is obligated to pay certain insurance premiums and
certain ongoing expenses associated with the Mortgage Loans and expenses
incurred by each Servicer in connection with its responsibilities under the
related Servicing Agreement. With the consent of the Certificate Insurer, each
Servicer may transfer its servicing to successor servicers that meet the
criteria for servicers approved by the Rating Agencies.
Each Servicer and/or the Depositor will have the right, but not the
obligation, to repurchase from the Trust any Mortgage Loan delinquent as to
three consecutive scheduled payments, at a price equal to the unpaid principal
balance thereof plus accrued interest thereon.
Advances and Month End Interest
Prior to each Distribution Date, each Servicer is, and any successor
servicer will be, obligated to advance its own funds with respect to delinquent
payments of principal and interest on the Mortgage Loans, net of the Servicing
Fees with respect to any Mortgage Loan for which it is making an advance, unless
the Master Servicer deems such advance "non-recoverable". Advances of principal
and interest will be deemed by the Master Servicer to be non-recoverable only to
the extent such amounts are not reimbursable from late collections, Insurance
Proceeds, Liquidation Proceeds and other assets of the Trust. Any failure by a
Servicer to make any such required advance will constitute an event of default
under the related Servicing Agreement. If a Servicer fails to make a required
advance of principal and interest, the Master Servicer will be obligated to make
such advance. Neither Servicer nor the Master Servicer will be required to make
an advance of principal and interest that the Master Servicer deems
non-recoverable. The total advance obligations of the Master Servicer may be
subject to a dollar limitation that is acceptable to the Rating Agencies and the
Certificate Insurer as set forth in the Agreement. See "SERVICING OF MORTGAGE
LOANS -- Advances" in the Prospectus.
In addition, each Servicer will be required to deposit in its
Custodial Account on or before each remittance date (as defined in its Servicing
Agreement), an amount equal to Month End Interest with respect to the preceding
prepayment period (as defined in its Servicing Agreement) but only to the extent
of the Servicing Fee payable with respect to the remittance date. "Month End
Interest" means, 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 interest actually received by the
applicable Servicer with respect to such Mortgage Loan, in each case net of the
Servicing Fee (except that Month End Interest does not accrue with respect to a
prepayment of a Mortgage Loan or to liquidation proceeds during the period from
the first day of a month through the last day of the prepayment period ending
during such month). The Master Servicer is not obligated to pay Month End
Interest.
The Master Servicer
________________________________________ will act as master servicer
of both Mortgage Loan Groups (in such capacity, the "Master Servicer"). The
Master Servicer has limited experience master servicing mortgage loans. The
Master Servicer will supervise the servicing of the Mortgage Loans, provide
certain reports to the Trustee regarding the Mortgage Loans, make advances to
the extent described herein with respect to the Mortgage Loans if the Servicer
fails to make a required advance and appoint a successor servicer, with the
consent of or at the direction of the Certificate Insurer, if a Servicer is
terminated. The Master Servicer is entitled to a monthly fee with respect to the
21
<PAGE>
Mortgage Loans (the "Master Servicing Fee"), payable on each Distribution Date,
in the amount equal to one-twelfth of _____% per annum (the "Master Servicing
Fee Rate") multiplied by the Scheduled Principal Balance of such Mortgage Loan
on the first day of the Due Period with respect to each Distribution Date. The
Master Servicer will pay the Trustee and the Custodian their monthly fees out of
the Master Servicing Fee.
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of, and, if purchased at other than par,
the yield to maturity on each Class of the Class A Certificates will be directly
related to the rate of payment of principal of the Mortgage Loans in the related
Mortgage Loan Group, including payments in full of Mortgage Loans in the related
Mortgage Loan Group prior to stated maturity, liquidations due to defaults,
casualties and condemnations, and repurchases of Mortgage Loans in the related
Mortgage Loan Group by the Depositor. The actual rate of principal prepayments
on pools of mortgage loans is influenced by a variety of economic, tax,
geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the mortgage loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in such
properties, and changes in the mortgagors' housing needs, job transfers and
employment status.
The timing of changes in the rate of prepayments may significantly
affect the actual yield to investors, even if the average rate of principal
prepayments is consistent with the expectations of investors. In general, the
earlier the payment of principal of the Mortgage Loans the greater the effect on
an investor's yield to maturity. As a result, the effect on an investor's yield
of principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Class A Certificates may not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments. Investors must make their own
decisions as to the appropriate prepayment assumptions to be used in deciding
whether to purchase any of the Class A Certificates. The Depositor does not make
any representations or warranties as to the rate of prepayment or the factors to
be considered in connection with such determination.
"Weighted average life" refers to the average amount of time that
will elapse from the date of issuance of a Certificate until each dollar of
principal of such Certificate will be repaid to the investor. As described
above, the weighted average life and yield to maturity (if purchased at a price
other than par) of each class of the Class A Certificates will be influenced by
the rate at which principal payments on the Mortgage Loans in the related
Mortgage Loan Group are paid, which may be in the form of scheduled amortization
or prepayments (for this purpose, the term "prepayment" includes prepayments,
liquidations due to default or early termination of the Trust) and will also be
significantly influenced by the amount of excess spread generated by the
Mortgage Loans and applied in reduction of the Certificate Principal Balances of
such Certificates. The level of excess spread available on any Distribution Date
to be applied in reduction of the Certificate Principal Balances of the Class A
Certificates will be influenced by, among other factors, (i) the
overcollateralization level of the assets in the Trust at such time (i.e., the
extent to which interest on the Mortgage Loans is accruing on a higher Scheduled
Principal Balance than the Certificate Principal Balance of the Certificates);
(ii) the delinquency and default experience of the Mortgage Loans (i.e., excess
spread will be applied to shortfalls on the Certificates before it is
distributed in reduction of the Certificate Principal Balances thereof); (iii)
the level of One Month LIBOR and the indices for the Variable Rate Mortgage
Loans (i.e., excess spread is largely a function of the extent to which the
values of the indices applicable to the Variable Rate Mortgage Loans plus the
applicable gross margin exceed the Variable Pass-Through Rate); and (iv) the
provisions of the Agreement that permit excess spread to be distributed to
Subordinated Certificateholders when required overcollateralization levels have
been met. To the extent that greater amounts of excess spread are distributed in
reduction of the Certificate Principal Balances of a Class of Class A
Certificates, the weighted average life thereof can be expected to shorten. No
assurance, however, can be given as to the amount of excess spread distributed
at any time or in the aggregate. See "DESCRIPTION OF THE CLASS A CERTIFICATES --
Overcollateralization and Crosscollateralization Provisions" in this Prospectus
Supplement.
22
<PAGE>
Mandatory Prepayment
If not all the Original Pre-Funded Amount is used to acquire
Subsequent Mortgage Loans for inclusion in the Fixed Rate Group or the Variable
Rate Group, then the Holders of the Fixed Rate Certificates and/or Variable Rate
Certificates then entitled to receive payments of principal will receive a
partial prepayment on the Distribution Date immediately following the end of the
Funding Period (not later than ________ __, 1997).
Although no assurances can be given, the Depositor expects that the
principal amount of Subsequent Mortgage Loans sold to the Trust for inclusion in
the Fixed Rate Group and the Variable Rate Group will require the application of
substantially all the amount on deposit in the Pre-Funding Account and that
there should be no material principal prepaid to the Holders of the Fixed Rate
Certificates or Variable Rate Certificates.
Prepayments and Yields for Class A Certificates
Generally, if purchased at other than par, the yield to maturity on
a Class A Certificate will be affected by the rate of the payment of principal
of the Mortgage Loans in the related Mortgage Loan Group. If the actual rate of
payments on the Mortgage Loans in a Mortgage Loan Group is slower than the rate
anticipated by an investor who purchases a Class A Certificate of the related
Class at a discount, the actual yield to such investor will be lower than such
investor's anticipated yield. If the actual rate of payments on the Mortgage
Loans in a Mortgage Loan Group is faster than the rate anticipated by an
investor who purchases a Class A Certificate of the related Class at a premium,
the actual yield to such investor will be lower than such investor's anticipated
yield.
All the Mortgage Loans in the Fixed Rate Group are fixed rate
Mortgage Loans. The rate of prepayments with respect to conventional fixed rate
mortgage loans has fluctuated significantly in recent years. In general, if
prevailing interest rates fall significantly below the interest rates on fixed
rate mortgage loans, such mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above the interest rates
on such mortgage loans. Conversely, if prevailing interest rates rise
appreciably above the interest rates on fixed rate mortgage loans, such mortgage
loans are likely to experience a lower prepayment rate than if prevailing rates
remain at or below the interest rates on such mortgage loans.
All the Mortgage Loans in the Variable Rate Group are adjustable
rate mortgage loans. As is the case with conventional fixed rate mortgage loans,
adjustable rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable rate mortgage loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed rate mortgage loans at lower interest
rates may encourage mortgagors to refinance their adjustable rate mortgage loans
to a lower fixed interest rate. Nevertheless, no assurance can be given as to
the level of prepayments that the Mortgage Loans will experience.
The "Last Scheduled Distribution Date" for the Class A-1, Class A-2,
Class A-3 and Class A-4, Class A-5 and Class A-6 Certificates is __________ __,
20__, ________ __, 20__, _________ __, 20__, ____ __, 20__, and ____ __, 20__,
respectively, which are the dates on which the Certificate Principal Balance
thereof would be reduced to zero assuming, among other things, that no
prepayments are received on the Mortgage Loans in the Fixed Rate Group and that
scheduled monthly payments of principal of and interest on each of such Mortgage
Loans are timely received and that no Total Monthly Excess Cashflow is used to
make accelerated payments of principal to the Holders of the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 or Class A-6 Certificates. The actual final
Distribution Date with respect to each Class of Class A Certificates could occur
significantly earlier than the Last Scheduled Distribution Date because (i)
prepayments are likely to occur which will be applied to the payment of the
Certificate Principal Balances thereof, (ii) excess interest to the extent
available will be applied as an accelerated payment of principal on the Class A
Certificates up to the Specified Subordinated Amount for each Class and (iii)
the holders of a majority of the Subordinated Certificates or, in limited
circumstances, the Certificate Insurer, may purchase all the Mortgage Loans when
the aggregate outstanding Scheduled Principal Balances of the Mortgage Loans in
the Trust has declined to 10% or less of the Maximum Collateral Amount.
23
<PAGE>
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The model used in this Prospectus Supplement
("Home Equity Prepayment" or "HEP") is a prepayment assumption (the "Prepayment
Assumption") which represents an assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of mortgage loans for the
life of such mortgage loans. __% HEP, which represents Scenario IV for the Fixed
Rate Group, assumes prepayment rates of ___% per annum of the then outstanding
principal balance of the related Mortgage Loans in the first month of the life
of such Mortgage Loans and an additional ___% per annum in each month thereafter
up to and including the tenth month. Beginning in the eleventh month and in each
month thereafter during the life of such Mortgage Loans, __% HEP assumes a
constant prepayment rate of __% per annum. Similarly, __% HEP, which represents
Scenario IV for the Variable Rate Group, assumes prepayment rates of ___% per
annum of the then outstanding principal balance of the related Mortgage Loans in
the first month of the life of such Mortgage Loans and an additional ___% per
annum in each month thereafter up to and including the tenth month. Beginning in
the eleventh month and in each month thereafter during the life of such Mortgage
Loans, __% HEP assumes a constant prepayment rate of __% per annum. As used in
the table below, 0% Prepayment Assumption (Scenario I for each Group below)
assumes prepayment rates equal to 0% of the Prepayment Assumption, i.e., no
prepayments on the mortgage loans having the characteristics described below.
The Prepayment Assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the related Mortgage Loans.
The following tables have been prepared on the basis of the
following assumptions (collectively, the "Modeling Assumptions"): (i) the
Mortgage Loans of the related Mortgage Loan Groups prepay at the indicated
percentage of the related Prepayment Assumption; (ii) distributions on the Class
A Certificates are received, in cash, on the 25th day of each month, commencing
________ __, 1997, in accordance with the payment priorities defined herein;
(iii) no defaults or delinquencies in, or modifications, waivers or amendments
respecting, the payment by the Mortgagors of principal and interest on the
Mortgage Loans occur; (iv) scheduled payments are assumed to be received on the
first day of each Due Period commencing in ________ ____, and prepayments
represent payment in full of individual Mortgage Loans and are assumed to be
received on the last day of each Prepayment Period, commencing ________ __,
1997, and include 30 days' interest thereon; (v) the level of Six-Month LIBOR
remains constant at ______%; (vi) the level of One Year CMT remains constant at
_____%; (vii) the Variable Rate Pass-Through Rate remains constant at _____% per
annum; (viii) the Closing Date for the Certificates is ________ _, 1997; (ix)
all the Original Pre-Funded Amount is applied to acquired Subsequent Mortgage
Loans on ________ __, ____; (x) the Mortgage Interest Rate for each Mortgage
Loan in the Variable Rate Group is adjusted on its next Mortgage Interest Rate
change date (and on subsequent Mortgage Interest Rate change dates, if
necessary) to equal the sum of (a) the assumed level of the applicable index and
(b) the respective gross margin (such sum being subject to the applicable
periodic adjustment caps and floors); (xi) overcollateralization levels are
initially set as specified in the Agreement, and thereafter decrease in
accordance with the provisions of the Agreement; (xii) prepayments are stated as
a percentage of the related Group's Prepayment Assumption each as stated in the
"Prepayment Scenario" table below; (xiii) the optional termination is exercised;
and (xiv) each Mortgage Loan Group consists of Mortgage Loans having the
approximate characteristics described below:
24
<PAGE>
FIXED RATE GROUP
<TABLE>
<CAPTION>
Original Remaining Original Remaining
Amortization Current Net Amortization Amortization Term to Term to Balloon
Methodology Balance WAC WAC Term Term Maturity Maturity Date
- ------------ -------- --- --- ------------ ------------ -------- -------- -------
<S> <C>
</TABLE>
VARIABLE RATE GROUP
Six Month LIBOR Loans
<TABLE>
<CAPTION>
Original Remaining Initial
Current Net Term to Term to Gross Periodic Periodic Net Net Next
Balance WAC WAC Maturity Maturity Margin Cap Cap Life Cap Floor Reset
- ------- ---- ---- -------- -------- ------ -------- -------- -------- ----- -----
<S> <C>
</TABLE>
One Year CMT Loans
<TABLE>
<CAPTION>
Initial
Current Net Original Remaining Gross Periodic Periodic Net Net Next
Balance WAC WAC Term Term Margin Cap Cap Life Cap Floor Reset
- ------- ---- ---- -------- --------- ------ -------- --------- -------- ----- -----
<S> <C>
</TABLE>
(1) Assumes transfer to the Trust in ________ ____ with monthly payments
calculated thereafter using the assumed characteristics set forth above.
(2) Assumes transfer to the Trust in _______ ____ with monthly payments
calculated thereafter using the assumed characteristics set forth above.
(3) For any accrual period before transfer to the Trust interest is calculated
on the current balance at the Net WAC.
PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
---------- ----------- ------------ ----------- ---------- -----------
<S> <C>
Fixed Rate Group (HEP): 0%
Variable Rate Group (HEP): 0%
</TABLE>
25
<PAGE>
The following tables set forth the percentages of the initial
principal amount of the Class A Certificates that would be outstanding after
each of the dates shown, based on prepayment scenarios described in the table
entitled "Prepayment Scenarios." The percentages have been rounded to the
nearest 1%. Asterisks (*) in the following tables indicate values between 0.0%
and 0.5%.
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-1 Scenario Class A-2 Scenario Class A-3 Scenario
---------------------- ------------------ ------------------
Payment Date I II III IV V VI I II III IV V VI I II III IV V VI
- -- --- -- - -- - -- --- -- - -- - -- --- -- - --
Initial
11/25/97
11/25/98
11/25/99
11/25/00
11/25/01
11/25/02
11/25/03
11/25/04
11/25/05
11/25/06
11/25/07
11/25/08
11/25/09
11/25/10
11/25/11
11/25/12
11/25/13
11/25/14
11/25/15
11/25/16
11/25/17
11/25/18
11/25/19
11/25/20
11/25/21
11/25/22
11/25/23
11/25/24
11/25/25
11/25/26
11/25/27
Weighted Average
Life Years(1)
- -----------------------------
(1) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Class A Certificates.
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-4 Scenario Class A-5 Scenario Class A-6 Scenario
------------------- ------------------ ------------------
Payment Date I II III IV V VI I II III IV V VI I II III IV V VI
- -- --- -- - -- - -- --- -- - -- - -- --- -- - --
Initial
11/25/97
11/25/98
11/25/99
11/25/00
11/25/01
11/25/02
11/25/03
11/25/04
11/25/05
11/25/06
11/25/07
11/25/08
11/25/09
11/25/10
11/25/11
11/25/12
11/25/13
11/25/14
11/25/15
11/25/16
11/25/17
11/25/18
11/25/19
11/25/20
11/25/21
11/25/22
11/25/23
11/25/24
11/25/25
11/25/26
11/25/27
Weighted Average
Life Years(1)
- -----------------------------
(1) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years from
the date of issuance to the related Distribution Date, (ii) adding the
results, and (iii) dividing the sum by the initial respective Certificate
Principal Balance for such Class of Class A Certificates.
<PAGE>
There is no assurance that prepayments will occur, or, if they do
occur, that they will occur at any constant percentage or in accordance with any
of the aforementioned Prepayment Assumptions.
Payment Delay Feature of Fixed Rate Certificates
The effective yield to the Holders of the Fixed Rate Certificates
will be lower than the yield otherwise produced by the related Fixed Rate
Certificate Pass-Through Rate and the purchase price of such Certificates
because principal and interest distributions will not be payable to such holders
until at least the 25th day of the month following the month of accrual (without
any additional distributions of interest or earnings thereon in respect of such
delay).
DESCRIPTION OF THE CLASS A CERTIFICATES
General
The Certificates will consist of the Fixed Rate Certificates, the
Variable Rate Certificates and the Subordinated Certificates. The Certificates
will be issued by Saxon Asset Securities Trust 1997-_, pursuant to the
Agreement. Only the Class A Certificates are offered hereby. The Subordinated
Certificates will be retained by the Depositor and are not being offered hereby.
Persons in whose name Certificates are registered in the Register
maintained by the Certificate Registrar are the "Holders" of the Certificates.
For so long as the Class A Certificates are in book-entry form with DTC, the
only "Holder" of the Class A Certificates as the term "Holder" is used in the
Agreement will be Cede & Co., a nominee of DTC. No Beneficial Holders will be
entitled to receive a definitive certificate representing such person's interest
in the Trust, except in the event that physical Certificates are issued under
limited circumstances set forth in the Agreement. All references herein to the
Holders of Class A Certificates shall mean and include the rights of Holders as
such rights may be exercised through DTC and its participating organizations,
except as otherwise specified in the Agreement.
As described under "THE MORTGAGE LOAN POOL" in this Prospectus
Supplement, the Mortgage Loan Pool is divided into the Fixed Rate Group, which
contains Mortgage Loans having fixed rates of interest, and the Variable Rate
Group, which contains Mortgage Loans having variable rates of interest. On each
Distribution Date, the Fixed Rate Certificates and Variable Rate Certificates
will evidence the right to receive the related Class A Distribution Amount.
Any Deficiency Amount (as defined herein) is insured by the
Certificate Insurer pursuant to, and subject to the terms of, the Certificate
Insurance Policies. See "THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE
INSURER" in this Prospectus Supplement.
Available Funds
The Agreement requires that the Trustee create an Asset Proceeds
Account. All funds in the Asset Proceeds Account shall be invested and
reinvested for the benefit of the Holders of the Certificates and the
Certificate Insurer, as directed by the Master Servicer, in Permitted
Investments (as defined in the Prospectus). See "THE AGREEMENT -- Administration
of Accounts" in the Prospectus.
One business day prior to the related Distribution Date (or, if such
day is not a business day, the immediately preceding business day) (the "Master
Servicer Remittance Date") the Master Servicer is required to withdraw from the
Master Servicer Custodial Account and remit to the Asset Proceeds Account an
amount equal to the Available Funds with respect to each Group. The "Available
Funds" with respect to each Group and Distribution Date are equal to the sum of
the related Interest Funds and the related Principal Funds and any amounts
transferred from the Capitalized Interest Fund with respect to such Group in
each case for such Distribution Date.
28
<PAGE>
The "Interest Funds" with respect to each Mortgage Loan Group and
Master Servicer Remittance Date are equal to the sum, without duplication, of
(i) all scheduled interest collected by the Servicers during the related Due
Period less the related Servicing Fee and Master Servicing Fee, (ii) all
Advances relating to interest, (iii) all Month End Interest and (iv) Liquidation
Proceeds (to the extent such Liquidation Proceeds relate to interest) less all
non-recoverable Advances relating to interest and certain expenses reimbursed
during the related Due Period.
The "Principal Funds" with respect to each Mortgage Loan Group and
Master Servicer Remittance Date are equal to the sum, without duplication, of
(i) the scheduled principal actually collected by the Servicers during the
related Due Period or advanced on or before such Master Servicer Remittance
Date, (ii) prepayments collected by the Servicers in the related Prepayment
Period, (iii) the Scheduled Principal Balance of each Mortgage Loan that was
repurchased by the Depositor, to the extent such Scheduled Principal Balance was
actually deposited in the Master Servicer Custodial Account on the related
Master Servicer Remittance Date, (iv) any Substitution Shortfall (the amount, if
any, by which the aggregate unpaid principal balance of any substitute Mortgage
Loans is less than the aggregate unpaid principal balance of any deleted
Mortgage Loans) delivered by the Depositor in connection with a substitution of
a Mortgage Loan, to the extent such Substitution Shortfall was actually
deposited in the Master Servicer Custodial Account on such Master Servicer
Remittance Date, (v) all Liquidation Proceeds collected by the Servicer during
the related Due Period (to the extent such Liquidation Proceeds related to
principal) to the extent such Liquidation Proceeds were actually deposited in
the Master Servicer Custodial Account on such Master Servicer Remittance Date,
less all non-recoverable Advances relating to principal reimbursed during the
related Due Period and (vi) with respect to the Distribution Date immediately
following the end of the Funding Period, the Pre-Funded Amount, if any.
Distributions
General. Distributions on each Class of the Class A Certificates
will be made on each Distribution Date to Holders of each Class of the Class A
Certificates as of the immediately preceding Record Date in an amount equal to
the product of such Holder's Percentage Interest and the related Class A
Distribution Amount (as defined below) on such Distribution Date. The
"Percentage Interest" represented by any Class A Certificate will be equal to
the percentage obtained by dividing the initial Certificate Principal Balance of
such Class A Certificate by the initial Certificate Principal Balance of all
Certificates of the same Class.
Distributions to the Fixed Rate and Variable Rate Certificates will
be made on each Distribution Date from the related Available Funds, except to
the extent described below. The Class A Distribution Amount relating to each
Mortgage Loan Group for each Distribution Date (to the extent funds are
available therefor) shall be allocated in the following amounts and in the
following order of priority:
(i) First, to the Holders of the Fixed Rate and Variable Rate
Certificates, the Class A Current Interest (including any such interest
remaining unpaid from previous Distribution Dates) on a pro rata basis without
any priority among such Class A Certificates; and
(ii) Second, to the Holders of the Fixed Rate and Variable Rate
Certificates, the Class A Principal Distribution Amount (as defined below under
"Distributions of Principal") for the applicable Mortgage Loan Group until the
Certificate Principal Balance thereof is reduced to zero; provided, however, any
such amounts payable to the Fixed Rate Certificates will be payable first to the
Class A-1 Certificates, until the Certificate Principal Balances thereof have
been reduced to zero, then to the Class A-2 Certificates until the Certificate
Principal Balances thereof have been reduced to zero, then to the Class A-3
Certificates until the Certificate Principal Balances thereof have been reduced
to zero, then to the Class A-4 Certificates until the Certificate Principal
Balances thereof have been reduced to zero, and then to the Class A-5
Certificates.
29
<PAGE>
Distributions of Interest. On each Distribution Date, the interest
due with respect to the Fixed Rate Certificates will be the interest which has
accrued thereon at the related Pass-Through Rate during the calendar month
immediately preceding the calendar month in which such Distribution Date occurs;
and the interest due with respect to the Variable Rate Certificates will be the
interest which has accrued thereon at the then applicable Variable Rate
Pass-Through Rate from and including the preceding Distribution Date (or from
the Closing Date in the case of the first Distribution Date) to and including
the day prior to the current Distribution Date. Each period referred to in the
prior sentence relating to the accrual of interest is the "Accrual Period" for
the related Class of Class A Certificates and the amount of interest due on a
Class of Class A Certificates on a Distribution Date less any Variable Rate
Certificates Carryover is the "Class A Current Interest" for such Class of Class
A Certificates on such Distribution Date.
All calculations of interest on the Fixed Rate Certificates will be
made on the basis of a 360-day year assumed to consist of twelve 30-day months.
All calculations of interest on the Variable Rate Certificates will be made on
the basis of the actual number of days and a year of 360 days.
Distributions of Principal. The "Class A Principal Distribution
Amount" for each Mortgage Loan Group with respect to each Distribution Date
shall be the lesser of:their Certificate Principal Balances which distributions
(i) will generally reflect collections of principal in respect of the Mortgage
Loans in the related Group on each Distribution Date and (ii) until certain
overcollateralization levels have been reached, will include excess interest;
provided, however, any such amounts payable to the Fixed Rate Certificates will
be distributed sequentially to the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates so that no such distribution shall be made to any
such Class until the Certificate Principal Balances of all prior classes shall
have been reduced to zero.
The "Class A Principal Distribution Amount" for each Mortgage Loan
Group with respect to each Distribution Date shall be the lesser of:
(x) the Total Available Funds (as defined under "-- Class A
Distributions and Insured Payments") for the related Mortgage Loan Group plus
any Deficiency Amount paid under the related Certificate Insurance Policy minus
the related Class A Current Interest and the Certificate Insurer premium for the
related Mortgage Loan Group; and
(y)(i) the sum (without duplication) of:
(a) the principal portion of all scheduled monthly payments on the
Mortgage Loans in the related Mortgage Loan Group due during the related Due
Period, to the extent actually received by the Trustee on or prior to the
related Master Servicer Remittance Date or to the extent actually advanced on or
prior to the related Master Servicer Remittance Date, and the principal portion
of all full and partial principal prepayments made by the respective Mortgagors
during the related Prepayment Period;
(b) the Scheduled Principal Balance of each Mortgage Loan in the
related Mortgage Loan Group that was repurchased during the related Prepayment
Period to the extent an amount representing such Scheduled Principal Balance is
actually received by the Trustee on or before the related Master Servicer
Remittance Date;
(c) any Substitution Shortfall delivered in connection with a
substitution of a Mortgage Loan during the related Prepayment Period to the
extent an amount representing such Substitution Shortfall is actually received
by the Trustee on or before the related Master Servicer Remittance Date;
(d) all Liquidation Proceeds actually collected by the Servicers
with respect to the Mortgage Loans in the related Mortgage Loan Group during the
related Prepayment Period to the extent such Liquidation Proceeds relate to
principal and were actually received by the Trustee on or before the related
Master Servicer Remittance Date;
(e) the amount of any Subordination Deficit with respect to such
Mortgage Loan Group for such Distribution Date;
30
<PAGE>
(f) the proceeds received by the Trustee with respect to the related
Mortgage Loan Group (to the extent such proceeds relate to principal) on any
termination of the Trust;
(g) the amount of any Subordination Increase Amount with respect to
such Mortgage Loan Group for such Distribution Date consisting of the portion of
any Total Monthly Excess Cash Flow to be applied for the accelerated payment of
principal on the related Class A Certificates; and
(h) with respect to the Distribution Date immediately following the
end of the Funding Period, the Pre-Funded Amount, if any, with respect to such
Mortgage Loan Group;
minus
(ii) the amount of any Subordination Reduction Amount with respect
to such Mortgage Loan Group for such Distribution Date.
In no event will the Class A Principal Distribution Amount for any
Mortgage Loan Group and Distribution Date (x) be less than zero or (y) be
greater than the then outstanding Certificate Principal Balance of the related
Class of Class A Certificates.
The sum of the Class A Current Interest (including any such amounts
remaining unpaid from previous Distribution Dates) and the Class A Principal
Distribution Amount with respect to any Class of Class A Certificates and
Distribution Date is the "Class A Distribution Amount" for such Class of Class A
Certificates and Distribution Date.
"Liquidation Proceeds" are the proceeds received in connection with
the liquidation of any Mortgage Loan as a result of defaults (including any
insurance or guarantee proceeds with respect thereto), less the expenses of such
liquidation and any unreimbursed Advances related to such Mortgage Loan.
A "Subordination Deficit" with respect to a Mortgage Loan Group and
Distribution Date is the amount, if any, by which (x) the Certificate Principal
Balance of the related Class A Certificates, giving effect to all distributions
made on such Distribution Date (except any payments as to principal by the
Certificate Insurer), exceeds (y) the sum of (i) the aggregate Scheduled
Principal Balances of the Mortgage Loans in the related Mortgage Loan Group as
of the close of the related Due Period and (ii) the amount, if any, on deposit
with respect to such Mortgage Loan Group in the Pre-Funding Account less any
Pre-Funding Account Earnings with respect thereto. As described herein, Insured
Payments do not include Realized Losses until such time as the aggregate
cumulative Realized Losses have created a Subordination Deficit, nor do Insured
Payments cover any failure to make Advances until such time as the sum of the
aggregate cumulative amount of such unpaid Advances and Realized Losses results
in a Subordination Deficit.
Overcollateralization and Crosscollateralization Provisions
The Agreement requires that, on each Distribution Date, Total
Monthly Excess Cashflow with respect to a Mortgage Loan Group be applied as an
additional payment of principal on the related Class of Class A Certificates,
but only to the limited extent hereafter described. "Total Monthly Excess
Cashflow" for any Distribution Date and Mortgage Loan Group equals the sum of
(i) the excess of (x) the related Interest Funds over (y) the sum of (A) the
related Class A Current Interest (plus any amounts representing such interest
remaining unpaid from previous Distribution Dates) and (B) the related
Certificate Insurance Policy premium and (ii) the related Subordination
Reduction Amount (as defined in the fifth succeeding paragraph), if any.
Pursuant to the Agreement, on each Distribution Date each Mortgage
Loan Group's Total Monthly Excess Cashflow is required to be applied in the
following order:
31
<PAGE>
(i) to fund any Available Funds Shortfall
(which is equal to the excess, if any, of (x) the related Class A
Distribution Amount (calculated only with respect to clause (y) of
the definition of Class A Principal Distribution Amount and without
any Subordination Increase Amount) with respect to such Mortgage
Loan Group for such Distribution Date over (y) the Available Funds
with respect to such Mortgage Loan Group for such Distribution Date)
with respect to the related Mortgage Loan Group;
(ii) to fund any Available Funds Shortfall with
respect to the other Mortgage Loan Group;
(iii) to pay to the Certificate Insurer all
amounts owed to the Certificate Insurer with respect to the related
Mortgage Loan Group, including amounts owed on account of any
Insured Payments theretofore made and interest thereon (any such
amount so owed to the Certificate Insurer and not theretofore paid,
together with accrued interest thereon, the "Insurer Reimbursable
Amount" with respect to the related Mortgage Loan Group);
(iv) to pay to the Certificate Insurer in
respect of any Insurer Reimbursable Amount with respect to the other
Mortgage Loan Group;
(v) to fund any required Subordination Increase
Amount with respect to the related Mortgage Loan Group as a portion
of the distribution of the Class A Principal Distribution Amount
with respect to the related Mortgage Loan Group;
(vi) to fund any required Subordination Increase
Amount with respect to the other Mortgage Loan Group as a portion of
the distribution of the Class A Principal Distribution Amount with
respect to the other Mortgage Loan Group; and
(vii) from the Total Monthly Excess Cashflow with
respect to the Variable Rate Mortgage Loan Group, to pay the
Variable Rate Certificates Carryover to the Holders of the Variable
Rate Certificates.
With respect to each Mortgage Loan Group, any remaining amount after
payment of the Class A Distribution Amount and all other amounts payable from
Total Monthly Excess Cashflow will be distributed to the Subordinated
Certificates.
"Subordinated Amount" means, with respect to any Mortgage Loan Group
and Distribution Date, the excess of (x) the sum of (i) the aggregate Scheduled
Principal Balances (minus the principal portion of all Monthly Payments due but
not paid by the Borrowers as of the last day of the related Prepayment Period)
of the Mortgage Loans in such Mortgage Loan Group as of the close of business on
the last day of the preceding Due Period and (ii) any amount with respect to
such Mortgage Loan Group on deposit in the Pre-Funding Account less any
Pre-Funding Account Earnings with respect thereto over (y) the Certificate
Principal Balance of the related Class of Class A Certificates as of such
Distribution Date (giving effect to all distributions made on such Distribution
Date other than an Insured Payment). With respect to either Mortgage Loan Group,
a "Subordination Increase Amount", is the lesser of (i) the excess of (a) the
related Specified Subordinated Amount over (b) the related Subordinated Amount
and (ii) any amount of Total Monthly Excess Cashflow available on the applicable
Distribution Date to reduce the principal amount of the related Class A
Certificates. The required level of the Subordinated Amount with respect to a
Mortgage Loan Group and Distribution Date is the "Specified Subordinated Amount"
with respect to such Mortgage Loan Group and Distribution Date. The Agreement
generally provides that the related Specified Subordinated Amount may, over
time, decrease, or increase, subject to certain floors, caps and triggers.
The application of Total Monthly Excess Cashflow to principal has
the effect of accelerating the amortization of the related Class of Class A
Certificates relative to the amortization of the Mortgage Loans in the related
Mortgage Loan Group.
32
<PAGE>
If the required level of the Specified Subordinated Amount with
respect to a Mortgage Loan Group is permitted to decrease or "step down" on a
Distribution Date in the future, the Agreement provides for the related Class A
Principal Distribution Amount to be reduced by the related Subordination
Reduction Amount (as defined below) with the result that principal which would
otherwise have been distributed to the Holders of the related Class of Class A
Certificates on such Distribution Date is made available for distribution to the
other Class of Class A Certificates, to the Certificate Insurer as an Insurer
Reimbursable Amount or to the Holders of the Subordinated Certificates to the
extent of the Excess Subordinated Amount. This has the effect of reducing the
rate of amortization of the related Class of Class A Certificates relative to
the amortization of the Mortgage Loans in the related Mortgage Loan Group and of
reducing the related Subordinated Amount. On any Distribution Date, the
Subordination Reduction Amount with respect to a Mortgage Loan Group is an
amount equal to the lesser of (x) the Excess Subordinated Amount (the amount, if
any, by which (i) the Subordinated Amount that would apply to the related
Mortgage Loan Group on such Distribution Date after taking into account all
distributions to be made on such Distribution Date (except for any distributions
of related Subordination Reduction Amounts) exceeds (ii) the related Specified
Subordinated Amount for such Distribution Date) and (y) the amount available for
distribution on account of principal with respect to the related Class of Class
A Certificates on such Distribution Date.
Liquidation Proceeds with respect to a Mortgage Loan which are
allocated to principal may be less than the principal balance of the related
Mortgage Loan; the amount of any such insufficiency is a "Realized Loss." The
Agreement does not require that the amount of any Realized Loss be distributed
to the Holders of the related Class of Class A Certificates on the Distribution
Date which immediately follows the event of loss; that is the Agreement does not
require the current recovery of losses to Certificateholders. Nevertheless, the
occurrence of a Realized Loss will reduce the Subordinated Amount with respect
to the related Mortgage Loan Group, which, to the extent that such reduction
causes the Subordinated Amount to be less than the related Specified
Subordinated Amount applicable to the related Distribution Date, will require
the payment of a Subordination Increase Amount on such Distribution Date (or, if
insufficient funds are available on such Distribution Date, on subsequent
Distribution Dates, until the Subordinated Amount equals the related Specified
Subordinated Amount). The effect of the foregoing is to allocate Realized Losses
to the Holders of the Subordinated Certificates by reducing, or eliminating
entirely, payments of Total Monthly Excess Cashflow which such Holders would
otherwise receive.
Class A Distributions and Insured Payments
No later than three Business Days prior to each Distribution Date
the Master Servicer will be required to determine "Available Funds" (as defined
above under "-- Distribution Dates") with respect to each Mortgage Loan Group;
and "Total Available Funds" with respect to each Mortgage Loan Group (which is
equal to the Available Funds for that Mortgage Loan Group plus any amount of
Total Monthly Excess Cashflow with respect to the other Mortgage Loan Group to
be applied on account of that Mortgage Loan Group as described above under "--
Overcollateralization and Crosscollateralization Provisions"). If the Class A
Current Interest (including any such interest remaining unpaid on previous
Distribution Dates) and any Subordination Deficit with respect to a Class of the
Class A Certificates for any Distribution Date exceeds the Total Available Funds
(after deducting the amount necessary to pay the related premium amount to the
Certificate Insurer) for the related Mortgage Loan Group on such Distribution
Date, the Trustee will be required to make a claim for such insufficiency from
the Certificate Insurer under the related Certificate Insurance Policy. The
amount of any Insured Payment made by the Certificate Insurer will be deposited
in the Asset Proceeds Account to pay to the Holders of the related Classes of
the Class A Certificates.
On each Distribution Date, and following the application of all
allocations, transfers and deposits heretofore described under this caption,
from amounts (including any related Insured Payment) then on deposit in the
Asset Proceeds Account with respect to the related Mortgage Loan Group, the
Paying Agent will be required to distribute to the Holders of each Class of the
Class A Certificates, the related Class A Distribution Amount for such
Distribution Date.
33
<PAGE>
To the extent that the aggregate Certificate Principal Balance of
the Variable Rate Certificates has not been reduced to zero on the Last
Scheduled Distribution Date therefor, the Certificate Insurer will include as an
Insured Payment to the Variable Rate Certificates on such Distribution Date an
amount which shall be sufficient to reduce such aggregate Certificate Principal
Balance to zero (any such payment, the "Variable Rate Final Payment"). See
"DESCRIPTION OF THE CLASS A CERTIFICATES--Class A Distributions and Insured
Payments" and "THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER"
herein.
Pre-Funding Account
On the Closing Date, the Original Pre-Funded Amount will be
deposited in the Pre-Funding Account. During the Funding Period, the Pre-Funded
Amount will be maintained in the Pre-Funding Account. The Original Pre-Funded
Amount will be reduced during the Funding Period by the amount thereof used to
purchase Subsequent Mortgage Loans for addition to the Fixed Rate Group or the
Variable Rate Group in accordance with the Agreement. Any Pre-Funded Amount with
respect to a Mortgage Loan Group remaining at the end of the Funding Period will
be distributed to the Holders of the related Class or Classes of the Class A
Certificates then entitled to receive principal in accordance with the terms of
the Agreement on the Distribution Date that immediately follows the end of the
Funding Period in reduction of the Certificate Principal Balance of such
Holder's Certificates, thus resulting in a principal prepayment of such Class of
Certificates.
Amounts on deposit in the Pre-Funding Account will be invested in
Permitted Investments. Pre-Funding Account Earnings will be deposited in the
Capitalized Interest Account. The Pre-Funding Account will not be an asset of
the REMIC.
Capitalized Interest Account
On the Closing Date, cash will be deposited in the Capitalized
Interest Account. The amount on deposit in the Capitalized Interest Account,
including reinvestment income thereon, will be used by the Paying Agent to fund
on each Distribution Date to and including the Distribution Date immediately
following the end of the Funding Period the excess of (i) the sum of (a) the
applicable Class A Current Interest for such Distribution Date and (b) the
related premium amount to the Certificate Insurer for such Distribution Date
over (ii) the Interest Funds (as defined herein) for the related Mortgage Loan
Group and Master Servicer Remittance Date. Amounts remaining in the Capitalized
Interest Account at the end of the Funding Period will be paid to the Seller.
The Capitalized Interest Account will be an asset of the Trust but will not be
an asset of the REMIC (as defined herein).
Amounts on deposit in the Capitalized Interest Account will be
invested in Permitted Investments. The Capitalized Interest Account will not be
an asset of the REMIC.
Calculation of One Month LIBOR
On the second business day preceding each Distribution Date other
than the first Distribution Date (each such date, an "Interest Determination
Date"), the Paying Agent will determine One Month LIBOR (as defined below).
"One Month LIBOR" means, as of any Interest Determination Date, the
rate for deposits in United States dollars for one-month U.S. dollar deposits
("LIBOR") which appears in the Telerate Page 3750, as of 11:00 a.m., (London
time) on such Interest Determination Date. If such rate does not appear on
Telerate Page 3750, the rate for that day will be determined on the basis of the
rates at which deposits in United States dollars are offered by the Reference
Banks at approximately 11:00 a.m., London time, on that day to prime banks in
the London interbank market for a period equal to the relevant Accrual Period
(commencing on the first day of such Accrual Period). The Paying Agent will
request the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
for that day will be the arithmetic-mean of the quotations. If fewer than two
quotations are provided as requested, the rate for that day will be the
arithmetic-mean of the rates quoted by major banks in New York City, selected by
the Paying Agent, at approximately 11:00 a.m., New York City time, on that day
for loans in United States dollars to leading European banks for a period equal
to the relevant Accrual Period (commencing on the first day of such Accrual
Period).
34
<PAGE>
"Telerate Page 3750" means the display page currently so designated
on the Dow Jones Telerate Service (or such other page as may replace that page
on that service for the purpose of displaying comparable rates or prices) and
"Reference Banks" means leading banks selected by the Paying Agent and engaged
in transactions in Eurodollar deposits in the international Eurocurrency market.
Book Entry Registration of the Class A Certificates
The Class A Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Beneficial Holders may elect to hold their
Book-Entry Certificates directly through DTC in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems ("Participants"),
or indirectly through organizations which are Participants. The Book-Entry
Certificates will be issued in one or more certificates per class of Class A
Certificates which in the aggregate equal the principal balance of such Class A
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. See "Description of the Certificates -- Book Entry Procedures"
and -- Global Clearance Settlement and Tax Documentation Procedures" in the
Prospectus.
THE CERTIFICATE INSURER INSURANCE POLICIES AND THE CERTIFICATE INSURER
The following information has been supplied by the Certificate
Insurer for inclusion in this Prospectus Supplement.
[TO BE SUPPLIED]
THE AGREEMENT
In addition to the provisions of the Agreement summarized elsewhere
in this Prospectus Supplement, there is set forth below a summary of certain
other provisions of the Agreement. See also "THE AGREEMENT -- The Trustee", "--
Administration of Accounts", "-- Events of Default and Remedies", "--
Amendment", and "-- Termination" in the Prospectus.
Formation of the Trust
On the Closing Date, the Trust will be created and established
pursuant to the Agreement. On such date, the Depositor will sell without
recourse the Mortgage Loans to the Trust and the Trust will issue the Class A
Certificates to the Holders thereof pursuant to the Agreement. Reference is made
to the Prospectus for important information in addition to that set forth herein
regarding the terms and conditions of the Certificates. The Depositor will
provide to any prospective or actual Certificateholder, upon written request, a
copy (without exhibits) of the Agreement. Requests should be addressed to Saxon
Asset Securities Company, 4880 Cox Road, Glen Allen, Virginia 23060, Attention:
Secretary.
The Trust created pursuant to the Agreement will consist of (a) the
Mortgage Loans, (b) such assets as from time to time are identified as deposited
in any account held for the benefit of the related Certificateholders, (c) any
Mortgaged Premises acquired on behalf of such Certificateholders by foreclosure
or by deed in lieu of foreclosure, (d) the rights of the Trustee to receive the
proceeds of applicable insurance policies and funds, if any, required to be
maintained pursuant to the Agreement, (e) certain rights of the Depositor to the
enforcement of representations and warranties made by SMI relating to the
Mortgage Loans and (f) the Servicing Agreement. On the Closing Date, the
Depositor will also deposit with the Trustee an amount in respect of Mortgage
Loans that do not provide for a monthly payment prior to the first Distribution
Date.
The Class A Certificates will not represent an interest in or an
obligation of, nor will the Mortgage Loans be guaranteed by, the Depositor, the
Servicers, the Master Servicer or the Trustee.
35
<PAGE>
Reports to Certificateholders
On each Distribution Date the Master Servicer is required to report
in writing to each Holder of a Class A Certificate and the Certificate Insurer:
(i) the amount of the distribution with
respect to each Class of Class A Certificates (based on
a Class A Certificate in the original principal amount
of $1,000);
(ii) the amount of such distributions
allocable to principal, separately identifying the
aggregate amount of any prepayments or other recoveries
of principal included therein, and any Subordination
Increase Amount with respect to the related Mortgage
Loan Group (based on a Class A Certificate in the
original principal amount of $1,000);
(iii) the amount of such distributions
allocable to interest (based on a Class A Certificate in
the original principal amount of $1,000);
(iv) if the distribution with respect to any
Class of the Class A Certificates on such Distribution
Date was less than the related Class A Distribution
Amount on such Distribution Date, the allocation thereof
to the related Classes of the Class A Certificates
resulting therefrom;
(v) the amount of any Insured Payment
included in the amounts distributed to the Class A
Certificates on such Distribution Date;
(vi) the Certificate Principal Balance of
each Class of Class A Certificates and the aggregate
Scheduled Principal Balance of each Group, in each case
after giving effect to any Class A Principal
Distribution on such Distribution Date;
(vii) the Subordinated Amount or
Subordination Deficit, if any, for each Group remaining
after giving effect to all distributions and transfers
on such Distribution Date;
(viii) the total of any Substitution
Shortfalls and any repurchase amounts included in such
distribution with respect to each Group;
(ix) the weighted average Net Rate of the
Mortgage Loans with respect to each Group;
(x) such other information as the
Certificate Insurer may reasonably request with respect
to Delinquent Mortgage Loans;
(xi) the largest Mortgage Loan balance
outstanding in each Group;
(xii) the Servicing Fees, Master Servicing
Fees and related premium amount to the Certificate
Insurer allocable to each Group;
(xiii) One-Month LIBOR on the most recent
Interest Determination Date; and
(xiv) the Pass-through Rates for the Class
A-6 Certificates for the Current Accrual Period; and
(xv) for each Distribution Date during the
Funding Period, the Pre-Funded Amount allocable to each
Group.
36
<PAGE>
Assignment of Mortgage Loans
The Depositor is required, with respect to each Mortgage Loan, to
deliver or cause to be delivered to the Trustee or Custodian the related
mortgage note (the "Note") endorsed to the order of the Trustee or Custodian or
in blank, evidence of recording of the Mortgage, and certain other original
documents relating to the Mortgage Loans.
Currently, the Depositor is also required to deliver an assignment
of such Mortgage in recordable form either naming the Trustee as assignee or in
blank, and to cause such assignment to be recorded in the appropriate public
office for real property records. See "THE TRUSTS -- Assignment of Mortgage
Assets" in the Prospectus.
Delivery and Substitution of Mortgage Loans
If any Mortgage Loan proposed to be included in the Mortgage Loan
Groups is not delivered with all the required documentation on the Closing Date,
the Depositor intends to deposit cash on an interim basis with the Trustee in an
amount equal to the Scheduled Principal Balance of any such Mortgage Loan, plus
applicable interest for one month on the amount of cash deposited. If cash is
deposited, the Depositor will use its reasonable best efforts to provide the
Trustee with Mortgage Loans consistent with the terms hereof before the first
Distribution Date.
Under the limited circumstances specified in the Agreement, certain
mortgage loans acceptable to the Certificate Insurer may be substituted for
Mortgage Loans initially delivered to the Custodian. It is anticipated that any
permitted substitution will not materially change the characteristics of the
Mortgage Pools, as set forth above. See "THE TRUSTS -- The Mortgage Assets --
Substitution of Mortgage Assets" in the Prospectus.
The Trustee, Certificate Registrar, Paying Agent and the Custodian
______________, a national banking association, will act as Trustee
of the Trust. The mailing address of the Trustee's Corporate Trust Office is
_________________________________________, and its telephone number is (___)
___-____. ________________________________________ will act Certificate
Registrar and Paying Agent for the Certificates and as Custodian of the Mortgage
Loans. The mailing address of the Certificate Registrar and Paying Agent is
________________________________. The mailing address of the Custodian's office
is ________ ____________________________________________.
Voting Rights
The voting rights of the Trust will be allocated as follows: 1% to
the Subordinated Certificates and 99% to the Classes of Class A Certificates in
proportion to their respective outstanding Certificate Principal Balances. In
the absence of a default on the part of the Certificate Insurer, the Certificate
Insurer will be entitled to exercise all voting rights of the Class A
Certificateholders without the consent of such Class A Certificateholders, and
such Class A Certificateholders may exercise such rights only with the prior
written consent of the Certificate Insurer.
Termination of the Trust
The Agreement provides that the Trust will terminate upon the
payment to the Holders of all Class A Certificates and the Certificate Insurer,
from amounts other than those available under the Certificate Insurance Polices
of all amounts required to be paid to such Holders and the Certificate Insurer
upon the last to occur of (a) the final payment or other liquidation (or any
advance made with respect hereto) of the last Mortgage Loan, (b) the disposition
of all property acquired in respect of any Mortgage Loan remaining in the Trust
and (c) at any time when a qualified liquidation (as defined in the Code) of the
Trust is effected as described below.
37
<PAGE>
Optional Termination
By Owners of Class R Certificate. At their option, the Holders of a
majority in interest of the Class R Certificates then outstanding may, on any
Distribution Date when the aggregate outstanding Scheduled Principal Balances of
the Mortgage Loans are less than 10% of the Maximum Collateral Amount (the first
such Distribution Date, "Initial Optional Termination Date"), purchase from the
Trust all (but not fewer than all) remaining Mortgage Loans, in whole only, and
other property acquired by foreclosure, deed in lieu of foreclosure, or
otherwise then constituting the Trust at a price equal to 100% of the aggregate
Schedule Principal Balances of the Mortgage Loans plus one month's interest
computed as provided in the Agreement plus any Insurer Reimbursable Amount with
respect to either Mortgage Loan Group.
Termination Upon Loss of REMIC Status. Following a final
determination by the Internal Revenue Service or by a court of competent
jurisdiction, in either case from which no appeal is taken within the permitted
time for such appeal, or if any appeal is taken, following a final determination
of such appeal from which no further appeal may be taken, to the effect that the
REMIC does not and will no longer qualify as a "REMIC" pursuant to Section 860D
of the Code (the "Final Determination"), at any time on or after the date which
is 30 calendar days following such Final Determination, the Certificate Insurer
or the Holders of a majority in Percentage Interests represented by the Class A
Certificates then outstanding with the consent of the Certificate Insurer may
direct the Trustee on behalf of the Trust to adopt a plan of complete
liquidation acceptable to the Certificate Insurer.
Sale of Mortgage Loans
On the Closing Date the Depositor will sell without recourse to the
Trust all right, title and interest of the Depositor in each Initial Mortgage
Loan listed on the related schedules of the Mortgage Loans delivered to the
Trustee prior to the Closing Date with respect to the Initial Mortgage Loans and
all its right, title and interest in all scheduled payments due on each Initial
Mortgage Loan on or after the Cut-Off Date and all principal and interest
collected on each such Initial Mortgage Loan on or after the Cut-Off Date. On
each Subsequent Sales Date the Depositor will sell without recourse to the Trust
all right, title and interest of the Depositor in each Subsequent Mortgage Loan
listed on the related schedules of Subsequent Mortgage Loans and all its right,
title and interest in all scheduled payments due on each Mortgage Loan on or
after the related cut-off date and all principal and interest collected on each
such Subsequent Mortgage Loan on and after such cut-off date.
In connection with the sale of Mortgage Loans, the Depositor will be
required to deliver to the Custodian a file consisting of (i) the original Notes
or certified copies thereof, endorsed by the Originator thereof in blank or to
the order of the holder, (ii) originals of all intervening assignments, showing
a complete chain of title from origination to the applicable Originators, if
any, including warehousing assignments, with evidence of recording thereon,
(iii) originals of all assumption and modification agreements, if any, (iv)
unless such Mortgage Loan is covered by a counsel's opinion to the effect that
recording is not required in order to protect the right, title and interest of
the Trustee in such Mortgage Loan, either: (a) the original Mortgage, with
evidence of recording thereon, or a certified copy of the Mortgage as recorded,
or (b) if the original Mortgage has not yet been returned from the recording
office, a certified copy of the Mortgage, and (v) evidence of title insurance
with respect to the mortgaged property in the form of a binder or commitment.
The Custodian will agree, for the benefit of the Holders and the Certificate
Insurer, as their interests may appear, to review each such file on or before
the Closing Date (or Subsequent Sales Date) and again within 90 days after the
Closing Date (or Subsequent Sales Date) or to ascertain that all required
documents (or certified copies of documents) have been executed and received.
Pursuant to the terms of the Agreement, the Depositor shall assign
to the Trustee for the benefit of the Holders of the Certificates and the
Certificate Insurer, as their interests may appear, all the Depositor's right,
title and interest in the Sales Agreement and any Subsequent Sales Agreement
insofar as it relates to the representations and warranties made therein by SMI
in respect of the origination of the Mortgage Loans and the remedies provided
for breach of such representations and warranties. Upon discovery by the
Trustee, the Master Servicer or the Certificate Insurer of a breach of any
38
<PAGE>
representation, warranty or covenant which materially and adversely affects the
interests of the Holders of the Certificates or of the Certificate Insurer, such
party will promptly notify the Depositor, SMI and the Certificate Insurer. SMI
will have 60 days from its discovery or its receipt of such notice to cure such
breach or repurchase the Mortgage Loan or to substitute a qualified substitute
mortgage loan.
Events of Default
The Master Servicer will have the right which may only be exercised
with the consent of and must be exercised at the direction of the Certificate
Insurer to direct the termination of a Servicer in the event of a breach by such
Servicer under its Servicing Agreement. In the event of such termination, the
Master Servicer will be required to appoint a successor servicer acceptable to
the Certificate Insurer to assume the obligations of such Servicer under the
Servicing Agreement, including the obligation to make Advances (the Master
Servicer will not be obligated to pay Month End Interest). See "THE MORTGAGE
LOAN POOL -- Advances and Month End Interest" in this Prospectus Supplement. If
the Master Servicer is unable to appoint a successor servicer acceptable to the
Certificate Insurer, the Trustee will appoint or petition a court of competent
jurisdiction for the appointment of a suitable mortgage loan servicing
institution to act as successor servicer under the Servicing Agreement. Pending
such appointment, the Master Servicer will be obligated to service the Mortgage
Loans. Any successor servicer, including the Trustee, will be entitled to
compensation arrangements similar to (but no greater than) those provided to the
predecessor Servicer. See "SERVICING OF THE MORTGAGE LOANS -- General" in the
Prospectus.
Governing Law
The Agreement and each Certificate will be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed therein.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the material anticipated
federal income tax consequences of the purchase, ownership and disposition of
the Class A Certificates is to be considered only in connection with "Certain
Federal Income Tax Consequences" in the Prospectus. The discussion herein and in
the Prospectus is based upon laws, regulations, rulings and decisions now in
effect, all of which are subject to change. The discussion below and in the
Prospectus does not purport to deal with all federal tax consequences applicable
to all categories of investors, some of which may be subject to special rules.
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 Class A Certificates.
39
<PAGE>
REMIC Elections
The Trustee will cause an election to be made to treat the Trust as
a REMIC for federal income tax purposes. In the opinion of Arter & Hadden,
counsel to the Depositor, for federal income tax purposes, assuming (i) a REMIC
election is made, (ii) the Agreement is fully executed, delivered and
enforceable against the parties thereto in accordance with its terms, (iii) the
transactions described herein are completed on substantially the terms and
conditions set forth herein and (iv) compliance with the Trust Agreement, the
Trust will be treated as a REMIC and each Class of Class A Certificates will be
treated as "regular interests" in the REMIC and generally will be treated as
debt instruments issued by the REMIC. Holders of Class A Certificates that
otherwise report income under a cash method of accounting will be required to
report income with respect to such Class A Certificates under an accrual method.
The Class A Certificates may be issued with "original issue discount" for
federal income tax purposes. In that connection, the Trust will report the
variable rate of interest on the Class A-6 Certificates as "qualified stated
interest". The prepayment assumptions to be used in determining whether the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates
are issued with original issue discount and the rate of accrual of original
issue discount are 100% of the respective Prepayment Assumptions as defined
herein. No representation is made that any of the Mortgage Loans will prepay at
this rate or any other rate. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES --
REMIC Certificates" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans and
individual retirement arrangements (and entities whose underlying assets include
plan assets by reason of such a plan's or arrangement's investment in such
entities) to which it applies ("Plan") and on those persons who are fiduciaries
with respect to such Plans. Any Plan fiduciary which proposes to cause a Plan to
acquire any of the Class A Certificates should consult with counsel with respect
to the consequences under ERISA and the Code of the Plan's acquisition and
ownership of such Certificates. See "ERISA CONSIDERATIONS -- Plan Asset
Regulations," "-- Prohibited Transaction Class Exemption," "-- Tax Exempt
Investors" and "--Consultation with Counsel" in the Prospectus.
Section 406 of ERISA prohibits Plans from engaging in certain
transactions involving the assets of such Plans with Parties in Interest with
respect to such Plans, unless a statutory or administrative exemption is
applicable to the transaction. Excise taxes under Section 4975 of the Code,
penalties under Section 502 of ERISA and other penalties may be imposed on Plan
fiduciaries and Parties in Interest (or "disqualified persons" under the Code)
that engage in "prohibited transactions" involving assets of a Plan. Individual
retirement arrangements and other plans that are not subject to ERISA, but are
subject to Section 4975 of the Code, and disqualified persons with respect to
such arrangements and plans, also may be subject to excise taxes and other
penalties if they engage in prohibited transactions. Furthermore, based on the
reasoning of the United States Supreme Court in John Hancock Life Ins. Co. v.
Harris Trust and Sav. Bank, 510 U.S. 86 (1993) an insurance company may be
subject to excise taxes and other penalties if such insurance company's general
account is deemed to include assets of the Plans investing in the general
account (e.g., through the purchase of an annuity contract).
The Department of Labor (the "DOL") has issued a regulation (the
"Plan Asset Regulation") describing what constitutes the assets of a Plan when
the Plan acquires an equity interest in another entity. The Plan Asset
Regulation states that, unless an exemption described in the regulation is
applicable, the underlying assets of an entity considered, for purposes of
ERISA, to be the assets of the investing Plan. Pursuant to the Plan Asset
Regulation, if the assets of the Trust were deemed to be plan assets by reason
of a Plan's investment in any Class A Certificates, such plan assets would
include an undivided interest in any exemption, the purchase, sale or holding of
any Certificate by a Plan subject to Section 406 of ERISA or Section 4975 of the
Code might result in prohibited transactions and the imposition of excise taxes
and civil penalties.
The DOL has issued to __________________________________ an
individual prohibited transaction exemption, Prohibited Transaction Exemption
_____ (the "Exemption"), which generally exempts from the application of the
40
<PAGE>
prohibited transaction provision of Section 406(a), Section 406(b)(1) and
Section 406(b)(2) of ERISA and the excise taxes imposed pursuant to Sections
4975(a) and (b) of the Code, relating to the initial purchase, the holding and
the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations with respect to
which Prudential Securities Incorporated or any of its affiliates is the sole
underwriter or the manager or co-manager of the underwriting syndicate; provided
that the conditions and requirements of the Exemption are met. The loans covered
by the Exemption include mortgage loans such as the Mortgage Loans.
Among the conditions that must be satisfied for the Exemption to
apply are the following:
(1) the acquisition of the certificates by a Plan is on
terms (including the price for the certificates) that are at least
as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) the rights and interests evidenced by the
certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the trust;
(3) the certificates acquired by the Plan have received
a rating at the time of such acquisition that is one of the three
highest generic rating categories from either Standard & Poor's,
Moody's, Duff & Phelps Credit Rating Co. ("D&P") or Fitch Investors
Service, Inc. ("Fitch");
(4) the Trustee must not be an affiliate of any other
member of the Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
Underwriters in connection with the distribution of the certificates
represents not more than reasonable compensation for underwriting
the certificates; the sum of all payments made to and retained by
the Depositor pursuant to the assignment of the loans to the Trust
represents not more than the fair market value of such loans; the
sum of all payments made to and retained by any Servicer represents
not more than reasonable compensation for such person's services
under the Servicing Agreement and reimbursement of such person's
reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D
of the Securities and Exchange Commission under the Securities Act
of 1933.
The Trust must also meet the following requirements:
(i) the corpus of the Trust must consist solely of
assets of the type that have been included in other investment
pools;
(ii) certificates in such other investment pools must
have been rated in one of the three highest rating categories of
Standard & Poor's, Moody's, Fitch or D&P for at least one year prior
to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other than
Plans for at least one year prior to the Plan's acquisition of
certificates.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least fifty percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least fifty percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the obligations contained in the
41
<PAGE>
trust; (iii) the Plan's investment in certificates of any class does not exceed
twenty-five percent of all the certificates of that class outstanding at the
time of the acquisition; and (iv) immediately after the acquisition, no more
than twenty-five percent of the assets of the Plan with respect to which such
person is a fiduciary are invested in certificates representing an interest in
one or more trusts containing assets sold or serviced by the same entity. The
Exemption does not apply to Plans sponsored by the Depositor, the Certificate
Insurer, the Underwriters, the Trustee, the Master Servicer, any obligor with
respect to Mortgage Loans included in the Trust Estate constituting more than
five percent of the aggregate unamortized principal balance of the assets in the
Trust Estate, or any affiliate of such parties (the "Restricted Group").
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption,
and the potential consequences in their specific circumstances, prior to making
an investment in the Class A Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment procedure
and diversification an investment in the Class A 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.
RATINGS
It is a condition of the original issuance of the Class A
Certificates that they receive ratings of AAA by Standard & Poor's and Aaa by
Moody's. The ratings assigned to the Class A Certificates will be based on the
claims-paying ability of the Certificate Insurer. The ratings do not represent
any assessment of the likelihood or rate of principal prepayments, the
likelihood that any Variable Rate Certificates Carryover will be paid or any
assessment of the ability of the Depositor to purchase Converted Mortgage Loans.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. The security rating assigned to the Class A
Certificates should be evaluated independently of similar security ratings
assigned to other kinds of securities.
Explanations of the significance of such ratings may be obtained
from Moody's Investors Service, Inc., 99 Church Street, New York, New York,
10007 and Standard & Poor's, a Division of The McGraw-Hill Companies, Inc., 25
Broadway, New York, New York 10004. Such ratings will be the views only of such
rating agencies. There is no assurance that any such ratings will continue for
any period of time or that such ratings will not be revised or withdrawn. Any
such revision or withdrawal of such ratings may have an adverse effect on the
market price of the Class A Certificates.
LEGAL INVESTMENT CONSIDERATIONS
Upon the termination of the Funding Period, the Variable Rate
Certificates will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") for so long as they
are rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations. As such, the Variable Rate
Certificates will be legal investments for certain entities to the extent
provided in SMMEA, subject to state laws overriding SMMEA. In addition,
institutions whose investment activities are subject to review by federal or
state regulatory authorities may be or may become subject to restrictions, which
may be retroactively imposed by such regulatory authorities, on the investment
by such institutions in certain forms of mortgage related securities.
Furthermore, certain states have enacted legislation overriding the legal
investment provisions of SMMEA.
Although the Fixed Rate Certificates are expected to be rated "AAA"
by Standard & Poor's and "Aaa" by Moody's, the Fixed Rate Certificates will not
constitute "mortgage related securities" for purposes of SMMEA because some of
the Mortgage Loans in the Fixed Rate Group are secured by second liens.
42
<PAGE>
Accordingly, many institutions with legal authority to invest in comparably
rated securities may not be legally authorized to invest in the Fixed Rate
Certificates.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement for the sale of the Class A Certificates, the Depositor has agreed to
cause the Trust to sell and the Underwriters named below (the "Underwriters")
have severally agreed to purchase the principal amount of Class A Certificates
set forth below.
Underwriters Fixed Rate Variable Rate
Certificates Certificates
- -----------------------------------------------------------------------------
- ---------------------------------- $---------- $-----------
- --------------- -- ----------
- ------------------------------------
------------ ---------- --
________________________ --
--------- ----------
$----------- $-----------
The Underwriters have advised the Depositor that they propose to
offer the Class A Certificates for sale from time to time in one or more
negotiated transactions or otherwise, at market prices prevailing at the time of
sale, at prices related to such market prices or at negotiated prices. The
Underwriters may effect such transactions by selling such Certificates to or
through dealers, and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters or
purchasers of the Class A Certificates for whom they may act as agent. Any
dealers that participate with the Underwriters in the distribution of the Class
A Certificates purchased by the Underwriters may be deemed to be underwriters,
and any discounts or commissions received by them or the Underwriters and any
profit on the resale of Class A Certificates by them or the Underwriters may be
deemed to be underwriting discounts or commissions under the Securities Act.
Proceeds to the Depositor are expected to be approximately
$___________ plus accrued interest, before deducting expenses payable by the
Depositor in connection with the Class A Certificates, estimated to be $_______.
In connection with the purchase and sale of the Class A Certificates, the
Underwriters may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.
The Depositor, SMI and Dominion Mortgage Services, Inc., have agreed
to indemnify the Underwriters against certain liabilities including liabilities
under the Securities Act of 1933, as amended.
Certain of the Mortgage Loans may have been the subject of financing
provided by affiliates of the Underwriters.
REPORT OF EXPERTS
The consolidated financial statements of the Certificate Insurer and
its subsidiaries as of December 31, 1996 and December 31, 1995, and for each of
the three years ended December 31, 1995, incorporated by reference into this
Prospectus Supplement have been audited by ______________________, independent
accountants, as set forth in their report thereon and have been incorporated by
reference into this Prospectus Supplement in reliance upon the authority of such
firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of
the Certificates will be passed upon for the Depositor by legal counsel of the
Depositor and SMI, Arter & Hadden, Washington, D.C. Certain legal matters
relating to insolvency issues and certain federal income tax matters concerning
the Certificates will be passed upon for the Depositor by Arter & Hadden,
Washington, D.C. Certain legal matters relating to the validity of the
Certificates will be passed upon for the Underwriters by
__________________________________. Certain legal matters relating to the
Certificate Insurance Policies will be passed upon for the Certificate Insurer
by ----------, ---------------.
44
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
2/28 Loans................................................................S-4
3/27 Loans................................................................S-4
Accrual Period............................................................S-7
Actuarial Loans..........................................................S-18
Advances..................................................................S-9
Asset Proceeds Account...................................................S-30
Available Funds..........................................................S-30
Beneficial Holders.......................................................S-11
Book-Entry Certificates..................................................S-36
Capitalized Interest Account..............................................S-9
Cede.....................................................................S-11
CEDEL....................................................................S-11
CEDEL Participants.......................................................S-38
Certificate Account......................................................S-30
Certificate Insurance Policies............................................S-8
Certificate Insurer.......................................................S-8
Certificate Registrar.....................................................S-2
Class A Certificates......................................................S-1
Class A Current Interest..................................................S-7
Class A Distribution Amount..............................................S-33
Class A Principal Distribution Amount....................................S-32
Class A-1 Pass-Through Rate...............................................S-1
Class A-2 Certificates....................................................S-1
Class A-3 Certificates....................................................S-1
Class A-4 Certificates....................................................S-1
Class A-5 Certificates....................................................S-1
Closing Date..............................................................S-2
Code.....................................................................S-11
Company...................................................................S-2
Cooperative..............................................................S-38
Credit Enhancement........................................................S-7
Cut-Off Date..............................................................S-2
Definitive Certificate...................................................S-37
Denominations.............................................................S-2
Distribution Date.........................................................S-7
DOL......................................................................S-48
DTC......................................................................S-11
DTC Participants.........................................................S-38
Due Period...............................................................S-10
ERISA....................................................................S-11
Euroclear................................................................S-11
Euroclear Operator.......................................................S-38
Euroclear Participants...................................................S-38
European Depositaries....................................................S-11
Excess Subordinated Amount...............................................S-34
Exemption................................................................S-49
Financial Intermediary...................................................S-37
Fiscal Agent.............................................................S-40
Fixed Rate Group..........................................................S-2
FNMA......................................................................S-3
Funding Period............................................................S-8
Group.....................................................................S-2
Holder...................................................................S-30
Initial Mortgage Loans....................................................S-2
Insurer Reimburseable Amount.............................................S-34
Interest Determination Date..............................................S-36
Interest Funds...........................................................S-30
Last Scheduled Payment Date..............................................S-25
Liquidated Mortgage Loan.................................................S-33
Master Servicer...........................................................S-2
Master Servicer Remittance Date..........................................S-30
Master Servicing Fee.....................................................S-10
Master Servicing Fee Rate................................................S-10
Maximum Collateral Amount................................................S-10
Modeling Assumptions.....................................................S-26
Month End Interest.......................................................S-24
Moody's..................................................................S-10
Mortgage Loan Group.......................................................S-2
Mortgage Loans............................................................S-3
Mortgaged Properties......................................................S-2
Mortgages.................................................................S-2
Mortgagor................................................................S-18
Notes....................................................................S-15
One Month LIBOR...........................................................S-6
One Year CMT Loans........................................................S-4
Optional Termination Date................................................S-46
Original Pre-Funded Amount................................................S-3
Participants.............................................................S-36
Pass-Through Rates........................................................S-6
Paying Agent..............................................................S-2
Percentage Interest......................................................S-31
Permitted Investments....................................................S-30
Plan.....................................................................S-48
Plan Asset Regulation....................................................S-48
Pre-Funded Amount.........................................................S-9
Pre-Funding Account.......................................................S-8
Pre-Funding Account Earnings..............................................S-9
Prepayment...............................................................S-24
Principal Funds..........................................................S-31
Realized Loss............................................................S-35
Record Date...............................................................S-7
Relevant Depositary......................................................S-37
REMIC....................................................................S-11
Remittance Date..........................................................S-10
Restricted Group.........................................................S-50
Rules....................................................................S-37
SMI.......................................................................S-2
Securities................................................................S-1
Servicers.................................................................S-2
Servicing Fee............................................................S-10
Servicing Fee Rate.......................................................S-10
Six Month LIBOR...........................................................S-4
Six Month LIBOR Loans.....................................................S-4
SMMEA....................................................................S-11
Specified Subordinated Amount............................................S-34
Standard & Poor's........................................................S-10
Subordinate Certificates..................................................S-1
Subordinated Amount......................................................S-34
Subordination Deficit....................................................S-33
Subordination Increase Amount............................................S-34
Subordination Reduction Amount...........................................S-34
Subsequent Mortgage Loans.................................................S-3
Subsequent Sales Date....................................................S-47
Substitution Shortfall...................................................S-31
Terms and Conditions.....................................................S-38
Total Available Funds....................................................S-35
Total Monthly Excess Cashflow............................................S-33
Trust.....................................................................S-1
Trustee...................................................................S-2
Underwriter..............................................................S-51
Variable Rate Available Funds Cap.........................................S-6
Variable Rate Certificates................................................S-1
Variable Rate Certificates Carryover......................................S-6
Variable Rate Group.......................................................S-2
Variable Rate Pass-Through Rate...........................................S-6
Weighted average life....................................................S-24
<PAGE>
No dealer, salesman or any other person has been authorized to give
any information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Seller
or by the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the
Certificates offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus Supplement nor any sale made hereunder shall, under any
circumstances, create an implication that information herein or therein is
correct as of any time since the date of this Prospectus Supplement or the
Prospectus.
TABLE OF CONTENTS
Prospectus Supplement
Summary....................................................................S-
Risk Factors...............................................................S-
Use of Proceeds............................................................S-
The Mortgage Loan Pool.....................................................S-
Prepayment and Yield Considerations........................................S-
Description of the Class A Certificates....................................S-
The Certificate Insurance Policies and the Certificate Insurer.............S-
The Agreement..............................................................S-
Certain Federal Income Tax Consequences....................................S-
ERISA Considerations.......................................................S-
Ratings....................................................................S-
Legal Investment Considerations............................................S-
Underwriting...............................................................S-
Report of Experts..........................................................S-
Certain Legal Matters......................................................S-
Global Clearance, Settlement and Tax Documentation
Procedures..........................................................Annex I
Index to Location of Principal Defined Terms..............................A-1
Prospectus
Prospectus Summary.........................................................
Risk Factors...............................................................
Description of the Certificates............................................
Maturity, Prepayment and Yield Considerations..............................
The Trusts.................................................................
Credit Enhancement.........................................................
Origination of Mortgage Loans..............................................
Servicing of Mortgage Loans................................................
The Agreement..............................................................
Certain Legal Aspects of Mortgage Loans....................................
The Seller.................................................................
Use of Proceeds............................................................
Certain Federal Income Tax Consequences....................................
State Tax Considerations...................................................
ERISA Considerations.......................................................
Legal Investment Matters...................................................
Plan of Distribution.......................................................
Index to Location of Principal Defined Terms...............................
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the related Certificates, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus
Supplement and the related Prospectus. This delivery requirement is in addition
to the obligation of dealers to deliver a Prospectus Supplement and Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
$____________________
Saxon Asset Securities Trust 1997-
Saxon Asset Securities Company,
as Depositor
$__________ _____% Class A-1 Certificates
$__________ _____% Class A-2 Certificates
$__________ _____% Class A-3 Certificates
$__________ _____% Class A-4 Certificates
$__________ _____% Class A-5 Certificates
$___________ Variable Rate Class A-6 Certificates
Mortgage Loan Asset Backed Certificates
Series 1997-_
PROSPECTUS SUPPLEMENT
____________ __, 1997
<PAGE>
SAXON ASSET SECURITIES COMPANY
(DEPOSITOR)
MORTGAGE LOAN ASSET BACKED CERTIFICATES
(ISSUABLE IN SERIES)
This Prospectus relates to Mortgage Loan Asset Backed Certificates (the
"Certificates") to be issued from time to time in one or more Series (each, a
"Series") on terms determined at the time of sale and described in this
Prospectus and the related Prospectus Supplement. Each Series of Certificates
will be issued by a separate trust (each, a "Trust") and will evidence
beneficial ownership interests in one or more segregated pools of
mortgage-related assets as described herein (the "Mortgage Assets") and certain
other assets.
Each Series of Certificates will be issued in one or more classes
(each, a "Class"). One or more Classes of Certificates of a Series may be
subordinated in right to receive distributions and be subject to allocation of
losses 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 be entitled to receive distributions at the intervals and on the dates
specified in the related Prospectus Supplement from the assets of the related
Trust. The Depositor or an affiliate of the Depositor may make or obtain for the
benefit of any Series of Certificates limited representations and warranties
with respect to the Mortgage Assets included in the related Trust. Neither the
Depositor nor any affiliate of the Depositor 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 the related Trust or specified portions thereof
as real estate mortgage investment conduits (each, a "REMIC") for federal income
tax purposes. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" herein and in the
related Prospectus Supplement.
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.
SEE "RISK FACTORS" HEREIN AT PAGE 86 AND IN THE RELATED PROSPECTUS
SUPPLEMENT. PROSPECTIVE PURCHASERS SHOULD CAREFULLY REVIEW THE INFORMATION IN
THE RELATED PROSPECTUS SUPPLEMENT CONCERNING THE RISKS ASSOCIATED WITH DIFFERENT
TYPES AND CLASSES OF CERTIFICATES.
See "ERISA CONSIDERATIONS" herein and in the related Prospectus
Supplement for a discussion of restrictions on the acquisition of Certificates
by "plan fiduciaries."
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 DEPOSITOR, ANY 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 DEPOSITOR, ANY SELLER, ANY SERVICER, ANY
MASTER SERVICER, ANY TRUSTEE OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN
THE RELATED PROSPECTUS SUPPLEMENT.
------------------------------
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 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. 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 February 19, 1997
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary....................................1
Risk Factors..........................................6
Description of the Certificates.......................9
General..........................................9
Classes of Certificates..........................9
Book-Entry Procedures...........................10
Global Clearance, Settlement and Tax
Documentation Procedures...................13
Allocation of Distributions.....................16
Allocation of Losses and Shortfalls.............17
Mortgage Assets.................................17
Optional Termination............................18
Maturity, Prepayment and Yield Considerations........18
The Trusts...........................................20
Assignment of Mortgage Assets...................20
The Mortgage Loans--General.....................21
Single Family Loans.............................23
Cooperative Loans...............................23
Multi-Family Loans..............................23
Junior Mortgage Loans...........................23
Home Improvement Loans..........................24
Home Equity Lines of Credit.....................24
Repurchase of Converted Mortgage Loans..........25
Repurchase of Delinquent Mortgage Loans.........25
Substitution of Mortgage Loans..................25
Mortgage-Backed Securities......................26
Pre-Funding Account.............................26
Asset Proceeds Account..........................26
Credit Enhancement...................................27
General.........................................27
Subordination...................................27
Certificate Guaranty Insurance Policies.........28
Overcollateralization...........................28
Cross Support...................................29
Mortgage Pool Insurance Policies................29
Special Hazard Insurance Policies...............30
Bankruptcy Bonds................................31
Reserve Funds...................................31
Other Credit Enhancement........................31
Origination of Mortgage Loans........................32
General.........................................32
Representations and Warranties..................33
Servicing of Mortgage Loans..........................33
General.........................................33
Payments on Mortgage Loans......................34
Advances........................................35
Collection and Other Servicing Procedures.......35
Primary Mortgage Insurance Policies.............36
Standard Hazard Insurance Policies..............36
Maintenance of Insurance Policies; Claims There
under and Other Realization Upon
Defaulted Mortgage Loans...................38
Modification of Mortgage Loans..................38
Evidence as to Servicing Compliance.............39
Events of Default and Remedies..................39
Master Servicer Duties..........................39
Special Servicing Agreement.....................40
The Agreement........................................40
The Trustee.....................................41
Administration of Accounts......................41
Reports to Certificateholders...................42
Events of Default and Remedies..................42
Amendment.......................................42
Termination.....................................43
Certain Legal Aspects of Mortgage Loans..............43
General.........................................43
The Mortgage Loans..............................43
Foreclosure.....................................44
Junior Mortgage Loans; Rights of Senior
Mortgagees.................................47
Right of Redemption.............................48
Anti-Deficiency Legislation and Other
Limitations on Lenders.....................48
Soldiers' and Sailors' Civil Relief Act of 1940.49
Environmental Considerations....................50
"Due-on-Sale" Clauses...........................50
Enforceability of Certain Provisions............51
The Depositor........................................51
Use of Proceeds......................................52
Certain Federal Income Tax Consequences..............52
REMIC Certificates..............................52
Securities Classified as Partnership Interests..74
State and Local Taxation........................74
State Tax Considerations.............................75
ERISA Considerations.................................75
Legal Investment Matters.............................77
Plan of Distribution.................................78
Available Information................................78
Incorporation of Certain Documents by Reference......79
Index to Location of Principal Defined Terms.........80
REPORTS TO CERTIFICATEHOLDERS
The Depositor 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."
<PAGE>
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.
DEPOSITOR Saxon Asset Securities Company (the
"Depositor") a wholly owned, limited-purpose
financing subsidiary of Dominion Mortgage
Services, Inc., a Virginia corporation
("Dominion Mortgage"). Neither Dominion
Resources nor the Depositor has guaranteed,
or is otherwise obligated with respect to,
the Certificates of any Series. The
principal executive offices of the Depositor
are located at 4880 Cox Road, Glen Allen,
Virginia 23060, and the telephone number of
the Depositor is (804) 967-7400. See "THE
DEPOSITOR."
SELLERS Saxon Mortgage, Inc. (SMI"), a wholly owned
subsidiary of Dominion Mortgage and an
affiliate of the Depositor, and one or more
other mortgage originators named in the
related Prospectus Supplement (each a
"Seller").
CERTIFICATES OFFERED Mortgage Loan 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 be issued by a separate trust (each, a
"Trust") and will evidence beneficial
ownership interests in one or more
segregated pools of Mortgage Assets and
certain other assets. 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 and be
subject to allocation of losses in favor of
one or more other Classes of Certificates of
such Series, (iv) may be entitled to receive
distributions only after the occurrence of
specified events, (v) may be entitled to
receive distributions 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 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 Depositor, any Seller, any Servicer, any
Master Servicer, any Trustee or any of their
affiliates, except as set forth in the
related Prospectus Supplement. The
Depositor, a Seller or one of their
affiliates may retain or hold for sale from
time to time one or more Classes of
Certificates. See "DESCRIPTION OF THE
CERTIFICATES."
<PAGE>
AGREEMENT Each Series of Certificates will be issued
pursuant to one or more trust agreements or
pooling and servicing agreements (each, an
"Agreement") with the Depositor and the
trustee (the Trustee") identified in the
related Prospectus Supplement. Pursuant to
an Agreement, the Depositor 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. See "THE TRUSTS -- Assignment
of Mortgage Assets."
DISTRIBUTIONS The Prospectus Supplement for each Series of
Certificates will specify (i) whether
distributions with respect to such
Certificates will be made monthly,
quarterly, semi-annually or at other
intervals, (ii) the date for each such
distribution (each, a "Distribution Date"),
and (iii) the amount of each such
distribution allocable to principal and
interest. The amount available to be
distributed on each Distribution Date with
respect to each Series of Certificates 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."
The Scheduled Principal Balance of the
Mortgage Assets and the amount of any other
assets included in the Trust for each Series
of Certificates (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. 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:
A. MORTGAGE LOANS "Mortgage Loans" may include: (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)
("Home Improvement Loans"), and (v) home
equity lines of credit("HELOCs").
B. MORTGAGE-BACKED
SECURITIES "Mortgage-Backed Securities" may include (i)
private (that is not guaranteed or insured
by the United States or any agency or
instrumentality thereof) mortgage
participation or pass-through certificates
or other mortgage-backed securities
(representing either debt or equity) or (ii)
securities insured or guaranteed by Federal
National Mortgage Association ("FNMA"),
Federal Home Loan Mortgage Corporation
("FHLMC") or Government National
Mortgage Association ("GNMA"). See "THE
TRUSTS-- Mortgage-Backed Securities."
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 Depositor under which the Depositor
transfers additional Mortgage Assets to such
Trust following the date on which such Trust
is established and the related Certificates
are issued.
2
<PAGE>
If a Pre-Funding Agreement is used, the
related Trustee will be required to deposit
in a segregated account (each, a Pre-Funding
Account") a portion of the proceeds received
by the Trustee in connection with the sale
of Certificates of the related Series.
Additional Mortgage Assets will thereafter
be transferred to the related Trust in
exchange for money released to the Depositor
from the related Pre-Funding Account. If all
moneys originally deposited in such
Pre-Funding Account are not applied to the
acquisition of additional Mortgage Assets by
the end of the period specified in the
Pre-Funding Agreement (which may not exceed
three months), 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. See "THE Trusts-- Pre-Funding
Account."
SERVICER One or more servicers (each, a "Servicer"),
which may include an affiliate of the
Depositor, 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 Depositor, 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
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. See "THE TRUSTS --
Asset Proceeds Account."
ADVANCES If so 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, obligated to advance
funds to such Trust to cover (i) delinquent
payments 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 Prospectus Supplement
for a Series, the related Trust may include,
or the related Certificates may be entitled
to the benefits of, certain ancillary or
incidental assets intended to provide credit
enhancement for the
3
<PAGE>
ultimate or timely distribution of proceeds
from the Mortgage Assets to the holders of
such Certificates, including reserve
accounts, insurance policies, guaranties,
surety bonds, letters of credit, guaranteed
investment contracts, swap agreements and
option agreements. In addition, if so
specified in the Prospectus Supplement for a
Series, one or more Classes of Certificates
of such Series may be entitled to the
benefits of other credit enhancement
arrangements, including subordination,
overcollateralization or cross support. The
protection against losses or delays afforded
by any such assets or credit enhancement
arrangements may be limited. See "CREDIT
ENHANCEMENT."
OPTIONAL TERMINATION To the extent and under the circumstances
specified in the Prospectus Supplement for a
Series, the early retirement of the
Certificates of such Series may be effected.
See "DESCRIPTION OF THE CERTIFICATES --
Optional Termination."
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") or, if no REMIC election is
made, whether the Certificates are
considered to be Pass-Through Certificates
or Strip Certificates. The Prospectus
Supplement for each series of Certificates
will specify whether a REMIC election will
be made. Investors are urged to consult
their tax advisors concerning the
application of federal income tax laws to
their particular situations. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" herein and
in the related Prospectus Supplement.
LEGAL INVESTMENT
MATTERS If so specified in the related Prospectus
Supplement, the Certificates of the related
Series will constitute "mortgage-related
securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA")
and, as such, will be "legal investments"
for certain types of institutional investors
to the extent provided in SMMEA, subject, in
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
investments" to the same extent as
"mortgage-related securities." See "LEGAL
INVESTMENT MATTERS" herein and in the
related Prospectus Supplement.
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
4
<PAGE>
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.
5
<PAGE>
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.
LIMITED OBLIGATIONS. The Certificates will not represent an interest in
or obligation of the Depositor, any Seller, any Servicer, any Master Servicer or
any Trustee or any of their affiliates and will not be insured by any government
agency or instrumentality. Each Trust is expected to have no significant assets
other than the Mortgage Assets and any other assets assigned to the Trust by the
Depositor. Prospective purchasers of the Certificates of a Series must rely
primarily upon payments on the related Mortgage Assets, the security therefor
and the sources of credit enhancement, if any, identified in the related
Prospectus Supplement. The related Mortgage Assets will not be guaranteed or
insured by any governmental agency or instrumentality or by the Depositor, any
Servicer, any Master Servicer, any Trustee or any of their affiliates, except as
set forth in the related Prospectus Supplement.
LIMITATIONS ON CREDIT ENHANCEMENT. The credit enhancement, if any, for
any Series of Certificates may be limited in amount and may 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."
DECLINING REAL ESTATE MARKET. If the residential real estate market in
general or a regional or local area where 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. The Sellers and the Depositor intend that the transfers of
the Mortgage Assets to the Depositor and, in turn, to the related Trust
constitute sales rather than pledges to secure indebtedness for insolvency
purposes. If a Seller were to become a debtor under the federal Bankruptcy Code,
however, a creditor, trustee-in-bankruptcy or receiver of that Seller might
argue that such transfers were pledges rather than sales. 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.
REGULATORY RISKS. 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."
6
<PAGE>
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, 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
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."
PAYMENT CONSIDERATIONS. 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 and (ii) for Certificates
purchased at a price other than par, the effective yield on such Certificates.
The timing and amount of 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 Depositor
of all the Certificates of a Series or all 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. No assurance can be given as to the prepayment
experience of the mortgage loans underlying any Series of Certificates. Each
prospective investor must make its own decision as to the appropriate prepayment
assumption. See "MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS."
LIMITED LIQUIDITY. 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."
BOOK-ENTRY CERTIFICATES. If so specified in the related Prospectus
Supplement, certain Certificates of Book-Entry Certificates"). Issuance of the
Certificates in book-entry form may reduce the liquidity of such Certificates in
the secondary market because 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 cases, be able to be effected only
through persons or entities that participate in the book-entry system, the
ability of a Certificateholder to pledge a Book-Entry Certificate to persons or
entities that do not participate in the book-entry 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 because
distributions may be required to be forwarded by the Trustee through book-entry
system 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."
LIMITED NATURE OF 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 provider of such external credit
enhancement. Any lowering of the rating assigned to the claims-paying ability of
any such provider 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
7
<PAGE>
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
Depositor will not be obligated to obtain additional credit enhancement if
necessary to maintain the rating initially assigned to the Certificates of any
Series.
ORIGINAL ISSUE DISCOUNT. 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 issue 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. A portion of the Mortgage Assets may include "balloon
loans" that provide for the payment of the unamortized principal balance of such
Mortgage Loans in a single payment at maturity ("Balloon 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, seven, ten
or 15 years after origination. Amortization of a Balloon Loan based on a
scheduled period that is longer than its term results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. The Depositor 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. The ability of a borrower
to repay a Balloon Loan at maturity frequently will depend upon such borrower's
ability to refinance such loan. Neither the Depositor nor the Trustee is
obligated to obtain refinancing. Any loss on a Balloon Loan resulting from a
borrower's inability to obtain refinancing will be borne by Certificateholders
if not covered by credit enhancement.
JUNIOR LOANS. A portion of the Mortgage Assets may include 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 senior lienholders, 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
lienholders. 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."
NON-OWNER OCCUPIED MORTGAGE PREMISES. A portion of the Mortgage Assets
may be secured by liens on Mortgaged Premises which are not owner occupied. It
is possible that the rate of delinquencies, foreclosures and losses on such
Mortgage Loans could be higher than on Mortgage Loans secured by liens on
Mortgaged Premises which are the primary residences of the owner.
NON-CONFORMING CREDITS. All or a portion of the Mortgage Assets may
consist of mortgage loans underwritten in accordance with the underwriting
standards for "non-conforming credits." A mortgage loan made to 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. As a consequence, delinquencies and
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 and 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. Each prospective investor must make its own decision as to the
effect of non-conforming credits upon the delinquency, foreclosure, and
prepayment experience of the Mortgage Loans. See "ORIGINATION OF MORTGAGE
LOANS."
8
<PAGE>
DELINQUENT MORTGAGE LOANS. All or a portion of the Mortgage Loans may
be delinquent upon the issuance of the related Certificates. Credit enhancement
provided with respect to a particular Series of Certificates may not cover all
losses related thereto. Prospective investors should consider the risk that the
inclusion of 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."
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Mortgage Loan Asset Backed Certificates described herein and in the
related Prospectus Supplement Certificates") will be issued from time to time in
Series pursuant to one or more trust agreements or pooling and Agreement"). 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 the
Prospectus Supplement and the Agreement with respect to a particular Series. The
material terms of the Agreement with respect to a Series of Certificates will be
further described in the related Prospectus Supplement and a copy thereof will
be filed with the Commission on Form 8-K.
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 Depositor, any 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 Depositor, any 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 defaulted Mortgage Loans are not advanced by the applicable
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. If so 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 of interest on each Class of Certificates in
book-entry form will be made as set forth below.
CLASSES OF CERTIFICATES
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
9
<PAGE>
distributions and may be subject to allocation of losses in favor of one or more
other Classes of Certificates of such Series, (iv) may be entitled to receive
distributions only after the occurrence of specified events, (v) may be entitled
to receive distributions 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 occurrence of specified events and may accrue
interest until such events occur, in each case as specified in the related
Prospectus Supplement.
BOOK-ENTRY PROCEDURES
The Prospectus Supplement for a Series may specify that certain Classes
of Certificates will initially 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"). 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. Except as
described Beneficial Owner") will be entitled to receive a physical certificate
representing such Certificate, the only "Holder" of the Book-Entry Certificates
will be the nominee of the Depository and Beneficial Owners will not be
"Holders" as that term is used in the Agreement. In general, beneficial
ownership of Book-Entry Certificates will be subject to the rules, regulations
and procedures governing the Depository and participants in the Depository
("Depository Participants"), as in effect from time to time.
A Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the 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 Depository Participant which acts as agent
for the Financial Intermediary and 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 participant in DTC in the
Book-Entry Certificates, whether held for its own account or as a nominee for
another person. If DTC is the Depository (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among its participants on whose behalf it acts with respect
to such Certificates and is required to receive and transmit distributions of
principal of, and interest on, such Certificates. DTC participants and indirect
participants with whom Beneficial Owners have accounts with respect to
Book-Entry Certificates are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective Beneficial
Owners. Accordingly, although Beneficial Owners will not possess Certificates,
the Rules provide a mechanism by which Beneficial Owners will receive
distributions and will be able to transfer their interests.
BECAUSE TRANSACTIONS IN BOOK-ENTRY CERTIFICATES MAY 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.
10
<PAGE>
The Prospectus Supplement for a Series may also specify that CEDEL
Bank, S.A. ("CEDEL") and Euroclear System ("Euroclear") will hold omnibus
positions on behalf of their participants through customers' securities accounts
in CEDEL's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of the Depository. Citibank, N.A., acts as
depositary for CEDEL and Chase Manhattan Bank acts as depositary for Euroclear
(in such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries").
CEDEL. CEDEL is incorporated under the laws of Luxembourg as a
professional depository. CEDEL holds securities for its participant
organizations ("CEDEL Participants") and facilitates the clearance and
settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to CEDEL is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
EUROCLEAR. Euroclear was created in 1968 to hold securities for
participants of Euroclear ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 32 currencies,
including United States dollars. Euroclear includes various other services,
including securities lending and borrowing and interfaces with domestic markets
in several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by Morgan Guaranty
Trust Company of New York, Brussels Office (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear Securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is an office of a New York trust company which
is a member bank of the Federal Reserve System. As such, it is regulated and
examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Depository Participant
will be made during subsequent securities settlement processing and dated the
business day following the settlement date for the Depository. Such credits or
any transactions in such securities settled during such processing will be
reported to the relevant Euroclear or CEDEL participants on such
11
<PAGE>
business day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant (as defined below) or Euroclear
Participant (as defined below) to a Depository Participant will be received with
value on the settlement date for the Depository but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlements in the Depository. For information with respect to tax documentation
procedures relating to the Certificates, see "CERTAIN FEDERAL INCOME TAX
Consequences -- Backup Withholding" and "-- Global Clearance, Settlement and Tax
Documentation Procedures -- Certain U.S. Federal Income Tax Documentation
Requirements".
Transfers between Depository Participants will occur in accordance with
the rules of the Depository. Transfers between CEDEL Participants and Euroclear
Participants will occur in accordance with their respective rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through the Depository, on the one hand, and directly or indirectly through
CEDEL Participants or Euroclear Participants, on the other, will be effected in
the Depository in accordance with its rules on behalf of the relevant European
international clearing system by the Relevant Depositary; however, such cross
market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in the Depository, and making or receiving
payment in accordance with normal procedures for same day funds settlement
applicable to DTC. CEDEL Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
Beneficial Owners of the Book-Entry Certificates may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Paying Agent to the Depository. Distributions with respect to Certificates held
through CEDEL or Euroclear will be credited to the cash accounts of CEDEL
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Because the Depository can only act on
behalf of Financial Intermediaries, the ability of a Beneficial Owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust provided by the Master Servicer
to the Depository, may be made available by the Depository to Beneficial Owners
upon request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Depository Participants to whose
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
So long as the Certificates are held as Book-Entry Certificates by the
Depository, it is expected that the Depository will take any action permitted to
be taken by the Holders of the Certificates under the Agreement only at the
direction of one or more Depository Participants to whose accounts the
Book-Entry Certificates are credited. CEDEL or the Euroclear Operator, as the
case may be, will take any action permitted to be taken by a Holder under the
Agreement on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability of
the Relevant Depositary to effect such actions on its behalf through the
Depository. The Depository may take actions, at the direction of the Depository
Participants, with respect to some Certificates which conflict with actions
taken with respect to other Certificates.
None of the Sellers, the Depositor, the Servicers, the Master Servicer,
any Certificate Insurer or the Trustee will have any responsibility for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of the Book-Entry Certificates or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
12
<PAGE>
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to the Depository, only
if (a) the Depository or the Depositor advises in writing that the Depository is
no longer willing, qualified or able to discharge properly its responsibilities
as a nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, elects to terminate a book-entry system through
the Depository or (c) the Depository, at the direction of the Depository
Participants to whose accounts are credited a majority of the outstanding
Book-Entry Certificates, advises the Trustee in writing that the continuation of
a book-entry system through DTC (or a successor thereto) is no longer in the
best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the occurrence of such event and the availability through the
Depository of Definitive Certificates. Upon surrender by the Depository of the
global certificate or certificates representing the Book-Entry Certificates and
instructions for re-registration, the Certificate Registrar will issue
Definitive Certificates, and thereafter the Certificate Registrar will recognize
the holders of such Definitive Certificates as Holders under the Agreement.
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
The Prospectus Supplement for a Series may specify that Certificates of
a Series will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (I.E., seven calendar day settlement).
Secondary market trading between investors through the Depository will
be conducted according to its rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and
Depository Participants will be effected on a delivery-against-payment basis
through the Relevant Depositaries (in such capacity) and as Depository
Participants.
Non-U.S. holders (as described below) will be subject to U.S.
withholding taxes unless they meet certain requirements and deliver appropriate
U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT. All Certificates will be held in book-entry form by
the Depository. Investors' interests in the Certificates will be represented
through financial institutions acting on their behalf as direct and indirect
participants in the Depository. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their Relevant Depositary
which in turn will hold such positions in its account as a Depository
Participant.
Investors electing to hold through the Depository will follow its
settlement practices. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold through CEDEL or Euroclear accounts will
follow the settlement procedures applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Certificates will be credited to the securities custody accounts on the
settlement date against payment in same-day funds.
13
<PAGE>
SECONDARY MARKET TRADING. Because the purchaser determines the place of
delivery, it is important to establish at the time of the trade where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
TRADING BETWEEN DEPOSITORY PARTICIPANTS. Secondary market trading
between Depository Participants will be settled using the procedures applicable
to prior asset-backed certificates issues in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DEPOSITORY PARTICIPANT AS SELLER AND CEDEL OR EUROCLEAR
PARTICIPANT AS PURCHASER. When Certificates are to be transferred from the
account of a Depository Participant to the account of a CEDEL Participant or a
Euroclear Participant, the purchaser will send instructions to CEDEL or
Euroclear through a CEDEL Participant or Euroclear Participant at least one
business day prior to settlement. CEDEL or Euroclear will instruct the Relevant
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Certificates from and
including the last distribution date to and excluding the settlement date, on
the basis of the actual number of days in such accrual period and a year assumed
to consist of 360 days or a 360-day year of twelve 30-day months as applicable
to the related class of Certificates. For transactions settling on the 31st of
the month, payment will include interest accrued to and excluding the first day
of the following month. Payment will then be made by the Relevant Depositary to
the account of the Depository Participant against delivery of the Certificates.
After settlement has been completed, the Certificates will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Certificates will accrue from,
the value date (which will be the preceding day when settlement occurred in New
York). If settlement is not completed on the intended value date (I.E., the
trade fails), the CEDEL or Euroclear cash debt will be valued instead as of the
actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Certificates are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants may elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Certificates would incur overdraft charges for one day, assuming they
cleared the overdraft when the Certificates were credited to their accounts.
Nevertheless, interest on the Certificates would accrue from the value date.
Therefore, in many cases the interest accruing on the Certificates during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although the result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Because the settlement is taking place during New York business hours,
Depository Participants may employ their usual procedures for crediting
Certificates to the respective European Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the seller on the settlement date. Thus, to the Depository Participants a
cross-Depository market transaction will settle no differently than a trade
between two Depository Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR PARTICIPANT AS SELLER AND
PARTICIPANT AS PURCHASER. Due to time zone differences in their favor, CEDEL
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Certificates are to be transferred by the respective
clearing system, through the respective Depository, to a Depository Participant.
The seller will send instructions to CEDEL or Euroclear
14
<PAGE>
through a CEDEL Participant or Euroclear Participant at least one business day
prior to settlement. In these cases CEDEL or Euroclear will instruct the
respective Depositary, as appropriate, to credit the Certificates to the
Depository Participant's account against payment. Payment will include interest
accrued on the Certificates from and including the last distribution to and
excluding the settlement date on the basis of the actual number of days in such
accrual period or a year assumed to consist of 360 days or a 360-day year of
twelve 30-day months as applicable to the related class of Certificates. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of CEDEL Participant or Euroclear Participant
the following day, and receipt of the cash proceeds in the CEDEL Participant's
or Euroclear Participant's account will be back-valued to the value date (which
will be the preceding day, when settlement occurred in New York). Should the
CEDEL Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (I.E., the trade fails), receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account will instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Certificates from Depository Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Certificates in the U.S. from a Depository
Participant no later than one day prior to settlement, which would give the
Certificates sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the Depository Participant is at
least one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS. A
Beneficial Owner of Certificates holding through CEDEL or Euroclear (or through
the Depository Participant if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons (as defined below), unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between such Beneficial
Owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such Beneficial Owner takes one of the
following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial Owners of
Certificates that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax
15
<PAGE>
rate (depending on the treaty terms) by filing Form 1001 (Holdership, Exemption
or Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Holder of a Certificate or their
agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Holder of a
Certificate or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds the
security (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate or trust that is subject to U.S. federal income tax regardless of the
source of its income or (iv) a trust for which (a) a Court within the United
States is able to exercise primary supervision over the administration of the
trust and (b) one or more United States trustees have the authority to control
all substantial decisions of the trust. The term "Non-U.S. Person" means any
person who is not a U.S. Person. This summary does not deal with all aspects of
U.S. Federal income tax withholding that may be relevant to foreign holders of
the Certificates. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Certificates.
ALLOCATION OF DISTRIBUTIONS
The Prospectus Supplement for each Series of Certificates will specify
(i) whether distributions on such Certificates will be made monthly, quarterly,
semi-annually or at other intervals, (ii) the date for each such Distribution
Date") and (iii) the amount of each such distribution allocable to principal and
interest. All distributions with respect to each Certificate of a Series will be
made to the person in whose name such 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 with
respect to each Series of Certificates will be determined as set forth in the
related Agreement and will be described in the related Prospectus Supplement and
in general, 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 amount distributed 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. If so specified in the related Prospectus Supplement, amounts
received in respect of the Mortgage Assets representing excess interest may be
applied in reduction of the principal balance of one or more specified Classes.
"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 or periods specified in the servicing agreement for each Servicer 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. One or more Classes of Certificates may
be represented by a notional principal amount. The notional principal amount is
used solely for
16
<PAGE>
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 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 Certificates may be entitled to payments of principal in specified
amounts on specified Distribution Dates, to the extent of the amount available
therefor on such Distribution Dates, or may be entitled to payments of principal
from the amount by which the available amount exceeds specified amounts. One or
more Classes of Certificates may be subordinated in right to receive
distributions and may be subject to allocation of losses 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 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 a 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 the Servicer, Master Servicer or 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.
MORTGAGE ASSETS
The Scheduled Principal Balance of the Mortgage Assets and the amount
of any other assets included in the Trust for each Series of Certificates
(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.
"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.
17
<PAGE>
"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.
OPTIONAL TERMINATION
To the extent and under the circumstances specified in the Prospectus
Supplement for a Series, the Certificates of such Series may be terminated at
the option of the Depositor or such other party as may be specified in the
related Prospectus Supplement for a purchase price calculated as specified in
such Prospectus Supplement. Upon termination of the Certificates, at the option
of the terminating party, (i) the related Trust may be terminated, thereby
causing the sale of the remaining Mortgage Assets, or (ii) such Certificates may
be held or resold by the redeeming party. If so 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 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 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. Notice 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 and (ii)
for Certificates purchased at a price other than par, the effective yield on
such Certificates.
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 to be outstanding after each of the
dates shown in the table based on the prepayment assumption model. 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 prepayments, including 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 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 prepayment rate may also be subject to
seasonal variations.
The 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 a pool of mortgage
loans, the mortgage loans in that pool would be expected to prepay at higher
rates than if prevailing interest rates were to remain at or above the interest
rates on those mortgage loans. Conversely, if interest rates were to rise above
the interest rates on a pool of the mortgage loans, the mortgage loans in that
pool 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
18
<PAGE>
deduct interest payments on mortgage loans for federal income tax purposes may
affect in the rate of prepayment of mortgage loans.
Distributions on the Certificates of a Series on any Distribution Date
generally will include interest accrued through a date specified in the related
Prospectus Supplement that may precede such Distribution Date. Because interest
generally will not be distributed to the Certificateholders of such Series until
the Distribution 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
of interest and, in the case of certificates purchased at a price other than
par, 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 Mortgage Backed Securities), 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 Mortgage Backed Securities), the actual yield to maturity will be
lower than that so calculated.
If so specified in a related Prospectus Supplement, amounts received in
respect of the Mortgage Assets representing excess interest may be applied in
reduction of the principal balance of one or more specified Classes. The amount
of excess interest required so to be applied may effect the weighted average
life of the related Series of Certificates.
The timing of changes in the rate of prepayments on the Mortgage Loans
(or on the mortgage loans underlying Mortgage Backed Securities) 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 Mortgage Backed Securities),
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 Mortgage Backed Securities) 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 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 effect 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 at any time or over the
lives of the Certificates.
19
<PAGE>
THE TRUSTS
ASSIGNMENT OF MORTGAGE ASSETS
Pursuant to the applicable Agreement, the Depositor 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 or dates specified in the related
Prospectus Supplement. The Trustee will deliver to the order of the Depositor,
in exchange for the Mortgage Assets so transferred, Certificates of the related
Series in authorized denominations registered in such names as the Depositor may
request representing the beneficial ownership interest in the related Trust.
Each Mortgage Loan or Mortgage Backed Security included in a Trust will be
identified in a schedule appearing as an exhibit to the related Agreement. Such
schedule will include information as to the Scheduled Principal Balance of each
Mortgage Loan or Mortgage Backed Securities as of the specified date and its
interest rate, its original principal balance and certain other information.
In addition, the Depositor will take such steps as are necessary to
have the Trustee become the registered owner of each Mortgage Loan or Mortgage
Backed Security which is included in a Trust and to provide for all payments
thereon after the specified date or dates to be made directly to the Trustee. As
to each Mortgage Loan, the Depositor will 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
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. Unless otherwise specified in the
related Prospectus Supplement, within one year following the closing date for a
Series, the Depositor 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
Depositor may deliver or cause to be delivered to the Trustee an opinion of
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 Depositor will make certain customary representations and
warranties in each Agreement with respect to each related Mortgage Asset. In
addition, SMI or other Sellers of Mortgage Assets may make 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 Depositor. See "ORIGINATION OF MORTGAGE LOANS -- Representations and
Warranties." The right of the Depositor to enforce such representations and
warranties will be assigned to the Trustee under the related Agreement. If any
representation or warranty is breached, and such breach adversely affects the
interest of the Certificateholders, the Depositor or the Seller thereof will be
required, subject to the terms imposed under the related Agreement or sales
agreement, (i) to cure such breach, (ii) to substitute other Mortgage Assets 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 Depositor nor the Master Servicer will be
obligated to substitute Mortgage Assets or to repurchase Mortgage Assets, and no
assurance can be given that any Seller will perform its 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. 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.
20
<PAGE>
THE MORTGAGE LOANS--GENERAL
The Mortgage Loans 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 Mortgaged
Premises"). Cooperative (the "Mortgaged Premises").
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 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 Adjustable Rate"). Changes to an Adjustable
Rate may be subject to periodic limitations (a "Periodic Periodic Rate
Cap"), maximum rate, a minimum rate 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 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 amortize fully 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 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 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 insuring against losses due to fire and various other causes.
The Mortgage Loans may be covered by Primary Mortgage
21
<PAGE>
Insurance Policies insuring against all or a portion of any loss sustained by
reason of nonpayments by borrowers to the extent specified in the related
Prospectus Supplement.
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. Such information may include: (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
expected aggregate outstanding Principal Balance of Mortgage Loans having
loan-to-value ratios at origination exceeding 80%, (vii) the expected Mortgage
Interest Rates and the range of Mortgage Interest Rates, (viii) in the case of
ARM Loans, the expected weighted average of the Adjustable Rates, (ix) the
expected aggregate outstanding Scheduled Principal Balance, if any, of Buy-Down
Loans as of the date set forth in the Prospectus Supplement, (x) the expected
aggregate outstanding principal balance, if any, of GPM Loans as of the date set
forth in the Prospectus Supplement, (xi) the amount of any Mortgage Pool
Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bond to be
maintained with respect to the related Trust, (xii) 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, (xiii) 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 Depositor 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 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.
If specified in the Prospectus Supplement for a Series, the Mortgage
Assets in the related Trust may include Mortgage Loans that are delinquent upon
the issuance of the related Certificates. The inclusion of 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.
22
<PAGE>
SINGLE FAMILY LOANS
Single Family Loans will consist of mortgage loans secured by liens on
one- to four-family residential and mixed use properties. 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 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 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 mortgage loan on the building owned by the Cooperative,
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 liens on
rental apartment buildings, mixed-use properties or projects containing five or
more residential units including high-rise, mid-rise and garden apartments and
projects 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 include Mortgage Loans
secured by second or more junior liens on residential properties Junior Mortgage
Loans"). Because the rights of a holder of a junior lien are subordinate to the
rights of senior lienholders, 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
lienholders. 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, and third
in satisfaction of all principal, interest, prepayment or acceleration
penalties, if any, and any other sums due and owing to the senior lienholders.
The claims of the senior lienholders 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. If the proceeds from a
foreclosure or similar sale of Mortgaged Premises on which the Trust holds a
junior lien are insufficient to satisfy the senior lienholders in the aggregate,
the Trust, as the holder of the junior lien, and the holders of the Certificates
of the related Series bear (i) the risk of delay in distributions while a
deficiency judgment, if any, against the borrower is obtained and (ii) the risk
of loss if the deficiency judgment, if any, is not realized upon. In addition,
deficiency judgments may not be available in certain jurisdictions.
Even if the Mortgaged Premises provide 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
23
<PAGE>
occur. An action to foreclose on 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 the related Mortgaged Premises. In the event of a default by a borrower,
these restrictions, among other things, may impede the ability of the Servicer
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.
HOME IMPROVEMENT LOANS
The Home Improvement Loans will consist of secured loans, the proceeds
of which generally will be used to improve or protect the basic livability or
utility of the property. To the extent set forth in the related Prospectus
Supplement, Home Improvement Loans will be fully amortizing and will bear
interest at a fixed or variable rate. To the extent a material portion of the
Mortgage Assets included in a Trust consists of Home Improvement Loans, the
related Prospectus Supplement will describe the material provisions of such
Mortgage Loans and the programs under which they were originated.
HOME EQUITY LINES OF CREDIT
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.
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, if so specified in the related
Prospectus Supplement, on land leased by the borrower for a term of at least ten
years 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.
If so specified in the related 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
24
<PAGE>
finding that the address of the underlying Mortgaged Premises is the borrower's
mailing address as reflected in the Master Servicer's records. If so specified
in the related Prospectus Supplement, the Mortgaged Premises may include
non-owner occupied investment properties and vacation and second homes.
REPURCHASE OF CONVERTED MORTGAGE LOANS
Unless otherwise 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.
If so specified in such Prospectus Supplement, the applicable Servicer (or other
party specified in such Prospectus Supplement) may be obligated to repurchase
from the Trust any Mortgage Loan with respect to which the related Mortgage
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 may 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
If so specified in the Prospectus Supplement for a Series, the
Depositor 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
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 occurs or
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
Depositor may, within three months of the closing date for such Series, deliver
to the Trustee other Mortgage Loans in substitution for any one or more Mortgage
Loans initially included in the Trust for such Series. In general, any
substitute Mortgage Loan must, on the date of such substitution, (i) have an
unpaid principal balance not greater than the unpaid principal balance of any
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 not less than 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 Loans,
(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 Loans as of such date (in each case, using the value at origination and
after taking into account the payment due on such date), and (vi) comply with
each applicable representation and warranty relating to the Mortgage Loans. In
general, 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 Loans, (iii) provide for
a lowest possible Net Rate that is not lower than the lowest possible Net Rate
for the deleted Mortgage Loans and a highest possible Net Rate that is not lower
than the highest possible Net Rate for the deleted Mortgage Loans, (iv) have a
Gross Margin that is not less than the Gross Margin of the deleted Mortgage
Loans, (v) have a Periodic Rate Cap equal to the Periodic Rate Cap on the
deleted Mortgage Loans, (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 Loans 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. If 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.
25
<PAGE>
MORTGAGE-BACKED SECURITIES
The Mortgage-Backed Securities may include (i) private (that is not
guaranteed or insured by the United States or any agency or instrumentality
thereof) mortgage participation or pass-through certificates or other
mortgage-backed securities or (representing either debt or equity) (ii)
Certificates insured or guaranteed by FNMA, FHLMC or GNMA. Private
Mortgage-Backed Securities will not include participations in previously issued
mortgage-backed securities unless such securities (i) have been previously
registered under the Securities Act of 1933, as amended, or held for the
required holding period under Rule 144(k) thereunder or (ii) were acquired in a
BONA FIDE secondary market transaction from someone other than an affiliate of
the Depositor. Private Mortgage-Backed Securities will have been issued pursuant
to a PMBS Agreement (the "PMBS Agreement").
The related Prospectus Supplement for a series of Certificates that
evidence interests in Mortgage-Backed Securities will specify (i) the
approximate aggregate principal amount and type of any Mortgage-Backed
Securities to be included in the Trust, (ii) to the extent known to the
Depositor, certain characteristics of the mortgage loans underlying the
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
Mortgage-Backed Securities, (iv) the weighted average term-to-stated maturity of
the Mortgage-Backed Securities, (v) the pass-through or certificate rate of the
Mortgage-Backed Securities, (vi) the weighted average pass-through or
certificate rate of the Mortgage-Backed Securities, (vii) the issuer, servicer
and trustee of the Mortgage- Backed Securities, (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 Mortgage-Backed Securities or to MBS the Mortgage-Backed
Securities themselves, (ix) the terms on which the underlying mortgage loans
may, or are required to, be repurchased prior to their stated maturity or the
stated maturity of the Mortgage-Backed Securities and (x) the terms on which
other mortgage loans may be substituted for those originally underlying the
Mortgage-Backed Securities.
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 Depositor under
which the Depositor will 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 a portion of the proceeds received by the Trustee in
connection with the sale 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 Depositor 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 and the maximum deposit of Mortgage
Loans to the Pre-Funding Account will not exceed thirty-five percent of the
aggregate proceeds received from the sale of all Classes of Certificates of the
related Series.
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. 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 such Series.
26
<PAGE>
If so 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-Backed
Securities 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, certain and any other
fees to be paid directly by the Trustee and to make distributions with respect
to Certificates of such Series in accordance with the respective allocations set
forth in the related Prospectus Supplement.
CREDIT ENHANCEMENT
GENERAL
If so specified in the Prospectus Supplement for a Series, the related
Trust may include, or the related Certificates may be entitled to the benefits
of, certain ancillary or incidental assets intended to provide credit
enhancement for the ultimate or timely distribution of proceeds from the
Mortgage Assets to the holders of such Certificates, including reserve accounts,
insurance policies, guaranties, surety bonds, letters of credit, guaranteed
investment contracts, swap agreements and option agreements. In addition, if so
specified in the Prospectus Supplement for a Series, one or more Classes of
Certificates of such Series may be entitled to the benefits of other credit
enhancement arrangements, including subordination, overcollateralization or
cross support. The protection against losses or delays afforded by any such
assets or credit enhancement arrangements may be limited.
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 exceed the amount covered by credit
enhancement or are not covered by credit enhancement, holders of one or more
Classes of Certificates will bear their allocable share of any resulting losses.
If a form of credit enhancement applies to several Classes of Certificates, and
if distributions with respect to principal equal to the aggregate principal
balances of certain Classes of Certificates are 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. In certain cases,
credit enhancement may be canceled or reduced if such cancellation or reduction
would not adversely affect the rating of the related Certificates.
SUBORDINATION
If so specified in the related Prospectus Supplement, a Series may
include one or more Classes of Certificates (the "Subordinated Certificates")
that are subordinated in right to receive distributions or subject to the
allocation of losses in favor of one or more other Classes of Certificates of
such Series (the "Senior Certificates"). If so specified in the 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 may
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 Assets and losses with respect thereto 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 Assets over the lives of the
Certificates or at any time, the aggregate losses 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 Assets or aggregate losses 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.
27
<PAGE>
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 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. If so specified in the
Prospectus Supplement, amounts on deposit in any such reserve account may be
released to the Depositor or a Seller or the holders of any Class of
Certificates at the times and under the circumstances specified in the
Prospectus Supplement.
If so specified in the related Prospectus Supplement, one or more
Classes of Certificates may bear the risk of losses not covered by credit
enhancement 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 related Prospectus Supplement, various Classes
of Senior Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other Classes of
Senior 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 Certificate Guaranty Insurance Policy") will be
obtained and maintained for one or more Classes or Series of Certificate
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 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.
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 Insurer to guarantee any 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 Insurer may be subrogated to the rights of the holders of the
related Certificates to receive distributions 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 Insurer under the related
Certificate Guaranty Insurance Policy.
OVERCOLLATERALIZATION
28
<PAGE>
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 distributions, creating a limited acceleration of the
payment of the principal of such Certificates relative to the amortization of
the related Mortgage Assets by applying excess interest collected on the
Mortgage Assets to distributions of principal on such Classes of Certificates.
Such 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.
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.
MORTGAGE POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, one or more
mortgage pool insurance policies 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 Pool Insurer") will be named in the related Prospectus
Supplement. 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 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 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 the Seller or Servicer and, in such event,
subject to certain limitations, might give rise to an obligation on the part of
the Seller or Servicer to purchase the defaulted Mortgage Loan if the breach
cannot be cured. See "ORIGINATION OF MORTGAGE LOANS -- Representations and
Warranties", 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
29
<PAGE>
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 Mortgage
Loan was made. If aggregate net claims paid under a Mortgage Pool Insurance
Policy reach the original policy limit, any further losses may affect adversely
distributions to holders of the Certificates of such Series. The 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 Depositor, a rating for the Certificates of such
Series confirms that such reduction will not result in a lowering or withdrawal
of such rating.
If so specified in the related Prospectus Supplement, a Mortgage Pool
Insurance Policy may insure against losses on mortgage loans that secure other
mortgage-backed securities or collateralized mortgage obligations; PROVIDED,
HOWEVER, that any subsequent extension of coverage (and the corresponding
assignment of the Mortgage Pool Insurance Policy) to 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 Depositor, 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 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 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 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.
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 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 Depositor, 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, a deposit may be made of cash, an
irrevocable letter of credit or any other instrument acceptable to each Rating
Agency that
30
<PAGE>
provides, at the request of the Depositor, 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.
If so specified in the related Prospectus Supplement, a Special Hazard
Insurance Policy may insure against losses on mortgage loans that secure other
mortgage-backed securities or collateralized mortgage obligations; PROVIDED,
HOWEVER, that any subsequent 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 Depositor, 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 date of the filing of a bankruptcy petition. To
the extent specified in the Prospectus Supplement for a Series, a deposit may be
made of cash, an irrevocable letter of credit or any other instrument acceptable
to each Rating Agency that provides, at the request of the Depositor, 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."
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 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 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. 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 Depositor, 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.
OTHER CREDIT ENHANCEMENT
If so specified in the Prospectus Supplement for a Series, the related
Trust may include, or the related Certificates may be entitled to the benefits
of, certain other assets including reserve accounts, insurance policies,
guaranties, surety bonds, letters of credit, guaranteed investment contracts or
similar arrangements (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 distributions with respect to 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 Depositor,
a rating for the Certificates of the related Series.
31
<PAGE>
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. 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) credit, appraisal and underwriting standards and guidelines
approved by the Depositor. The underwriting guidelines with respect to loan
programs approved by the Depositor 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 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.
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. 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 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.
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
32
<PAGE>
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 Depositor generally will acquire the Mortgage Loans from SMI. SMI
will make certain customary representations and warranties with respect to the
Mortgage Loans in the sales agreement by which SMI transfers its interest in the
Mortgage Loans to the Depositor. SMI 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 issued by the related mortgage insurer, (iii) that each note
and Security Instrument has been executed and delivered by the borrower and the
Security Instrument has been duly recorded where the Mortgage Premises are
located in order to make effective lien on the related Mortgaged Premises and
(iv) that upon foreclosure on the Mortgage Premises, the holders of the Mortgage
Loan will be able to deliver good and merchantable title to such Mortgaged
Premises. If so specified in the Prospectus Supplement for a Series, SMI 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, SMI is required to deliver a final title insurance policy
or satisfactory evidence of the existence of such a policy.
If SMI 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 such breach
or defect cannot be cured within the number of days specified in the Agreement,
the Trustee may require SMI 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
Mortgage Interest Rate through the end of the month in which the purchase
occurs. In the event of a breach by SMI of a representation or warranty with
respect to a Mortgage Loan or the delivery by SMI to the Trustee of a materially
defective document with respect to a Mortgage Loan, SMI 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. SMI's obligation to purchase a Mortgage Loan will not be
guaranteed by the Depositor or any other party.
SERVICING OF MORTGAGE LOANS
GENERAL
For each Trust that includes Mortgage Loans, one or more Servicers,
which may include an affiliate of the Depositor, will perform certain customary
servicing functions with respect to such Mortgage Loans pursuant to Servicing
Agreement") which will be assigned to the Trustee. If specified in the
Prospectus Supplement for a Master Servicer"), which may include an affiliate of
the Depositor, 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 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
33
<PAGE>
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 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 Depositor 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 Depositor 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 Depositor 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 generally accepted accounting
principles) of at least $3,000,000. The Depositor 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 Depositor 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. Certain servicing obligations of a
Servicer may be delegated to an approved sub-servicer; PROVIDED, HOWEVER, that
the Servicer remains fully responsible and liable for all its obligations under
the Servicing Agreement. The rights of the Depositor 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 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
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 Master Servicer
Custodial Account"). The amount on deposit in any Servicer Custodial Account,
Asset Proceeds Account or Master Servicer Custodial Account will be invested in
or collateralized as described herein.
Each Servicing Agreement with respect to a Series will require the
related Servicer, not later than the 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
Prepayment Period specified in such Servicing Agreement, 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
34
<PAGE>
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 available for
distribution on 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 advanced 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
If so specified in the Prospectus Supplement for a Series, each
Servicing Agreement with respect to such 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 may 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 Master Servicer may be further limited to an amount specified
in the Agreement that has been approved by each Rating Agency that provides, at
the request of the Depositor, 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 on
the Certificates of such Series. Neither the Servicer or the Master 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 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 Mortgage
Loan may 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
35
<PAGE>
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. If 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 may 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
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 (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.
If so 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. If so 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 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 is required to 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
36
<PAGE>
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 Depositor 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 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.
37
<PAGE>
MAINTENANCE OF INSURANCE POLICIES; CLAIMS THEREUNDER AND OTHER REALIZATION UPON
DEFAULTED MORTGAGE LOANS
The Master Servicer or Trustee 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. The
terms of any such policy or bond and any requirements in connection therewith
applicable to any Servicer or Master Servicer will be described in the related
Prospectus Supplement. If 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
or Trustee 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 each Rating Agency that provides, at the request
of the Depositor, a rating for the Certificates of such Series confirms that
such lesser amount will not impair the rating on such Certificates) of such
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy or Bankruptcy
Bond. If, however, 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 such
replacement policy or other credit enhancement may be secured 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 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 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.
As a condition to any modification or forbearance related to any
Mortgage Loan or to the substitution of a Mortgage Loan, the Servicer and, if
required, the Master Servicer, are required to determine, in their reasonable
business judgment, that such modification, forbearance or substitution will
maximize the recovery on such
38
<PAGE>
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 or
the Trustee.
EVIDENCE AS TO SERVICING COMPLIANCE
Within 120 days after the end of each of its fiscal years, each
Servicer must provide the Master Servicer or the Trustee 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 or the Trustee 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
If so specified in the Prospectus Supplement for a Series, events of
default under the Servicing Agreement in respect of such Series 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 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 or the Trustee 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 or the Trustee) (subject to written confirmation by each
Rating Agency that provides, at the request of the Depositor, 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
If so 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
39
<PAGE>
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 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.
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
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 Depositor
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 its
responsibilities 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 the related Prospectus Supplement and the Agreement with respect to
such Series. The material provisions of a specific Agreement will be further
described in the related Prospectus Supplement. 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.
40
<PAGE>
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. 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 Depositor or the Master Servicer, either the Depositor 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 Depositor will
be obligated to appoint a successor Trustee. The Depositor 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% (or such other percentage as may be specified in the
related Prospectus Supplement) of the voting rights of such Series. Certificate
Insurers may obtain the right to exercise all voting rights of holders of
Certificates. 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 Depositor, in certain eligible 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 Depositor, a rating for the Certificates of such
Series at the time of issuance of such Series and (vii) certain repurchase
agreements with respect to 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 such Series. In general, reinvestment income from Permitted
Investments will not accrue for the benefit of the Certificateholders 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.
41
<PAGE>
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
If so 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 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 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. If the Trustee is unwilling or unable to act as successor Master
Servicer, 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 (or a Certificate
Insurer entitled to exercise the voting rights of the holders of Certificates)
so request in writing, the Trustee shall appoint, or petition a court of
competent jurisdiction for the appointment of, an 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. Nevertheless, 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
42
<PAGE>
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. A Certificate Insurer may obtain the right to exercise all voting
rights of the holders of Certificates. 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 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
Depositor, 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 Termination." 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 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 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
43
<PAGE>
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 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, 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
44
<PAGE>
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 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.
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. Nevertheless, 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
45
<PAGE>
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
applicable to REMICs. 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 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,
46
<PAGE>
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 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. 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 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 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 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.
47
<PAGE>
Other provisions sometimes included in the form of the mortgage or deed
of trust used by institutional lenders 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.
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 Servicers 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, if a mortgagor is in a proceeding 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,
48
<PAGE>
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 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. If so 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.
49
<PAGE>
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, 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
require owners or operators of property (which may include a lender in certain
circumstances) to incur Cleanup Costs if hazardous substances, hazardous wastes,
petroleum or solid waste are released or otherwise exist on the property. 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.
It is possible that no environmental assessment or a very limited
environmental assessment of the Mortgaged Premises was conducted and no
representations or warranties are made by the Depositor or the Seller to the
Trustee or Certificateholders 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.
If so specified in the Prospectus Supplement for a Series, the
Servicers are not permitted to foreclose on any Mortgaged Premises without the
approval of the Master Servicer or the Trustee. The Master Servicer or the
Trustee 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 or the Trustee 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 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
50
<PAGE>
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. The Garn-St. Germain Depository Institutions Act of 1982
(the "Act") preempts 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. See "MATURITY, PREPAYMENT AND
YIELD CONSIDERATIONS."
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. Late charges and prepayment fees (to
the extent permitted by law and not waived by the Servicers) will generally 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 DEPOSITOR
51
<PAGE>
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"). Dominion Capital is a wholly owned subsidiary
of Dominion Resources, Inc., a Virginia corporation ("Dominion Resources"). None
of Dominion Resources, Dominion Capital, Dominion Mortgage or the Depositor has
guaranteed, or is otherwise obligated with respect to, the Certificates of any
Series. The principal executive offices of the Depositor are located at 4880 Cox
Road, Glen Allen, Virginia 23060, and the telephone number of the Depositor is
(804) 967-7400. The Depositor 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 Depositor's Articles of Incorporation limit the Depositor's business to the
foregoing and place certain other restrictions on the Depositor's activities.
USE OF PROCEEDS
Substantially all the net proceeds from the sale of the Certificates of
each Series will be applied by the Depositor to purchase the Mortgage Assets
assigned to the Trust underlying such Series and to fund any Pre-Funding
Account.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
two general types of Certificates: (i) Certificates ("REMIC Certificates")
representing interests in all or a portion of a Trust ("REMIC Mortgage Pool")
for which an election is made to treat it as a real estate mortgage investment
conduit ("REMIC") under Code Sections 860A through 860G (the "REMIC Provisions")
and (ii) Certificates ("Trust Certificates") representing certain interests in a
Trust Fund for which such an election is not made. The discussion is based upon
the advice of Arter & Hadden, special counsel to the Depositor. Arter & Hadden
has delivered to the Depositor their opinion, which addresses issues identified
below as being covered thereby and states that the discussion of federal income
tax issues in this section accurately sets forth their views on those issues.
The discussion reflects the applicable provisions of: the Internal Revenue Code
of 1986, as amended (the "Code"); the final regulations on REMICs (the "REMIC
Regulations") promulgated on December 23, 1992; the final regulations under
Sections 1271 through 1273 and 1275 of the Code (the "OID Regulations")
concerning debt instruments promulgated on January 21, 1994; the final
regulations concerning debt instruments providing for contingent payments (the
"1996 Contingent Payment Regulations") promulgated on June 11, 1996; the final
mark-to-market regulations under Section 475 (the "Mark-To-Market regulations")
promulgated December 31, 1996; the proposed regulations concerning withholding
for foreign persons (the "Proposed Withholding Regulations") published on April
15, 1996; and the proposed regulations concerning amortization of premium (the
"Proposed Premium Regulations") published on June 27, 1996. The discussion does
not, however, purport to cover all federal income tax consequences applicable to
particular investors, some of which may be subject to special rules. In
addition, the authorities on which the discussion is based are subject to change
or differing interpretation, and any change or differing interpretation could be
applied retroactively. In some instances where the Treasury Department has not
adopted regulations implementing provisions of the Code, the discussion cites
the views expressed in the Conference Committee Report (the "Committee Report")
to the Tax Reform Act of 1986 which enacted the Code. The discussion does not
address the state or local tax consequences of the purchase, ownership and
disposition of Certificates. Investors should consult their own tax advisers in
determining the federal, state, local, or other tax consequences to them of the
purchase, ownership and disposition of the Certificates.
REMIC CERTIFICATES
52
<PAGE>
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, Arter & Hadden, special counsel for the Depositor, will deliver
their opinion generally to the effect that, assuming that (i) a REMIC election
is timely made in the required form, (ii) there is ongoing compliance with all
provisions of the related Agreement and (iii) certain representations set forth
in the Agreement are true, such REMIC Mortgage Pool will qualify as a REMIC and
the classes of interests offered will be considered to be "regular interests" or
"residual interests" in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions. REMICs may issue one or more classes of "regular" interests and must
issue one and only one class of "residual" interest. A REMIC Certificate
representing a regular interest in a REMIC Mortgage Pool will be referred to as
a "REMIC Regular Certificate" and a REMIC Certificate representing a residual
interest in a REMIC Mortgage Pool will be referred to as a "REMIC Residual
Certificate."
If an entity elects to be treated as a REMIC but fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the entity will not qualify as a REMIC for such year and
thereafter. In such event, the entity may be subject to taxation as a separate
corporation, and the Certificates issued by the entity may not be accorded the
status described below under the heading "Status of REMIC Certificates". In the
case of an inadvertent termination of REMIC status, the Treasury Department has
authority to issue regulations providing relief; however, sanctions, such as the
imposition of a corporate tax on all or a portion of the entity's income for the
period during which the requirements for REMIC status are not satisfied, may
accompany any such relief.
Among the ongoing requirements to qualify for REMIC treatment is that
substantially all the assets of the REMIC Mortgage Pool (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments". A "Qualified Mortgage" means: (a) any obligation (including any
participation or certificate of beneficial ownership therein) which is
principally secured by an interest in real property (including for this purpose
any obligation secured by stock held by a person as a tenant stockholder in a
cooperative housing corporation) and which is transferred to the REMIC on the
Closing Date in exchange for REMIC Certificates or is purchased within three
months of the Closing Date, (b) any qualified replacement mortgage, (c) any
regular interest in another REMIC transferred to the REMIC on the Closing Date
in exchange for REMIC Certificates, or (d) beginning on September 1, 1997,
certain regular interests in a financial asset securitization investment trust.
The REMIC Regulations treat an obligation secured by a manufactured home that
has a minimum of 400 square feet of living space and a minimum width in excess
of 102 inches and that is of a kind customarily used at a fixed location as an
obligation secured by real property without regard to the treatment of the
obligation or the property under state law.
TAXATION OF REMIC REGULAR CERTIFICATES. Except as otherwise
stated in this discussion, the REMIC Regular Certificates will be treated for
federal income tax purposes as debt instruments issued by the REMIC Mortgage
Pool and not as ownership interests in the REMIC Mortgage Pool or its assets. In
general, interest, original issue discount and market discount paid or accrued
on a REMIC Regular Certificate will be treated as ordinary income to the holder
of such REMIC Regular Certificate. Distributions in reduction of the stated
redemption price at maturity of the REMIC Regular Certificate will be treated as
a return of capital to the extent of such holder's basis in such REMIC Regular
Certificate. Holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT. Certain REMIC Regular Certificates may be
issued with "original issue discount" within the meaning of Code Section
1273(a). Holders of REMIC Regular Certificates issued with original issue
discount generally will be required to include original issue discount in income
as it accrues, in accordance with a constant yield method that takes into
account the compounding of interest, in advance of the receipt of the cash
attributable to such income. The Master Servicer Certificateholders will receive
reports annually (or more frequently if required) to the contracting Internal
Revenue Service ("IRS") and to Certificateholders such information with respect
to the original issue discount accruing on the REMIC Regular Certificates as may
be required under Code Section 6049 and the regulations thereunder. See
"Reporting and Other Administrative Matters of REMICs".
53
<PAGE>
Rules governing original issue discount are set forth in Code Sections
1271 through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to REMIC Regular
Certificates. The OID Regulations do not apply to debt instruments subject to
Code Section 1272(a)(6).
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual
of original issue discount on REMIC Regular Certificates and for certain other
federal income tax purposes. The Prepayment Assumption is to be determined in
the manner prescribed in Treasury regulations. To date, no such regulations have
been promulgated. The Committee Report indicates that the regulations should
provide that the Prepayment Assumption, if any, used with respect to a
particular transaction must be the same as that used by the parties in pricing
the transaction. In reporting original issue discount a Prepayment Assumption
consistent with this standard will be used. Nevertheless, the Depositor does not
make any representation that prepayment will in fact be made at the rate
reflected in the Prepayment Assumption or at any other rate. Each investor must
make its own decision as to the appropriate prepayment assumption to be used in
deciding to purchase any of the REMIC Regular Certificates. The Prospectus
Supplement with respect to a Series of REMIC Certificates will disclose the
Prepayment Assumption to be used in reporting original issue discount, if any,
and for certain other federal income tax purposes.
The total amount of original issue discount on a
REMIC Regular Certificate is the excess of the "stated redemption price at
maturity" of the REMIC Regular Certificate over its "issue price".
Except as discussed in the following two paragraphs, in general, the issue price
of a particular class of REMIC Regular Certificates will be the price at which a
substantial amount thereof are first sold to the public (excluding bond houses
and brokers). The stated redemption price at maturity of a REMIC Regular
Certificate is equal to the total of all payments to be made on such Certificate
other than "qualified stated interest."
If a REMIC Regular Certificate is sold with accrued interest that
relates to a period prior to the issue date of such REMIC Regular Certificate,
the amount paid for the accrued interest will be treated instead as increasing
the issue price of the REMIC Regular Certificate. In addition, that portion of
the first interest payment in excess of interest accrued from the Closing Date
to the first Distribution Date will be treated for federal income tax reporting
purposes as includible in the stated redemption price at maturity of the REMIC
Regular Certificates, and as excludable from income when received as a payment
of interest on the first Distribution Date (except to the extent of any accrued
market discount as of that date). The OID Regulations suggest, however, that
some of or all this pre-issuance accrued interest may be treated as a separate
asset (and hence is not includible in a REMIC Regular Certificate's issue price
or stated redemption price at maturity), whose cost is recovered entirely out of
interest paid on the first Distribution Date.
Under the OID Regulations, "qualified stated interest" is interest that
is unconditionally payable at least annually during the entire term of the
Certificate at either (i) a single fixed rate that appropriately takes into
account the length of the interval between payments or (ii) a current value of a
single "qualified floating rate" or "objective rate" (each, a "Single Variable
Rate"). A "current value" is the value of a variable rate on any day that is no
earlier than three months prior to the first day on which that value is in
effect and no later than one year following that day. A "qualified floating
rate" is a rate whose variations can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the currency
in which the debt instrument is denominated. Such a rate remains qualified even
though it is multiplied by a fixed, positive multiple greater than 0.65 but not
exceeding 1.35, increased or decreased by a fixed rate, or both. Certain
combinations of rates constitute a single qualified floating rate, including (i)
interest stated at a fixed rate for an initial period of less than one year
followed by a qualified floating rate if the value of the floating rate at the
Closing Date is intended to approximate the fixed rate and (ii) two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the debt instrument. A combination of
such rates is conclusively presumed to be a single floating rate if the values
of all rates on the Closing Date are within 0.25 percentage points of one
another. A variable rate that is subject to an interest rate cap, floor,
governor or similar restriction on rate adjustment may be a qualified floating
rate only if such restriction is fixed throughout the term of the instrument, or
is not reasonably expected as of the Closing Date to cause the yield on the debt
instrument to differ significantly from the expected yield absent the
restriction. An "objective rate" is a rate determined using a single fixed
formula and based on objective financial information or economic information
(excluding a rate based
54
<PAGE>
on information that is in the control of the issuer or that is unique to the
circumstances of a related party). A combination of interest stated at a fixed
rate for an initial period of less than one year followed by an objective rate
is treated as a single objective rate if the value of the objective rate at the
Closing Date is intended to approximate the fixed rate, such a combination of
rates is conclusively presumed to be a single objective rate if the objective
rate on the Closing Date does not differ from the fixed rate by more than 0.25
percentage points. Under the foregoing rules, some of the payments of interest
on a REMIC Regular Certificate bearing a fixed rate of interest for an initial
period followed by a qualified floating rate of interest in subsequent periods
could be treated as included in the stated redemption price at maturity if the
initial fixed rate were to differ sufficiently from the rate that would have
been set using the formula applicable to subsequent periods. REMIC Regular
Certificates other than such Certificates providing for variable rates of
interest are not anticipated to have stated interest other than "qualified
stated interest," but, if any such REMIC Regular Certificates are so offered,
appropriate disclosures will be made in the Prospectus Supplement. Some of or
all the payments on REMIC Regular Certificates providing for the accretion of
interest will be included in the stated redemption price at maturity of such
Certificates. Interest payments are unconditionally payable only if a late
payment or nonpayment is expected to be penalized or reasonable remedies exist
to compell payments. Certain debt securities may provide for default remedies in
the event of late payment or nonpayment of interest. The interest on such
securities will be unconditionally payable and constitute qualified stated
interest, not original issue discount. Nevertheless, absent clarification of the
OID Regulations, where debt securities do not provide for default remedies, the
interest payments will be included in their stated redemption prices at maturity
and taxed as original issue discount. Any stated interest in excess of qualified
stated interest is included in the stated redemption price at maturity.
Under a DE MINIMIS rule in the Code, as interpreted in the OID
Regulations, original issue discount on a REMIC Regular Certificate will be
considered to be zero if it is less than 0.25% of the stated redemption price at
maturity of the REMIC Regular Certificate multiplied by the number of complete
years to its weighted average maturity. For this purpose, the weighted average
maturity is computed as the sum of the products of each payment (other than a
payment of qualified stated interest) multiplied by a fraction the numerator of
which is the number of complete years from the issue date until such payment is
made and the denominator of which is the stated redemption price at maturity.
The IRS may take the position that this rule should be applied taking into
account the Prepayment Assumption and the effect of any anticipated investment
income. Under the OID Regulations, REMIC Regular Certificates bearing only
qualified stated interest except for any "teaser" rate, interest holiday or
similar provision are treated as subject to the DE MINIMIS rule if the greater
of the foregone interest or any excess of stated principal balance over the
issue price is less than such DE MINIMIS amount.
The OID Regulations generally treat DE MINIMIS original issue discount
as includible in income as each principal payment is made, based on the product
of the total amount of such DE MINIMIS original issue discount and a fraction,
the numerator of which is the amount of such principal payment and the
denominator of which is the outstanding principal balance of the REMIC Regular
Certificate. The OID Regulations also permit a Certificateholder to elect to
accrue DE MINIMIS original issue discount (together with stated interest, market
discount and original issue discount) into income currently based on a constant
yield method. See "Taxation of Owners of REMIC Regular Certificates--Market
Discount and Premium."
Each holder of a REMIC Regular Certificate must include in gross income
the sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular Certificate, a calculation will first be made of the portion of
the original issue discount that accrued during each accrual period, generally
each period that ends on a date that corresponds to a Distribution Date on the
REMIC Regular Certificate and begins on the first day following the immediately
preceding accrual period (or in the case of the first such period, begins on the
Closing Date). For any accrual period such portion will equal the excess, if
any, of (i) the sum of (A) the present value of all the distributions remaining
to be made on the REMIC Regular Certificate, if any, as of the end of the
accrual period that are included in the stated redemption price at maturity and
(B) distributions made on such REMIC Regular Certificate during the accrual
period of amounts included in the stated redemption price at maturity over (ii)
the adjusted issue price of such REMIC Regular Certificate at the beginning of
the accrual period. The present value of the remaining distributions referred to
in clause (i)(A) of the preceding sentence will be calculated based on (i) the
yield to maturity of the REMIC Regular Certificate,
55
<PAGE>
calculated as of the Closing Date, giving effect to the Prepayment Assumption,
(ii) events (including actual prepayments) that have occurred prior to the end
of the accrual period and (iii) the Prepayment Assumption. The adjusted issue
price of a REMIC Regular Certificate at the beginning of any accrual period will
equal the issue price of such Certificate, increased by the aggregate amount of
original issue discount with respect to such REMIC Regular Certificate that
accrued in prior accrual periods and reduced by the amount of any distributions
made on such REMIC Regular Certificate in prior accrual periods of amounts
included in the stated redemption price at maturity. The original issue discount
accruing during any accrual period will then be allocated ratably to each day
during the period to determine the daily portion of original issue discount for
each day. With respect to an accrual period between the Closing Date and the
first Distribution Date that is shorter than a full accrual period, the OID
Regulations permit the daily portions of original issue discount to be
determined according to any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such REMIC Regular Certificate at a cost (not including payment for accrued
qualified stated interest) less than its remaining stated redemption price at
maturity will also be required to include in gross income, for each day on which
it holds such REMIC Regular Certificate, the daily portions of original issue
discount with respect to such REMIC Regular Certificate, but reduced, if such
cost exceeds the "adjusted issue price", by an amount equal to the product of
(i) such daily portions and (ii) a constant fraction, the numerator of which is
such excess and the denominator of which is the sum of the daily portions of
original issue discount on such REMIC Regular Certificate for all days on or
after the day of purchase. The adjusted issue price price of a
REMIC Regular Certificate on any given day is equal to the sum of the adjusted
issue price (or, in the case of the first accrual period, the issue price) of
the REMIC Regular Certificate at the beginning of the accrual period during
which such day occurs and the daily portions of original issue discount for all
days during such accrual period prior to such day, reduced by the aggregate
amount of distributions made during such accrual period prior to such day other
than distributions of qualified stated interest.
The qualified stated interest payable with respect to REMIC Regular
Certificates which are certain variable rate debt instruments not bearing
interest at a Single Variable Rate generally is determined under the OID
Regulations by converting them into fixed rate debt instruments. REMIC Regular
Certificates required to be so treated generally include those providing for
stated interest at (i) more than one qualified floating rate or (ii) a single
fixed rate and (a) one or more qualified floating rates or (b) a single
"qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably be
expected to inversely reflect contemporaneous variations in the cost of newly
borrowed funds (disregarding permissible rate caps, floors, governors and
similar restrictions described above).
There is uncertainty concerning the application of Code Section
1272(a)(6) and the OID Regulations to REMIC Regular Certificates bearing
interest at one or more variable rates. In the absence of other authority, the
provisions of the OID Regulations governing variable rate debt instruments will
be used as a guide in adapting the provisions of Code Section 1272(a)(6) to such
Certificates for the purpose of preparing reports furnished to
Certificateholders. REMIC Regular Certificates bearing interest at a Single
Variable Rate will take into account for each accrual period an amount
corresponding to the sum of (i) the qualified stated interest accruing on the
outstanding principal balance of the REMIC Regular Certificate (as the stated
interest rate for that Certificate varies from time to time) and (ii) the amount
of original issue discount that would have been attributable to that period on
the basis of a constant yield to maturity for a bond issued at the same time and
issue price as the REMIC Regular Certificate, having the same principal balance
and schedule of payments of principal as such Certificate, subject to the same
Prepayment Assumption, and bearing interest at a fixed rate equal to the
applicable qualified floating rate or qualified inverse floating rate in the
case of a REMIC Regular Certificate providing for either such rate, or equal to
the fixed rate that reflects the reasonably expected yield on the Certificate in
the case of a REMIC Regular Certificate providing for an objective rate other
than a qualified inverse floating rate, in each case as of the issue date.
Holders of REMIC Regular Certificates bearing interest at a Multiple Variable
Rate generally will take into account interest and original issue discount under
a similar methodology, except that the amounts of qualified stated interest and
original issue discount attributable to such a Certificate first will be
determined for an "equivalent" debt instrument bearing fixed rates, the assumed
fixed rates for which are (a) for a qualified floating rate or qualified inverse
floating rate, such rate as of the Closing Date (with appropriate adjustment for
any
56
<PAGE>
differences in intervals between interest adjustment dates), and (b) for any
other objective rate, the fixed rate that reflects the yield that is reasonably
expected for the REMIC Regular Certificate. If the interest paid or accrued with
respect to a Multiple Variable Rate Certificate during an accrual period differs
from the assumed fixed interest rate, such difference will be an adjustment (to
interest or original issue discount, as applicable) to the Certificateholder's
taxable income for the taxable period or periods to which such difference
relates.
In the case of a REMIC Regular Certificate that provides for stated
interest at a fixed rate in one or more accrual periods and either one or more
qualified floating rates or a qualified inverse floating rate in other accrual
periods, the fixed rate is first converted into an assumed variable rate. The
assumed variable rate will be a qualified floating rate or a qualified inverse
floating rate according to the type of actual variable rate provided by the
Certificate and must be such that the fair market value of the REMIC Regular
Certificate as of issuance is approximately the same as the fair market value of
an otherwise identical debt instrument that provides for the assumed variable
rate in lieu of the fixed rate. The Certificate is then subject to the
determination of the amount and accrual of original issue discount as described
above, by reference to the hypothetical variable rate instrument.
The provisions of the OID Regulations applicable to variable rate debt
instruments may not apply to some REMIC Regular Certificates having variable
rates. If such a Certificate is not governed by the provisions of the OID
Regulations applicable to variable rate debt instruments, it may be subject to
the 1996 Contingent Debt Regulations. The application of the 1996 Contingent
Payment Regulations to instruments such as variable rate REMIC Regular
Certificates is subject to differing interpretations. If Certificates with
variable rates are subject to the 1996 Contingent Payment Regulations, the
related Prospectus Supplement will include additional information about their
application.
MARKET DISCOUNT. The purchaser of a REMIC Regular Certificate at a
market discountmarket discount, that is at a purchase price less than the stated
redemption price at maturity (or, in the case of a REMIC Regular Certificate
issued with original issue discount, the REMIC Regular Certificate's adjusted
issue price (as defined under "Taxation of REMIC Regular Certificates--Original
Issue Discount")), will recognize market discount upon receipt of each payment
of principal. In particular, such a holder will generally be required to
allocate each payment of principal on a REMIC Regular Certificate first to
accrued market discount and to recognize ordinary income to the extent such
principal payment does not exceed the aggregate amount of accrued market
discount on such REMIC Regular Certificate not previously included in income.
Such market discount must be included in income in addition to any original
issue discount includible in income.
A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. Such election, if made, will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest and
discount, including DE MINIMIS market or original issue discount, reduced by any
premium, in income as interest, based on a constant yield method. If such an
election is made, the Certificateholder is deemed to have made an election to
include on a current basis market discount in income with respect to all other
debt instruments having market discount that such Certificateholder acquires
during the year of the election or thereafter. Similarly, a Certificateholder
that makes this election for a Certificate that is acquired at a premium is
deemed to have made an election to amortize bond premium, as described below,
with respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. A taxpayer may not revoke an election to
accrue interest, discount and premium on a constant yield method without the
consent of the IRS.
Under a statutory DE MINIMIS exception, market discount with respect to
a REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if it is less than 0.25% of the stated redemption
price at maturity of such REMIC Regular Certificate multiplied by the number of
complete years to maturity remaining after the date of its purchase. In
interpreting the DE MINIMIS rule with respect to original issue discount, the
OID Regulations refer to the weighted average maturity of obligations, and it is
likely that the same principle will be applied in determining whether market
discount is DE MINIMIS. It appears that DE MINIMIS market discount on a REMIC
Regular Certificate would be treated in a manner similar to DE MINIMIS original
issue discount. See "Taxation of REMIC Regular Certificates--Original Issue
Discount." Such treatment would result in
57
<PAGE>
DE MINIMIS market discount being included in income at a slower rate than market
discount would be required to be included using the method described in the
preceding paragraph.
The Treasury Department is authorized to issue regulations providing
for the method for accruing market discount of more than a DE MINIMIS amount on
debt instruments the principal of which is payable in more than one installment.
Nevertheless, no such regulations have been issued. Until regulations are
issued, certain rules described in the Committee Report might apply. Under those
rules, the holder of a bond purchased with more than DE MINIMIS market discount
may elect to accrue such market discount either on the basis of a constant yield
method or on the basis of the appropriate proportionate method described below.
Under the proportionate method for obligations issued with original issue
discount, the amount of market discount that accrues during a period is equal to
the product of (i) the total remaining market discount multiplied by (ii) a
fraction the numerator of which is the original issue discount accruing during
the period and the denominator of which is the total remaining original issue
discount at the beginning of the period. The Prepayment Assumption, if any, used
in calculating the accrual of original issue discount should be used in
calculating the accrual of market discount. Under the proportionate method for
obligations issued without original issue discount, the amount of market
discount that accrues during a period is equal to the product of (i) the total
remaining market discount multiplied by (ii) a fraction the numerator of which
is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the period. Because regulations have not been issued, it is
not possible to predict what effect such regulations might have on the tax
treatment of a REMIC Regular Certificate purchased at a discount in the
secondary market.
A Certificateholder generally will be required to treat a portion of
any gain on sale or exchange of a REMIC Regular Certificate as ordinary income
to the extent of the market discount accrued to the date of disposition under
one of the foregoing methods less market discount previously reported as
ordinary income as distributions in reduction of the stated redemption price at
maturity were received. See further "Sales of REMIC Certificates" below. A
Certificateholder may be required to defer a portion of its interest deductions
for the taxable year attributable to any indebtedness incurred or continued to
purchase or carry such REMIC Regular 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 such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest expense deferral rule described above will not apply.
PREMIUM. A REMIC Regular Certificate purchased at a cost (not including
payment for accrued qualified stated interest) greater than its remaining stated
redemption price at maturity will be considered to be purchased at a premium.
The holder of such a REMIC Regular Certificate may elect to amortize such
premium under the constant yield method. The OID Regulations also permit
Certificateholders to elect to include all interest, discount and premium in
income based on a constant yield method, further treating the Certificateholder
as having made the election to amortize premium generally, as described above.
The Committee Report indicates a Congressional intent that the same rules that
apply to accrual of market discount on installment obligations also apply in
amortizing premium under Code Section 171 on installment obligations such as the
REMIC Regular Certificates.
The Proposed Premium Regulations describe the constant yield method
under which premium is amortized and provide that the resulting offset to
interest income may be taken into account only as a Certificateholder takes the
corresponding interest income into account under such holder's regular
accounting method. In the case of instruments that may be called or repaid prior
to maturity, the Proposed Premium Regulations provide that the premium is
calculated by assuming that the issuer will or will not exercise its redemption
rights in the manner that maximizes the Certificateholder's yield and the
Certificateholder will or will not exercise its option in a manner that
maximizes the Certificateholder's yield. The Proposed Premium Regulations are
proposed to be effective for debt instruments acquired on or after the date 60
days after publication of final regulations. Nevertheless, if a
Certificateholder elects to amortize premium for the taxable year containing
such effective date, the Proposed Premium Regulations will apply to all the
Certificateholder's debt instruments held on or after the first day of that
taxable year. It cannot be predicted at this time whether the Proposed Premium
Regulations will become effective or what, if any, modifications will be made to
them prior to their becoming effective.
58
<PAGE>
TREATMENT OF SUBORDINATED CERTIFICATES. REMIC Regular Certificates may
include one or more Classes of Subordinated Certificates. Holders of
Subordinated Certificates will be required to report income with respect to such
Certificates on the accrual method without giving effect to delays and
reductions in distributions attributable to defaults or delinquencies on any
Mortgage Loans, except possibly, in the case of income that constitutes
qualified stated interest, to the extent that it can be established that such
amounts are uncollectible. As a result, the amount of income reported by a
Certificateholder of a Subordinated Certificate in any period could exceed the
amount of cash distributed to such Certificateholder in that period.
Although not entirely clear, it appears that: (a) a holder who holds a
Subordinated Regular REMIC Certificate in the course of a trade or business or a
corporate holder generally should be allowed to deduct as an ordinary loss any
loss sustained on account of its partial or complete worthlessness and (b) a
noncorporate holder who does not hold a Subordinated Regular REMIC Certificate
in the course of a trade or business generally should be allowed to deduct as a
short-term capital loss any loss sustained on account of its complete
worthlessness. Special rules are applicable to banks and thrift institutions.
Holders of Subordinated Certificates should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Certificates.
STATUS OF REMIC CERTIFICATES. REMIC Certificates held by a domestic
building and loan association will constitute a "regular or residual . . .
interest in a REMIC" within the meaning of Code Section 7701(a)(19)(C)(xi) in
the same proportion that the assets of the REMIC Mortgage Pool underlying such
Certificates would be treated as "loans secured by an interest in real property"
within the meaning of Code Section 7701(a)( 19)(C)(v) or as other assets
described in Code Section 7701 (a)(19)(C)(i) through (x). REMIC Certificates
held by a real estate investment trust will constitute "real estate assets"
within the meaning of Code Section 856(c)(5)(A), and any amount includible in
gross income with respect to the REMIC Certificates will be considered "interest
on obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(3)(B) in the same proportion
that, for both purposes, the assets and income of the REMIC would be treated as
"interests in real property" as defined in Code Section 856(c)(6)(C) or, as
provided in the Committee Report, as "real estate assets" as defined in Code
Section 856(c)(6)(B)) and as "interest on obligations secured by mortgages on
real property or on interests in real property", respectively. See, in this
regard, "Characterization of Investments in Trust Certificates--Buydown Mortgage
Loans," below. Moreover, if 95% or more of the assets qualify for any of the
foregoing treatments, the REMIC Certificates (and income thereon) will qualify
for the corresponding status in their entirety. The investment of amounts in any
reserve fund in non-qualifying assets would, and, holding property acquired by
foreclosure pending sale might, reduce the amount of the REMIC Certificates that
would qualify for the foregoing treatment. The REMIC Regulations provide that
payments on Qualified Mortgages held pending distribution are considered part of
the Qualified Mortgages for purposes of Code Section 856(c)(5)(A); it is unclear
whether such collected payments would be so treated for purposes of Code Section
7701(a)(19)(C)(v), but there appears to be no reason why analogous treatment
should be denied. The determination as to the percentage of the REMIC's assets
(or income) that will constitute assets (or income) described in the foregoing
sections of the Code will be made with respect to each calendar quarter based on
the average adjusted basis (or average amount of income) of each category of the
assets held (or income accrued) by the REMIC during such calendar quarter. The
REMIC will report those determinations to Certificateholders in the manner and
at the times required by applicable Treasury regulations. The Prospectus
Supplement or the related Current Report on Form 8-K for each Series of REMIC
Certificates will describe the assets as of the Cut-off Date. REMIC Certificates
held by certain financial institutions will constitute an "evidence of
indebtedness" within the meaning of Code Section 582(c)(1).
For purposes of characterizing an investment in REMIC Certificates, a
contract secured by a Manufactured Home qualifying as a "single family
residence" under Code Section 25(e)(10) will constitute (i) a "real estate
asset" within the meaning of Code Section 856 and (ii) an asset described in
Code Section 7701(a)(19)(C).
TIERED REMIC STRUCTURES. For certain series of Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs ("Tiered REMICs") for federal income tax
59
<PAGE>
purposes. Upon the issuance of any such series of Certificates, Arter & Hadden,
special counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC Certificates issued
by the Tiered REMICs will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC Provisions. Solely for purposes of determining whether the
REMIC Certificates will be "real estate assets" within the meaning of Code
Section 856(c)(5)(A), and assets described in Code Section 7701(a)(19)(C), and
whether the income on such Certificates is "interest" described in Code Section
856(c)(3)(B), the Tiered REMICs will be treated as one REMIC.
TAXATION OF REMLC RESIDUAL CERTIFICATES. An owner of a REMIC Residual
Certificate ("Residual Owner") generally will be required to
report its daily portion of the taxable income or, subject to the limitation
described below in "Basis Rules and Distributions", the net loss of the REMIC
Mortgage Pool for each day during a calendar quarter that the Residual Owner
owned such REMIC Residual Certificate. For this purpose, the daily portion will
be determined by allocating to each day in the calendar quarter, using a 30 days
per month/90 days per quarter/360 days per year counting convention, its ratable
portion of the taxable income or net loss of the REMIC Mortgage Pool for such
quarter, and by allocating the daily portions among the Residual Owners (on such
day) in accordance with their percentage of ownership interests on such day. Any
amount included in the gross income of, or allowed as a loss to, any Residual
Owner by virtue of the rule referred to in this paragraph will be treated as
ordinary income or loss. Taxable income from Residual Certificates may exceed
cash distributions with respect thereto in any taxable year. For example, if
Qualified Mortgages are acquired by a REMIC at a discount, then the Residual
Owner may recognize original issue discount as income without corresponding cash
distributions. This result could occur because a payment produces recognition by
the REMIC of discount on the Qualified Mortgages while all or a portion of such
payment could be used in whole or in part to make principal payments on REMIC
Regular Certificates issued without substantial discount.
The tax treatment of any payments received by a Residual Owner in
connection with the acquisition of such Certificate is unclear. Such payments
may be taken into account in determining the income of such holder.
Alternatively, a holder may take another position. Because of the uncertainty
concerning the treatment of such payments, Residual Owners should consult their
tax advisers concerning the treatment of such payments for income tax purposes.
TAXABLE INCOME OR NET LOSS OF THE REMIC TRUST FUND. The taxable income
or net loss of the REMIC Mortgage Pool reflects a netting of income from the
Qualified Mortgages, any cancellation of indebtedness income due to the
allocation of realized losses to REMIC Regular Certificates and the deductions
and losses allowed to the REMIC Mortgage Pool. Such taxable income or net loss
for a given calendar quarter is determined in the same manner as for an
individual having the calendar year as his taxable year and using the accrual
method of accounting, with certain modifications. First, a deduction is allowed
for accruals of interest (including original issue discount) on the REMIC
Regular Certificates. Second, market discount equal to the excess of any
Qualified Mortgage's adjusted issue price (as determined under "Taxation of
REMIC Regular Certificates--Market Discount and Premium") over its fair market
value at the time of its transfer to the REMIC Mortgage Pool generally will be
included in income as it accrues, based on a constant yield method and on the
Prepayment Assumption. For this purpose, the fair market value of the Mortgage
Loans will be treated as being equal to the aggregate issue prices of the REMIC
Regular Certificates and REMIC Residual Certificates; if one or more classes of
REMIC Regular Certificates or REMIC Residual Certificates are retained by the
Depositor, the value of such retained interests will be estimated in order to
determine the fair market value of the Qualified Mortgages for this purpose.
Third, no item of income, gain, loss or deduction allocable to a prohibited
transaction (see "Prohibited Transactions and Other Possible REMIC Taxes") is
taken into account. Fourth, the REMIC Mortgage Pool generally may deduct only
items that would be allowed in calculating the taxable income of a partnership
by virtue of Code Section 703(a)(2). Fifth, the limitation on miscellaneous
itemized deductions imposed on individuals by Code Section 67 does not apply at
the REMIC Mortgage Pool level to investment expenses such as trustee fees or the
servicing fees paid to the Master Servicer or sub-servicers, if any. See,
however, "Pass-Through of Servicing Fees". If the deductions allowed to the
REMIC Mortgage Pool exceed its gross income for a calendar quarter, such excess
will be the net loss for the REMIC Mortgage Pool for that calendar quarter.
60
<PAGE>
BASIS RULES AND DISTRIBUTIONS. A Residual Owner will not include any
distribution by a REMIC Mortgage Pool in gross income to the extent it is less
than the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual Certificate, it will be treated as gain from the sale of the
REMIC Residual Certificate. See "Sales of REMIC Certificates". The adjusted
basis of a REMIC Residual Certificate is equal to the amount paid for such REMIC
Residual Certificate, increased by amounts included in the income of the
Residual Owner and decreased by distributions and by net losses taken into
account with respect to such interest. See "Taxation of REMIC Residual
Certificates--Daily Portions".
A Residual Owner is not allowed to take into account any net loss for
any calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used to
offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual
Owner may not amortize its basis in a REMIC Residual Certificate but may only
recover its basis through distributions, through the deduction of any net losses
of the REMIC Mortgage Pool or upon the sale of its REMIC Residual Certificate.
See "Sales of REMIC Certificates". The Residual Owner does, however, receive
reduced taxable income over the life of the REMIC because the REMIC's basis in
the underlying REMIC Mortgage Pool used to determine taxable income or net loss
includes the fair market value of the REMIC Regular Certificates and REMIC
Residual Certificates at the Closing Date, not the unpaid principal balances of
the REMIC Mortgage Pool.
EXCESS INCLUSIONS. "Excess inclusions" with respect to
a REMIC Residual Certificate are subject to special tax rules. With respect to a
Residual Owner, the excess inclusion for any calendar quarter is defined as the
excess, if any, of the daily portions of taxable income over the sum of the
"daily accruals" for each day during such quarter that the
Residual Owner held such REMIC Residual Certificate. The daily accruals are
determined by allocating to each day during a calendar quarter its ratable
portion of the product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120 percent of the
long-term "applicable federal rate" (generally, an average of current yields on
Treasury securities of comparable maturity, and hereafter the "AFRAFR") in
effect at the time of issuance of the REMIC Residual Certificate. For this
purpose, the adjusted issue price of a REMIC Residual Certificate as of the
beginning of any calendar quarter is the issue price of the REMIC Residual
Certificate, increased by the amount of daily accruals for all prior quarters
and decreased by any distributions made with respect to such REMIC Residual
Certificate before the beginning of such quarter. The issue price of a REMIC
Residual Certificate (a) if it is publicly offered is the initial offering price
to the public (excluding bond houses and brokers) at which a substantial amount
of the REMIC Residual Certificates were sold, or (b) if it is not public
offered, is its fair market value on the pricing date when the prices of the
REMIC Regular Certificates are fixed.
For Residual Owners, an excess inclusion may not be offset by
deductions, losses or loss carryovers from other activities. For Residual Owners
that are subject to tax on unrelated business taxable income (as defined in Code
Section 511), an excess inclusion is treated as unrelated business taxable
income. For Residual Owners that are nonresident alien individuals or foreign
corporations generally subject to United States withholding tax, even if
interest paid to such Residual Owners is generally eligible for exemptions from
such tax, an excess inclusion will be subject to such tax and no tax treaty rate
reduction or exemption may be claimed with respect thereto. See "Foreign
Investors in REMIC Certificates."
Alternative minimum taxable income for a Residual Owner is determined
without regard to the special rule that taxable income may not be less than
excess inclusions and may not be less than the excess inclusions for the year.
The amount of any alternative minimum tax net operating loss deductions must be
computed without regard to any excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
61
<PAGE>
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
NONECONOMIC REMIC RESIDUAL CERTIFICATES. Under the REMIC Regulations,
transfers of "noneconomic" REMIC Residual Certificates are disregarded for all
federal income tax purposes if "a significant purpose of the transfer was to
enable the transferor to impede the assessment or collection of tax". If such
transfer is disregarded, the purported transferor will continue to remain liable
for any taxes due with respect to the income on such "noneconomic" REMIC
Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, at the time of its transfer and based on the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents: (1) the
present value of the expected future distributions (discounted using the AFR) on
the REMIC Residual Certificate equals at least the product of the present value
of the anticipated excess inclusions and the highest tax rate applicable to
corporations for the year of the transfer and (2) the transferor reasonably
expects that the transferee will receive distributions with respect to the REMIC
Residual Certificate at or after the time the taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates will be subject to
certain restrictions under the terms of the related. Agreement that are intended
to reduce the possibility of any such transfer being disregarded. Such
restrictions will require each party to a transfer to provide an affidavit that
no purpose of such transfer is to impede the assessment or collection of tax,
including certain representations as to the financial condition of the
prospective transferee. Prior to purchasing a REMIC Residual Certificate,
prospective purchasers should consider the possibility that a purported transfer
of such REMIC Residual Certificate by such a purchaser to another purchaser at
some future date may be disregarded in accordance with the above-described
rules, which would result in the retention of tax liability by such purchaser.
The applicable Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; PROVIDED, HOWEVER, that any disclosure that a REMIC
Residual Certificate will or will not be considered "noneconomic" will be based
upon certain assumptions, and the Depositor will make no representation that a
REMIC Residual Certificate will not be considered "noneconomic" for purposes of
the above-described rules or that a Residual Owner will receive distributions
calculated pursuant to such assumptions. See "Foreign Investors in REMIC
Certificates" below for additional restrictions applicable to transfers of
certain REMIC Residual Certificates to foreign persons.
TAX-EXEMPT INVESTORS. Tax-exempt organizations (including employee
benefit plans) that are subject to tax on unrelated business taxable income (as
defined in Code Section 511) will be subject to tax on any excess inclusions
attributed to them as owners of Residual Certificates. Excess inclusion income
associated with a Residual Certificate may significantly exceed cash
distributions with respect thereto. See "Excess Inclusions".
Generally, tax-exempt organizations that are not subject to federal
income taxation on "unrelated business taxable income" pursuant to Code Section
511 are treated as "disqualified organizations". Under provisions of the
Agreement, such organizations generally are prohibited from owning Residual
Certificates. See "Sales of REMIC Certificates".
REAL ESTATE INVESTMENT TRUSTS. If the applicable Prospectus Supplement
so provides, a REMIC Mortgage Pool may hold Qualified Mortgages bearing interest
based wholly or partially on mortgagor profits, mortgaged property appreciation,
or similar contingencies. Such interest, if earned directly by a real estate
investment trust ("REIT"), would be subject to the limitations of Code Sections
856(f) and 856(j). Treasury Regulations treat a REIT holding a REMIC Residual
Certificate for a principal purpose of avoiding such Code provisions as
receiving directly the income of the REMIC Mortgage Pool, hence potentially
jeopardizing its qualification for taxation as a REIT and exposing such income
to taxation as a prohibited transaction at a 100 percent rate.
MARK-TO-MARKET RULES. Code Section 475 generally requires that
securities dealers include securities in inventory at their fair market value,
recognizing gain or loss as if the securities were sold at the end of each tax
62
<PAGE>
year. The Mark-to-Market Regulations provide that a REMIC Residual Certificate
is not treated as a security and thus may not be marked to market.
SALES OF REMIC CERTIFICATES. If a REMIC Certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
on the sale and its adjusted basis in the REMIC Certificate. The adjusted basis
of a REMIC Regular Certificate generally will equal the cost of such REMIC
Regular Certificate to the seller, increased by any original issue discount or
market discount included in the seller's gross income with respect to such REMIC
Regular Certificate and reduced by premium amortization deductions and
distributions previously received by the seller of amounts included in the
stated redemption price at maturity of such REMIC Regular Certificate. The
adjusted basis of a REMIC Residual Certificate will be determined as described
under "Taxation of REMIC Residual Certificates--Basis Rules and Distributions."
Gain from the disposition of a REMIC Regular Certificate that might otherwise be
treated as a capital gain will be treated as ordinary income to the extent that
such gain does not exceed the excess, if any, of (i) the amount that would have
been includible in such holder's income had income accrued at a rate equal to
110% of the AFR as of the date of purchase over (ii) the amount actually
includible in such holder's income. Except as otherwise provided under "Taxation
of REMIC Regular Certificates--Market Discount and Premium" and under Code
Section 582(c), any additional gain or any loss on the sale or exchange of a
REMIC Certificate will be capital gain or loss, provided such REMIC Certificate
is held as a capital asset (generally, property held for investment) within the
meaning of Code Section 1221. The Code currently provides for a top marginal tax
rate of 39.6% for individuals while maintaining a maximum marginal rate for the
long-term capital gains of individuals at 28%. There is no such rate
differential for corporations. In addition, the distinction between a capital
gain or loss and ordinary income or loss remains relevant for other purposes,
including limitations on the use of capital losses to offset ordinary income.
All or a portion of any gain from the sale of a REMIC Certificate that
might otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
holder's net investment in the conversion transaction at 120% of the appropriate
AFR in effect at the time the taxpayer entered into the transaction reduced by
any amount treated as ordinary income with respect to any prior disposition or
other termination of a position that was held as part of such transaction or
(ii) in the case of a noncorporate taxpayer that has made an election under Code
Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates.
If a Residual Owner sells a REMIC Residual Certificate at a loss, the
loss will not be recognized if, within six months before or after the sale of
the REMIC Residual Certificate, such Residual Owner purchases another residual
interest in any REMIC or any interest in a taxable mortgage pool (as defined in
Code Section 7701 (i)) comparable to a residual interest in a REMIC. Such
disallowed loss will be allowed upon the sale of the other residual interest (or
comparable interest) if the rule referred to in the preceding sentence does not
apply to that sale. While the Committee Report states that this rule may be
modified by Treasury regulations, the REMIC Regulations do not address this
issue and it is not clear whether any such modification will in fact be
implemented or, if implemented, what its precise nature or effective date would
be.
Transfers of a REMIC Residual Certificate to certain "disqualified
organizations" are subject to an additional tax on the transferor in an amount
equal to the maximum corporate tax rate applied to the present value (using a
discount rate equal to the AFR) of the total anticipated excess inclusions with
respect to such residual interest for the periods after the transfer. For this
purpose, "disqualified organizations" includes the United States, any state or
political subdivision of a state, any foreign government or international
organization or any agency or instrumentality of any of the foregoing; any
tax-exempt entity (other than a Code Section 521 cooperative) which is not
subject to the tax on unrelated business income; and any rural electrical or
telephone cooperative. The anticipated excess inclusions must be determined as
of the date that the REMIC Residual Certificate is transferred and must be based
on events that have occurred up to the time of such transfer, the Prepayment
Assumption, and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents. The tax generally is
imposed on the transferor of the REMIC Residual Certificate, except that it is
imposed on an agent for a disqualified organization if the transfer occurs
through such agent. The Agreement requires, as a prerequisite to any transfer of
a Residual Certificate, the delivery to the Trustee of an affidavit of the
63
<PAGE>
transferee to the effect that it is not a disqualified organization and contains
other provisions designed to render any attempted transfer of a Residual
Certificate to a disqualified organization void.
In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity at any time
during any taxable year of such entity, then a tax will be imposed on such
entity equal to the product of (i) the amount of excess inclusions on the REMIC
Residual Certificate for such taxable year that are allocable to the interest in
the pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period, however, if the record
holder of an interest in such entity furnishes to such entity (i) such holder's
social security number and a statement under penalties of perjury that such
social security number is that of the record holder or (ii) a statement under
penalties of perjury that such record holder is not a disqualified organization.
For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Code Section 860E(e)(6). In addition, a person holding an
interest in a pass-through entity as a nominee for another person shall, with
respect to such interest, be treated as a pass-through entity.
PASS-THROUGH OF SERVICING FEES. In general, Residual Owners take into
account taxable income or net loss of the related REMIC Mortgage Pool.
Consequently, expenses of the REMIC Mortgage Pool to service providers, such as
servicing compensation of the Master Servicer and the subservicers (if any),
will be allocated to the holders of the REMIC Residual Certificates, and
therefore will not affect the income or deductions of holders of REMIC Regular
Certificates. In the case of a "single-class REMIC" (as described below),
however, such expenses and an equivalent amount of additional gross income will
be allocated among all holders of REMIC Regular Certificates and REMIC Residual
Certificates for purposes of the limitations on the deductibility of certain
miscellaneous itemized deductions by individuals contained in Code Sections
56(b)(1) and 67. Generally, any holder of a REMIC Residual Certificate and any
holder of a REMIC Regular Certificate issued by a "single-class REMIC" who is an
individual, estate or trust (including such a person that holds an interest in a
pass-through entity holding such a REMIC Certificate) are permitted to deduct
such expenses in determining regular taxable income only to the extent that such
expenses together with certain other miscellaneous itemized deductions of such
individual, estate or trust exceed 2% of adjusted gross income; such a holder
may not deduct such expenses to any extent in determining liability for
alternative minimum tax. Accordingly, REMIC Residual Certificates, and REMIC
Regular Certificates receiving an allocation of servicing compensation, may not
be appropriate investments for individuals, estates or trusts.
A "single-class REMIC" is a REMIC that either (i) would be treated as
an investment trust under the provisions of Treasury Regulation Section
301.7701-4(c) in the absence of a REMIC election or (ii) is substantially
similar to such an investment trust and is structured with the principal purpose
of avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Master Servicer intends (subject to certain exceptions which,
if applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a "single-class REMIC," consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES. The Code
imposes a tax on REMIC Mortgage Pools equal to 100% of the net income derived
from "prohibited transactions." In general, a prohibited transaction means the
disposition of a Qualified Mortgage other than pursuant to certain specified
exceptions, the receipt of income from a source other than a Qualified Mortgage
or certain other permitted investments, the receipt of compensation for
services, or gain from the disposition of an asset purchased with the payments
on the Qualified Mortgages for temporary investment pending distribution on the
REMIC Certificates. The Code also imposes a 100% tax on the value of any
contribution of assets to the REMIC after the Closing Date other than pursuant
to specified exceptions, and subjects "net income from foreclosure property" to
tax at the highest corporate rate. It is not anticipated that a REMIC Mortgage
Pool will engage in any such transactions or receive any such income.
TERMINATION OF A REMIC MORTGAGE POOL. In general, no special tax
consequences will apply to a holder of a REMIC Regular Certificate upon the
termination of the REMIC Mortgage Pool by virtue of the final payment
64
<PAGE>
or liquidation of the last Mortgage Loan remaining in the REMIC Mortgage Pool.
If a Residual Owner's adjusted basis in its REMIC Residual Certificate at the
time such termination occurs exceeds the amount of cash distributed to such
Residual Owner in liquidation of its interest, then, although the matter is not
entirely free from doubt, it appears that the Residual Owner would be entitled
to a loss (which could be a capital loss) equal to the amount of such excess.
REPORTING AND OTHER ADMINISTRATIVE MATTERS OF REMIC. Reporting of
interest income, including any original issue discount, with respect to REMIC
Regular Certificates is required annually, and may be required more frequently
under Treasury regulations. Certain holders of REMIC Regular Certificates which
are generally exempt from information reporting on debt instruments, such as
corporations, banks, registered securities or commodities brokers, real estate
investment trusts, registered investment companies, common trust funds,
charitable remainder annuity trusts and unitrusts, will be provided interest and
original issue discount income information and the information set forth in the
following paragraph upon request in accordance with the requirements of the
Treasury regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC Mortgage Pool must also comply
with rules requiring the face of a REMIC Certificate issued at more than a DE
MINIMIS discount to disclose the amount of original issue discount and the issue
date and requiring such information to be reported to the Treasury Department.
The REMIC Regular Certificate information reports must include a
statement of the "adjusted issue price" of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports must include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC
Mortgage Pool may not have, it appears that this provision will only require
information pertaining to the appropriate proportionate method of accruing
market discount.
For purposes of the administrative provisions of the Code, REMIC
Mortgage Pools are treated as partnerships and the holders of Residual
Certificates are treated as partners. On of the Holders of the Residual Interest
will be the "tax matters person" with respect to the REMIC Mortgage Pool in all
respects, and will file federal income tax information returns on behalf of the
related REMIC Mortgage Pool.
As the tax matters person will, subject to certain notice requirements
and various restrictions and limitations, generally have the authority to act on
behalf of the REMIC Mortgage Pool and the Residual Owners in connection with the
administrative and judicial review of items of income, deduction, gain or loss
of the REMIC Mortgage Pool, as well as the REMIC Mortgage Pool's classification.
Residual Owners will generally be required to report such REMIC Mortgage Pool
items consistently with their treatment on the REMIC Mortgage Pool's federal
income tax information return and may in some circumstances be bound by a
settlement agreement between the person serving as the tax matters person, and
the IRS concerning any such REMIC Mortgage Pool item. Adjustments made to the
REMIC Mortgage Pool tax return may require a Residual Owner to make
corresponding adjustments on its return, and an audit of the REMIC Mortgage
Pool's tax return, or the adjustments resulting from such an audit, could result
in an audit of a Residual Owner's return.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES. Distribution of
interest and principal on REMIC Regular Certificates, as well as payment of
proceeds from the sale of REMIC Certificates, may be subject to the "backup
withholding tax" under Code Section 3406 at a rate of 31 percent if recipients
fail to furnish certain information, including their taxpayer identification
numbers, or otherwise fail to establish an exemption from such tax. Any amounts
deducted and withheld from a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient that is required to supply information but that does not
do so in the manner required.
FOREIGN INVESTORS IN REMIC CERTIFICATES. Except as qualified below,
payments made on a REMIC Regular Certificate to a REMIC Regular
Certificateholder that is not a U.S. Person, as hereinafter defined (a "Non-U.S.
Person"), or to a person acting on behalf of such a Certificateholder, generally
will be exempt from U.S.
65
<PAGE>
federal income and withholding taxes, provided that (a) the holder of the
Certificate is not subject to U.S. tax as a result of a connection to the United
States other than ownership of such Certificate, (b) the holder of such
Certificate signs a statement under penalties of perjury that certifies that
such holder is a Non-U.S. Person, and provides the name and address of such
holder, and (c) the last U.S. Person in the chain of payment to the holder
receives such statement from such holder or a financial institution holding on
its behalf and does not have actual knowledge that such statement is false. If
the holder does not qualify for exemption, distributions of interest, including
distributions in respect of accrued original issue discount, to such holder may
be subject to a withholding tax rate of 30 percent, subject to reduction under
an applicable tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity treated as a corporation or partnership
for United States federal income tax purposes, created or organized in or under
the laws of the United States or any political subdivision thereof, an estate
that is subject to U.S. federal income tax regardless of the source of its
income or a trust if (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and (ii) one or more
United States trustees have authority to control all substantial decisions of
the trust.
Holders of REMIC Regular Certificates should be aware that the IRS may
take the position that exemption from U.S. withholding taxes does not apply to
such a holder that also directly or indirectly owns 10 percent or more of the
REMIC Residual Certificates. Further, the foregoing rules will not apply to
exempt a "United States shareholder" (as such term is defined in Code Section
951) of a controlled foreign corporation from taxation on such United States
shareholder's allocable portion of the interest or original issue discount
income earned by such controlled foreign corporation.
Amounts paid to a Residual Owner that is a Non-U.S. Person generally
will be treated as interest for purposes of applying the withholding tax on
Non-U.S. Persons with respect to income on its REMIC Residual Certificate. It is
unclear, however, whether distributions on REMIC Residual Certificates will be
eligible for the general exemption from withholding tax that applies to REMIC
Regular Certificates as described above. Treasury Regulations provide that, for
purposes of the portfolio interest exception, payments to the foreign owner of a
REMIC Residual Certificate are to be considered paid on the obligations held by
the REMIC Mortgage Pool, rather than on the Certificate itself. Such payments
will thus only qualify for the portfolio interest exception if the underlying
obligations held by the REMIC Mortgage Pool would so qualify. Such withholding
tax generally is imposed at a rate of 30 percent but is subject to reduction
under any tax treaty applicable to the Residual Owner. Nevertheless, there is no
exemption from withholding tax nor may the rate of such tax be reduced, under a
tax treaty or otherwise, with respect to any distribution of income that is an
excess inclusion. Although no regulations have been proposed or adopted
addressing withholding on residual interests held by Non-U.S. Persons, the
provisions of the REMIC Regulations, relating to the transfer of residual
interests to Non-U.S. Persons may be read to imply that withholding with respect
to excess inclusion income is to be determined by reference to the amount of the
excess inclusion income rather than to the amount of cash distributions. If the
IRS were successfully to assert such a position, cash distributions on Residual
Certificates held by Non-U.S. Persons could be subject to withholding at rates
as high as 100%, depending on the relationship of accrued excess inclusion
income to cash distributions with respect to such Residual Certificates. See
"Taxation of REMIC Residual Certificates--Excess Inclusions."
Certain restrictions relating to transfers of REMIC Residual
Certificates to and by investors who are Non U.S. Persons are also imposed by
the REMIC Regulations. First, transfers of REMIC Residual Certificates to a
Non-U.S. Person that have "tax avoidance potential" are disregarded for all
federal income tax purposes. If such transfer is disregarded, the purported
transferor of such a REMIC Residual Certificate to a Non-U.S. Person continues
to remain liable for any taxes due with respect to the income on such REMIC
Residual Certificate. A transfer of a REMIC Residual Certificate has tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects (1) that the REMIC will distribute to the transferee Residual
Certificateholder amounts that will equal at least 30 percent of each excess
inclusion and (2) that such amounts will be distributed at or after the time at
which the excess inclusion accrues and not later than the close of the calendar
year following the calendar year of accrual. This rule does not apply to
transfers if the income from the REMIC Residual Certificate is taxed in the
hands of the transferee as income effectively connected with the conduct of a
U.S. trade
66
<PAGE>
or business. Second, if a Non-U.S. Person transfers a REMIC Residual Certificate
to a U.S. Person (or to a Non-U.S. Person in whose hands income from the REMIC
Residual Certificate would be effectively connected) and the transfer has the
effect of allowing the transferor to avoid tax on accrued excess inclusions,
that transfer is disregarded for all federal income tax purposes and the
purported Non-U.S. Person transferor continues to be treated as the owner of the
REMIC Residual Certificate. Thus, the REMIC's liability to withhold 30 percent
of the excess inclusions is not terminated even though the REMIC Residual
Certificate is no longer held by a Non-U.S. Person.
The Proposed Withholding Regulations, if adopted in final form, could
affect the United States taxation of foreign investors in REMIC Certificates.
The Proposed Withholding Regulations are generally proposed to be effective for
payments after December 31, 1997, regardless of the issue date of the REMIC
Certificate with respect to which such payments are made, subject to certain
transition rules. The Proposed Withholding Regulations would provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above and
would replace a number of current tax certification forms with a single,
restated form and standardize the period of time for which withholding agents
could rely on such certifications. The Proposed Withholding Regulations would
also provide rules to determine whether, for purposes of United States federal
withholding tax, interest paid to a Non-U.S. Person that is an entity should be
treated as paid to the entity or those holding an interest in that entity.
NON-REMLC TRUST FUNDS
CLASSIFICATION OF TRUST FUNDS. With respect to each series of Trust
Certificates for which no REMIC election is made and are not subject to
partnership treatment, Arter & Hadden, special counsel to the Depositor, will
deliver their opinion generally to the effect that the arrangements pursuant to
which such Trust Fund will be administered and such Trust Certificates will be
issued will not be classified as an association taxable as a corporation and
that each such Trust Fund will be classified as a trust whose taxation will be
governed by the provisions of subpart E, Part I, of subchapter J of the Code.
A Trust Certificate representing an undivided equitable ownership
interest in the principal of the Mortgage Loans constituting the related Trust
Fund, together with interest thereon at a remittance rate (which may be less
than, greater than, or equal to the net rate on the related Mortgage Assets) is
referred to as a "Trust Fractional Certificate" and a Trust Certificate
representing an equitable ownership of all or a portion of the interest paid on
each Mortgage Loan constituting the related Trust Fund (net of normal servicing
fees) is referred to as a "Trust Interest Certificate."
CHARACTERIZATION OF INVESTMENTS IN TRUST CERTIFICATES.
TRUST FRACTIONAL CERTIFICATES. In the case of Trust Fractional
Certificates, Arter & Hadden, special counsel to the Depositor, will deliver
their opinion that, in general (and subject to the discussion below under
"Buydown Mortgage Loans"), (i) Trust Fractional Certificates held by a thrift
institution taxed as a "domestic building and loan association" will represent
"loans . . . secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v); (ii) Trust Fractional Certificates held by a real
estate investment trust will represent "real estate assets" within the meaning
of Code Section 856(c)(5)(A) and interest on Trust Fractional Certificates will
be considered "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section 856(c)(5)(B);
and (iii) Trust Fractional Certificates acquired by a REMIC in accordance with
the requirements of Code Section 860G (a)(3)(A)(i) and (ii) or Section
860G(a)(4)(B) will be treated as "qualified mortgages" within the meaning of
Code Section 860D(a)(4).
TRUST INTEREST CERTIFICATES. Although there appears to be no policy
reason not to accord to Trust Interest Certificates the treatment described
above for Trust Fractional Certificates to Trust Interest Certificates, there is
no authority addressing such characterization for instruments similar to Trust
Interest Certificates. Consequently, it is unclear to what extent, if any, (1) a
Trust Interest Certificate owned by a "domestic building and loan association"
within the meaning of Code Section 7701 (a) (19) will be considered to represent
"loans . . . secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v); and (2) a real estate investment trust
67
<PAGE>
which owns a Trust Interest Certificate will be considered to own "real estate
assets" within the meaning of Code Section 856(c)(5)(A), and interest income
thereon will be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B). . Prospective
purchasers to which such characterization of an investment in Trust Interest
Certificates is material should consult their own tax advisers regarding whether
the Trust Interest Certificates, and the income therefrom, will be so
characterized.
BUYDOWN MORTGAGE LOANS. It is contemplated that the assets of certain
Trust Funds may include Buydown Mortgage Loans. The characterization of an
investment in Buydown Mortgage Loans will depend upon the precise terms of the
related Buydown Agreement. There are no directly applicable precedents with
respect to the federal income tax treatment or the characterization of
investments in Buydown Mortgage Loans. Accordingly, holders of Trust
Certificates should consult their own tax advisers with respect to
characterization of investments in Trust Funds that include Buydown Mortgage
Loans.
Although the matter is not entirely free from doubt, the portion of a
Trust Certificate representing an interest in Buydown Mortgage Loans may be
considered to represent an investment in "loans . . . secured by an interest in
real property" within the meaning of Code Section 7701(a)(19)(C)(v) to the
extent the outstanding principal balance of the Buydown Mortgage Loans exceeds
the amount held from time to time in the Buydown Fund. It is also possible that
the entire interest in Buydown Mortgage Loans may be so considered, because the
fair market value of the real property securing each Buydown Mortgage Loan will
exceed the amount of such loan at the time it is made. Section 1.593-11(d)(2) of
the Treasury Regulations suggests that this latter treatment may be available,
and Revenue Ruling 81-203, 1981-2 C.B. 137 may be read to imply that
apportionment is generally required whenever more than a minimal amount of
assets other than real property may be available to satisfy purchasers' claims.
For similar reasons, the portion of such Trust Certificate representing
an interest in Buydown Mortgage Loans may be considered to represent "real
estate assets" within the meaning of Code Section 856(c)(5)(A). Section 1.856-5
(c)(1)(i) of the Treasury Regulations specifies that, if a mortgage loan is
secured by both real property and by other property and the value of the real
property alone equals or exceeds the amount of the loan, then all interest
income will be treated as "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B).
TAXATION OF TRUST FRACTIONAL CERTIFICATES. Each holder of a Trust
Fractional Certificate (a "Trust Fractional Certificateholder") will be treated
as the owner of an undivided percentage interest in the principal of, and
possibly a different undivided percentage interest in the interest portion of,
each of the assets in a Trust. Accordingly, each Trust Fractional
Certificateholder must report on its federal income tax return its allocable
share of income from its interests, as described below, at the same time and in
the same manner as if it had held directly interests in the Mortgage Assets and
received directly its share of the payments on such Mortgage Assets. Because
those interests may represent interests in "stripped bonds" or "stripped
coupons" within the meaning of Code Section 1286, such interests would be
considered to be newly issued debt instruments, and thus to have no market
discount or premium, and the amount of original issue discount may differ from
the amount of original issue discount on the Mortgage Assets and the amount
includible in income on account of a Trust Fractional Certificate may differ
significantly from the amount payable thereon from payments of interest on the
Mortgage Assets. Each Trust Fractional Certificateholder may report and deduct
its allocable share of the servicing and related fees and expenses at the same
time, to the same extent, and in the same manner as such items would have been
reported and deducted had it held directly interests in the Mortgage Assets and
paid directly its share of the servicing and related fees and expenses. A holder
of a Trust Fractional Certificate who is an individual, estate or trust will be
allowed a deduction for servicing fees in determining its regular tax liability
only to the extent that the aggregate of such holder's miscellaneous itemized
deductions exceeds 2 percent of such holder's adjusted gross income and will be
allowed no deduction for such fees in determining its liability for alternative
minimum tax. Amounts received by Trust Fractional Certificateholders in lieu of
amounts due with respect to any Mortgage Assets but not received from the
mortgagor will be treated for federal income tax purposes as having the same
character as the payments which they replace.
68
<PAGE>
Purchasers of Trust Fractional Certificates identified in the
applicable Prospectus Supplement as representing interests in Stripped Mortgage
Assets should read the material under the headings "Application of Stripped Bond
Rules," "Market Discount and Premium" and "Allocation of Purchase Price" for a
discussion of particular rules applicable to their Certificates. A "Stripped
Mortgage Asset" means a Mortgage Asset having a Retained Yield (as that term is
defined below) or a Mortgage Asset included in a Trust having either Trust
Interest Certificates or more than one class of Trust Fractional Certificates or
identified in the Prospectus Supplement as related to a Class of Trust
Certificates identified as representing interests in Stripped Mortgage Assets.
Purchasers of Trust Fractional Certificates identified in the
applicable Prospectus Supplement as representing interests in Unstripped
Mortgage Assets should read the material under the headings "Treatment of
Unstripped Certificates", "Market Discount and Premium", and "Allocation of
Purchase Price" for a discussion of particular rules applicable to their
Certificates. Nevertheless, the IRS has indicated that under some circumstances
it will view a portion of servicing and related fees and expenses paid to or
retained by the Master Servicer or sub-servicers as an interest in the Mortgage
Assets, essentially equivalent to that portion of interest payable with respect
to each Mortgage Asset that is retained ("Retained Yield"). If such a view were
sustained with respect to a particular Trust, such purchasers would be subject
to the rules set forth under "Application of Stripped Bond Rules" rather than
those under "Treatment of Unstripped Certificates". The Depositor does not
expect any Servicing Fee or Master Servicing Fee to constitute a retained
interest in the Mortgage Assets; nevertheless, prospective purchasers are
advised to consult their own tax advisers with respect to the existence of a
retained interest and any effects on investment in Trust Fractional
Certificates.
APPLICATION OF STRIPPED BOND RULES. Each Trust will consist of an
interest in each of the Mortgage Assets relating thereto, exclusive of the
Retained Yield, if any. With respect to each Series of Certificates Arter &
Hadden, special counsel to the Depositor, will deliver their opinion that any
Retained Yield will be treated for federal income tax purposes as an ownership
interest retained by the owner thereof in a portion of each interest payment on
the underlying Mortgage Assets. The sale of the Trust Certificates associated
with any Trust for which there is a class of Trust Interest Certificates or two
or more Classes of Trust Fractional Certificates bearing different interest
rates or of Trust Certificates identified in the Prospectus Supplement as
representing interests in Stripped Mortgage Loans (subject to certain exceptions
which, if applicable, will be stated in the applicable Prospectus Supplement)
will be treated for federal income tax purposes as having effected a separation
in ownership between the principal of each Mortgage Asset and some or all of the
interest payable thereon. As a consequence, each Stripped Mortgage Asset will
become subject to the "stripped bond" rules of the Code (the "Stripped Bond
Rules"). The effect of applying those rules will generally be to require each
Trust Fractional Certificateholder to accrue and report income attributable to
its share of the principal and interest on each of the Stripped Mortgage Assets
as original issue discount on the basis of the yield to maturity of such
Stripped Mortgage Assets, as determined in accordance with the provisions of the
Code dealing with original issue discount. For a description of the general
method of calculating original issue discount, see "REMIC Trust Funds--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount". The yield to
maturity of a Trust Fractional Certificateholder's interest in the Stripped
Mortgage Loans will be calculated taking account of the price at which the
holder purchased the Certificate and the holder's share of the payments of
principal and interest to be made thereon. Although the provisions of the Code
and the OID Regulations do not directly address the treatment of instruments
similar to Trust Fractional Certificates, in reporting to Trust Fractional
Certificateholders such Certificates will be treated as a single obligation with
payments corresponding to the aggregate of the payments allocable thereto from
each of the Mortgage Assets and the amount of original issue discount on such
Certificates will be determined accordingly. See "Aggregate Reporting".
Under Treasury regulations, original issue discount determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the DE MINIMIS rule described above, in which case it is treated as market
discount. See "REMIC Trust Funds--Taxation of REMIC Regular
Certificates--Original Issue Discount". Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Asset will be treated as market discount if the rate of interest on the
Stripped Mortgage Asset, including a reasonable servicing fee, is no more than
one percentage point less than the unstripped rate of interest. See "Market
Discount and Premium". The foregoing DE MINIMIS and market discount rules will
be applied on an aggregate poolwide basis, although it is possible that
investors may be required to apply them on a loan-by-loan
69
<PAGE>
basis. The loan-by-loan information required for such application of those rules
may not be available. See "Aggregate Reporting".
Subsequent purchasers of the Certificates may be required to include
"original issue discount" in an amount computed using the price at which such
subsequent purchaser purchased the Certificates. Further, such purchasers may be
required to determine if the above described DE MINIMIS and market discount
rules apply at the time a Trust Fractional Certificate is acquired, based on the
characteristics of the Mortgage Assets at that time.
VARIABLE RATE CERTIFICATES. There is considerable uncertainty
concerning the application of the OID Regulations to Mortgage Assets bearing a
variable rate of interest. Although such regulations are subject to a different
interpretation, as discussed below, in the absence of other contrary authority
in preparing reports furnished to Certificateholders Stripped Mortgage Assets
bearing a variable rate of interest (other than those treated as having market
discount pursuant to the regulations described above) will be treated as subject
to the provisions of the OID Regulation governing variable rate debt
instruments. The effect of the application of such provisions generally will be
to cause Certificateholders holding Trust Fractional Certificates bearing
interest at a Single Variable Rate or at a Multiple Variable Rate (as defined
above under "REMIC Trust Funds--Taxation of REMIC Regular Certificates--Original
Issue Discount") to accrue original issue discount and interest as though the
value of each variable rate were a fixed rate, which is (a) for each qualified
floating rate, such rate as of the Closing Date (with appropriate adjustment for
any differences in intervals between interest adjustment dates), (b) for a
qualified inverse floating rate, such rate as of Closing Date, and (c) for any
other objective rate, the fixed rate that reflects the yield that is reasonably
expected for the Trust Fractional Certificate. If the interest paid or accrued
with respect to a variable rate Trust Fractional Certificate during an accrual
period differs from the assumed fixed interest rate, such difference will be an
adjustment (to interest or original issue discount, as applicable) to the
Certificateholder's taxable income for the taxable period or periods to which
such difference relates.
The provisions in the OID Regulations applicable to variable rate debt
instruments may not apply to certain adjustable and variable rate mortgage
loans, possibly including the Mortgage Assets, or to Stripped Certificates
representing interests in such Mortgage Assets. If variable rate Trust
Fractional Certificates are not governed by the provisions of the OID
Regulations applicable to variable rate debt instruments, such Certificates may
be subject to the provisions of the Contingent Debt Regulations. The application
of those provisions to instruments such as the Trust Fractional Certificates is
subject to differing interpretations. Prospective purchasers of variable rate
Trust Fractional Certificates are advised to consult their tax advisers
concerning the tax treatment of such Certificates.
AGGREGATE REPORTING. The Trustee intends in reporting information
relating to original issue discount to Certificateholders to provide such
information on an aggregate poolwide basis. Applicable law is unclear, however,
and it is possible that investors may be required to compute original issue
discount on a loan-by-loan basis (or on the basis of the rights to individual
payments) taking account of an allocation of the investor's basis in the
Certificates among the interests in the various Mortgage Assets represented by
such Certificates according to their respective fair market values. Investors
should be aware that it may not be possible to reconstruct after the fact
sufficient loan-by-loan information should the IRS require a computation on that
basis.
Because the treatment of the Certificates under the OID Regulations is
both complicated and uncertain, Certificateholders should consult their tax
advisers to determine the proper method of reporting amounts received or accrued
on Certificates.
TREATMENT OF UNSTRIPPED CERTIFICATES. Mortgage Assets in a Fund for
which there is neither any Class of Trust Interest Certificates, nor more than
one Class of Trust Fractional Certificates, nor any Retained Yield otherwise
identified in the Prospectus Supplement as being unstripped mortgage assets
("Unstripped Mortgage Assets") will be treated as wholly owned by the Trust
Fractional Certificateholders of the stated Trust. Trust Fractional
Certificateholders using the cash method of accounting must take into account
their PRO RATA shares of original issue discount as it accrues and qualified
stated interest (as described in "REMIC Trust Funds--Taxation of REMIC Regular
Certificates--Original Issue Discount") from Unstripped Mortgage Assets as and
when collected by the Trustee. Trust Fractional Certificateholders using an
accrual method of accounting must take into
70
<PAGE>
account their PRO RATA shares of qualified stated interest from Unstripped
Mortgage Assets as it accrues or is received by the Trustee, whichever is
earlier.
Code Sections 1272 through 1275 provide generally for the inclusion of
original issue discount in income on the basis of a constant yield to maturity.
Nevertheless, the application of the OID Regulations to mortgage loans is
unclear in certain respects. The OID Regulations provide a DE MINIMIS rule for
determining whether certain self-amortizing installment obligations are to be
treated as having original issue discount. Such obligations have original issue
discount if the points charged at origination (or other loan discount) exceed
the greater of one-sixth of one percent times the number of full years to final
maturity or one-fourth of one percent times weighted average maturity. The OID
Regulations treat certain variable rate mortgage loans as having original issue
discount because of an initial rate of interest that differs from that
determined by the mechanism for setting the interest rate during the remainder
of the term of the mortgage loan, or because of the use of an index that does
not vary in a manner approved in the OID Regulations. For a description of the
general method of calculating the amount of original issue discount see "REMIC
Trust Funds--Taxation of REMIC Regular Certificates--Original Issue Discount"
and "Application of Stripped Bond Rules--Variable Rate Certificates."
A subsequent purchaser of a Trust Fractional Certificate that purchases
such Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Assets will also
be required to include in gross income, for each day on which it holds such
Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Asset. That
allocable share is reduced, if the cost of such subsequent purchaser's interest
in such Unstripped Mortgage Asset exceeds its "adjusted issue price," by an
amount equal to the product of (i) the daily portion and (ii) a constant
fraction, the numerator of which is such excess and the denominator of which is
the sum of the daily portions of original issue discount allocable to such
subsequent purchaser's interest for all days on or after the day of purchase.
The adjusted issue price of an Unstripped Mortgage Asset on any given day is
equal to the sum of the adjusted issue price (or, in the case of the first
accrual period, the issue price) of such Unstripped Mortgage Asset at the
beginning of the accrual period during which such day occurs and the daily
portions of original issue discount for all days during such accrual period
prior to such day reduced by the aggregate amount of payments made (other than
payments of qualified stated interest) during such accrual period prior to such
day.
MARKET DISCOUNT AND PREMIUM. In general, if the Stripped Bond Rules do
not apply to a Trust Fractional Certificate, a purchaser of a Trust Fractional
Certificate will be treated as acquiring market discount bonds to the extent
that the share of such purchaser's purchase price allocable to any Unstripped
Mortgage Asset is less than its allocable share of the "adjusted issue price" of
such Mortgage Asset. See "Treatment of Unstripped Certificates" and "Application
of Stripped Bond Rules". Thus, with respect to such Mortgage Assets, a holder
will be required, under Code Section 1276, to include as ordinary income the
previously unrecognized accrued market discount in an amount not exceeding each
principal payment on any such Mortgage Assets at the time each principal payment
is received or due, in accordance with the purchaser's method of accounting, or
upon a sale or other disposition of the Certificate. In general, the amount of
market discount that has accrued is determined on a ratable basis. A Trust
Fractional Certificateholder may, however, elect to determine the amount of
accrued market discount on a constant yield to maturity basis. This election is
made on a loan-by-loan basis and is irrevocable. In addition, the description of
the market discount rules in "Taxation of REMIC Regular--Certificates--Market
Discount and Premium" with respect to (i) conversion to ordinary income of a
portion of any gain recognized on sale or exchange of a market discount bond,
(ii) deferral of interest expense deductions, (iii) the DE MINIMIS exception
from the market discount rules and (iv) the elections to include in income
either market discount or all interest, discount and premium as they accrue, is
also generally applicable to Trust Fractional Certificates. Treasury regulations
implementing the market discount rules have not yet been issued and investors
therefore should consult their own tax advisers regarding the application of
these rules.
If a Trust Fractional Certificate is purchased at a premium, under
existing law such premium must be allocated to each of the Mortgage Assets (on
the basis of its relative fair market value). In general, the portion of any
premium allocated to Unstripped Mortgage Assets can be amortized and deducted
under the provisions of the Code relating to amortizable bond premium.
71
<PAGE>
The application of the Stripped Bond Rules to Stripped Mortgage Assets
will generally cause any premium allocable to Stripped Mortgage Assets to be
amortized automatically by adjusting the rate of accrual of interest and
discount to take account of the allocable portion of the actual purchase price
of the Certificate. In that event, no additional deduction for the amortization
of premium would be allowed. See "REMIC Certificates--Taxation of REMIC Regular
Certificates--Market Discount and Premium" for a discussion of the application
of the Proposed Premium Regulations.
ALLOCATION OF PURCHASE PRICE. As noted above, a purchaser of a Trust
Fractional Certificate relating to Unstripped Mortgage Assets will be required
to allocate the purchase price therefore to the undivided interest it acquires
in each of the Mortgage Assets, in proportion to the respective fair market
values of the portions of such Mortgage Assets included in the Trust Fund at the
time the Certificate is purchased. The Depositor believes that it may be
reasonable to make such allocation in proportion to the respective principal
balances of the Mortgage Assets, where the interests in the Mortgage Assets
represented by a Trust Fractional Certificate have a common remittance rate and
other common characteristics, and otherwise so as to produce a common yield for
each interest in a Mortgage Asset, provided the Mortgage Assets are not so
diverse as to evoke differing prepayment expectations. Nevertheless, if there is
any significant variation in interest rates among the Mortgage Assets, a
disproportionate allocation of the purchase price taking account of prepayment
expectations may be required.
TAXATION OF TRUST INTEREST CERTIFICATES. With respect to each Series of
Certificates Arter & Hadden, special counsel to the Depositor, will deliver
their opinion that each holder of a Trust Interest Certificate (a "Trust
Interest Certificateholder") will be treated as the owner of an undivided
interest in the interest portion ("Interest Portion") of each of the Mortgage
Assets in the related Trust. Accordingly, and subject to the discussion below,
each Trust Interest Certificateholder is treated as owning its allocable share
of the Interest Portion from the Mortgage Assets, will report income as
described below, and may deduct its allocable share of the servicing and related
fees and expenses paid to or retained by the related Trust at the same time and
in the same manner as such items would have been reported under the Trust
Interest Certificateholder's tax accounting method had it held directly an
interest in the Interest Portion from the Mortgage Assets, received directly its
share of the amounts received with respect to the Mortgage Assets and paid
directly its share of the servicing and related fees and expenses. An
individual, estate or trust holder of a Trust Interest Certificate will be
allowed a deduction for servicing fees in determining its regular tax liability
only to the extent that the aggregate of such holder's miscellaneous itemized
deductions exceeds 2 percent of such holder's adjusted gross income, and will be
allowed no deduction for such fees in determining its liability for alternative
minimum tax. Amounts, if any, received by Trust Interest Certificateholders in
lieu of amounts due with respect to any Mortgage Asset but not received from the
mortgagor will be treated for federal income tax purposes as having the same
character as the payment which they replace.
A Trust Interest Certificate will consist of an undivided interest in
the Interest Portion of each of the Mortgage Assets in the related Trust. With
respect to each Series of Certificates, a Trust Interest Certificate will be
treated for federal income tax purposes as comprised of an ownership interest in
a portion of the Interest Portion of each of the Mortgage Assets (a "Stripped
Interest") separated by the Depositor from the right to receive principal
payments and the remainder, if any, of each interest payment on the underlying
Mortgage Asset. As a consequence, the Trust Interest Certificates will become
subject to the Stripped Bond Rules. Each Trust Interest Certificateholder will
be required to apply the Stripped Bond Rules to its interest in the Interest
Portion under the method prescribed by the Code, taking account of the price at
which the holder purchased the Trust Interest Certificate. The Stripped Bond
Rules generally require a holder of stripped bonds or coupon portions to accrue
and report income therefrom daily on the basis of the yield to maturity of such
stripped bonds or coupons, as determined in accordance with the provisions of
the Code dealing with original issue discount. For a discussion of the general
method of calculating original issue discount, see "REMIC Trust Funds--Taxation
of REMIC Regular Certificates--Original Issue Discount." The provisions of the
Code and the OID Regulations do not directly address the treatment of
instruments similar to Trust Interest Certificates. In reporting to Trust
Interest Certificateholders such Certificates will be treated as a single
obligation with payment corresponding to the aggregate of the payment allocable
thereto from each of the Mortgage Assets.
72
<PAGE>
Alternatively, IRS may require Trust Interest Certificateholders to
treat each scheduled payment on each Stripped Interest (or their interests in
all scheduled payments from each of the Stripped Interests) as a separate
obligation for purposes of allocating purchase price and computing original
issue discount.
The tax treatment of the Trust Interest Certificates with respect to
the application of the original issue discount provisions of the Code is
currently unclear. Each Trust Interest Certificate will be treated as a single
debt instrument issued on the day it is purchased for purposes of calculating
any original issue discount. Original issue discount with respect to a Trust
Interest Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with a constant yield method
that takes into account the compounding of interest and such accrual of income
may be in advance of the receipt of any cash attributable to such income. In
general, the rules for accruing original issue discount set forth above in
"REMIC Trust Funds--Taxation of REMIC Regular Certificates--Original Issue
Discount" apply; however, there is no authority permitting Trust Interest
Certificateholders to take into account the Prepayment Assumption in computing
original issue discount accruals. See "Prepayments" below. For purposes of
applying the original issue discount provisions of the Code, the issue price
used in reporting original issue discount with respect to a Trust Interest
Certificate will be the purchase price paid by each holder thereof and the
stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Trust Interest Certificate whether or
not denominated as interest. The amount of original issue discount with respect
to a Trust Interest Certificate may be treated as zero under the original issue
discount DE MINIMIS rules described above.
The Trustee intends in reporting information relating to original issue
discount to Certificateholders to provide such information on an aggregate
poolwide basis. Applicable law is however, unclear, and it is possible that
Certificateholders may be required to compute original issue discount either on
a loan-by-loan basis or on a payment-by-payment basis taking account of an
allocation of their basis in the Certificates among the interests in the various
mortgage loans represented by such Certificates according to their respective
fair market values. The effect of an aggregate computation for the inclusion of
original issue discount in income may be to defer the recognition of losses due
to early prepayments relative to a computation on a loan-by-loan basis. It may
not be possible to reconstruct after the fact sufficient loan-by-loan
information should the IRS require a computation on that basis.
Because the treatment of the Trust Interest Certificates under current
law and the potential application of the 1996 Contingent Debt Regulations are
both complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts received
or accrued on Trust Interest Certificates.
PREPAYMENTS. The proper treatment of interests, such as the Trust
Fractional Certificates and the Trust Interest Certificates, in debt instruments
that are subject to prepayment is unclear. The rules of Section 1272(a)(6)
described above require original issue discount to be taken into account on the
basis of a constant yield to assumed maturity and actual prepayments to any pool
of debt instruments the payments on which may be accelerated by reason of
prepayments. The manner of determining the prepayment assumption is to be
determined under Treasury regulations, but no regulations have been issued.
Trust Fractional Certificateholders and Trust Interest Certificateholders should
consult their tax advisers as to the proper reporting of income from Trust
Fractional Certificates and Trust Interest Certificates, as the case may be, in
the light of the possibility of prepayment and, with respect to the Trust
Interest Certificates, as to the possible application of the 1996 Contingent
Debt Regulations.
SALES OF TRUST CERTIFICATES. If a Certificate is sold, gain or loss
will be recognized by the holder thereof in an amount equal to the difference
between the amount realized on the sale and the Certificateholder's adjusted tax
basis in the Certificate. Such tax basis will equal the Certificateholder's cost
for the Certificate, increased by any original issue or market discount
previously included in income and decreased by any deduction previously allowed
for premium and by the amount of payments, other than payments of qualified
stated interest, previously received with respect to such Certificate. The
portion of any such gain attributable to accrued market discount not previously
included in income will be ordinary income, as will gain attributable to a
Certificate which is part of a "conversion transaction" or which the holder
elects to treat as ordinary. See "REMIC Trust Funds--Sales of
73
<PAGE>
REMIC Certificates" above. Any remaining gain or any loss will be capital gain
or loss if the Certificate was held as a capital asset except to the extent that
Code Section 582(c) applies to such gain or loss.
TRUST REPORTING. Each holder of a Trust Fractional Certificate will be
furnished with each distribution a statement setting forth the allocation of
such distribution to principal and interest. In addition, within a reasonable
time after the end of each calendar year, each holder of a Trust Certificate who
was such a holder at any time during such year, will be furnished with
information regarding the amount of servicing compensation and such other
customary factual information necessary or desirable to enable holders of Trust
Certificates to prepare their tax returns.
BACK-UP WITHHOLDING. In general, the rules described in "REMIC Trust
Funds--Back-up Withholding" will also apply to Trust Certificates.
FOREIGN CERTIFICATEHOLDERS. Payments in respect of interest or original
issue discount (including amounts attributable to servicing fees) to a
Certificateholder who is not a citizen or resident of the United States, a
corporation or other entity organized in or under the laws of the United States
or of any State thereof, or a United States estate or trust, will not generally
be subject to United States withholding tax, provided that such
Certificateholder (i) does not own, directly or indirectly, 10% or more of, and
is not a controlled foreign corporation (within the meaning of Code Section 957)
related to, each of the issuers of the Mortgages and (ii) provides required
certification as to its non-United States status under penalty of perjury. Any
withholding tax that does apply may be reduced or eliminated by an applicable
tax treaty. Notwithstanding the foregoing, if any such payments are effectively
connected with a United States trade or business conducted by the
Certificateholder, they will be subject to regular United States income tax and,
in the case of a corporation, to a possible branch profits tax, but will
ordinarily be exempt from United States withholding tax provided that applicable
documentation requirements are met.
See further the discussion of the Proposed Withholding Regulations,
under "REMIC Trust Funds--Foreign Investors in REMIC Certificates".
SECURITIES CLASSIFIED AS PARTNERSHIP INTERESTS
Certain Trust Funds may be treated as partnerships for federal income
tax purposes. In such event, the Trust Funds may issue Certificates
characterized as "Partnership Interests" as discussed in the related Prospectus
Supplement. With respect to such series of Partnership Interests, Arter &
Hadden, special counsel to the Depositor, will deliver their opinion (unless
otherwise limited in the related Prospectus Supplement) that the Trust Fund will
be characterized as a partnership and not as an association taxable as a
corporation for federal income tax purposes.
STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described herein,
potential investors should consider the state and local income tax consequences
of the acquisition, ownership, and disposition of the Certificates. State and
local 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 or locality.
For example, a REMIC Mortgage Pool or Non--REMIC Trust Fund may be
characterized as a corporation, a partnership, or some other entity for purposes
of state income tax law. Such characterization could result in entity level
income or franchise taxation of the REMIC Mortgage Pool or Trust Fund formed in,
owning mortgages or property in, or having servicing activity performed in a
state. Further, REMIC Regular Certificateholders resident in non-conforming
states may have their ownership of REMIC Regular Certificates characterized as
an interest other than debt of the REMIC such as stock or a partnership
interest. Therefore, potential investors should consult their own tax advisers
with respect to the various state and local tax consequences of an investment in
the Certificates.
74
<PAGE>
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 Plan"), are prohibited from engaging in a broad range of
transactions involving Plan assets and persons having 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 Depositor, 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 equity interest" investment
could 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 Depositor, 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 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 Transactions
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 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.
75
<PAGE>
For the exemption to apply, PTCE 83-1 requires that (i) the Depositor
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 Depositor; and (iii) the
payments made to and retained by the Depositor 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 Depositor, 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 Depositor, 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
Depositor with regard to the sale, exchange or transfer of 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 Depositor, 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.
Nevertheless, 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 be
transferable to Plans. The Prospectus Supplement for each Series will indicate
which Classes of Certificates are subject to restrictions on transfer to Plans.
76
<PAGE>
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.
LEGAL INVESTMENT MATTERS
If so 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 to 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. Institutions whose
investment activities are subject to legal investment laws and regulations or to
review by certain regulatory authorities may be subject to restrictions on
investment in certain Classes of the Certificates of a Series.
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 "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992 (the "Policy Statement") of the Federal
Financial Institution Examination Council. The Policy Statement, which has been
adopted by the Board of Governors of the Federal Reserve System, the FDIC, the
Comptroller of the Currency and the Office of Thrift Supervision, effective
February 10, 1992, and by the NCUA (with certain modifications) effective June
26, 1992, which, among other things, 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. In
addition, depository institutions and other financial institutions should
consult their regulators concerning the risk-based capital treatment of any
Certificates. Any financial institution that is subject to the jurisdiction of
the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision, the
77
<PAGE>
National Credit Union Administration or other federal or state agencies with
similar authority should review any applicable rules, guidelines and regulations
prior to purchasing the Certificates of a Series.
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 Depositor 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 Depositor 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 Depositor and
the purchasers of the Certificates of such Series.
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.
AVAILABLE INFORMATION
The Depositor has filed a registration statement with the Securities
and Exchange Commission (the "Commission") with respect to the Certificates. The
registration statement and amendments thereto and the exhibits thereto as were
as reports filed with the Commission on behalf of each Trust may 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
and electronically through the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system at the Commission's web site (http:\\www.sec.gov). The
Commission maintains computer terminals providing access to the EDGAR system at
each of the offices referred to above.
78
<PAGE>
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 Depositor 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).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with respect to each Trust 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 of such Trust 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 Depositor 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).
79
<PAGE>
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
1996 Contingent Payment Regulations............... 54
Adjustable Rate................................... 23
adjusted issue price.............................. 58
Advance........................................... 37
Advances........................................... 6
AFR............................................... 63
Agreement......................................... 11
applicable federal rate........................... 63
ARM Loans......................................... 25
Asset Proceeds Account............................. 5
backup withholding tax............................ 67
Balloon Loans..................................... 10
Bankruptcy Bond................................... 33
Beneficial Owner.................................. 12
Book-Entry Certificates........................ 9, 12
Buy-Down Loans.................................... 25
Certificate Guaranty Insurance Policy............. 31
Certificate Insurer............................... 31
Certificateholder................................. 18
Certificates................................... 3, 11
Class.......................................... 3, 11
Code........................................... 6, 54
Committee Report.................................. 54
Compound Interest Certificates.................... 19
Converted Mortgage Loan........................... 27
Cooperative Loans.................................. 4
Cooperatives....................................... 4
current value..................................... 56
Custodial Account................................. 37
daily accruals.................................... 63
daily portions.................................... 57
Delinquent Mortgage Loan.......................... 27
Depositor.......................................... 3
Depository........................................ 12
disqualified organizations........................ 65
disqualified persons.............................. 77
Distribution Date.............................. 4, 18
DOL................................................ 7
DTC............................................... 12
equity interest................................... 78
ERISA.............................................. 7
Excess inclusions................................. 63
FHLMC.............................................. 5
Financial Intermediary............................ 12
Fixed Rate........................................ 23
FNMA............................................... 5
GNMA............................................... 5
GPM Loans......................................... 25
Gross Margin...................................... 23
HELOCs............................................. 4
Home Improvement Loans............................. 4
Index............................................. 23
Interest Adjustment Date.......................... 23
Interest Portion.................................. 74
issue price....................................... 55
Junior Mortgage Loans............................. 26
Lockout Periods................................... 24
market discount................................... 59
mark-to-market regulations........................ 54
Master Servicer................................ 5, 36
Master Servicer Custodial Account................. 37
Mortgage Assets.................................... 4
Mortgage Interest Rate............................ 23
Mortgage Loans..................................... 4
Mortgage Note..................................... 23
mortgage pool..................................... 78
Mortgage Pool Insurance Policy.................... 31
Mortgaged Premises................................ 23
mortgage-related securities........................ 6
Multi-Family Loans................................. 4
Multiple Variable Rate............................ 58
non-conforming credit............................. 10
Non-U.S. Person................................... 68
objective rate.................................... 56
OID Regulations................................... 54
original issue discount........................... 55
parties in interest............................... 77
pass-through entity............................... 66
Pass-Through Rate.............................. 3, 12
Periodic Rate Cap................................. 23
Permitted Investments......................... 43, 54
Plan.............................................. 77
Plan Asset Regulations............................. 7
Pool Insurer...................................... 32
Pre-Funding Account................................ 5
Pre-Funding Agreement.............................. 5
Prepayment Assumption............................. 55
Primary Mortgage Insurance Policies............... 24
prohibited transactions........................... 66
Proposed Premium Regulations...................... 54
Proposed Withholding Regulations.................. 54
PTCE 83-1......................................... 78
qualified floating rate........................... 56
qualified mortgages............................... 54
qualified stated interest......................... 56
Rating Agency...................................... 7
Realized Loss..................................... 20
regular interests................................. 54
REMIC.............................................. 6
REMIC Certificates................................ 53
REMIC Mortgage Pool............................... 53
REMIC Provisions.................................. 53
REMIC Regular Certificate......................... 54
REMIC Regulations................................. 54
REMIC Residual Certificate........................ 54
Remittance Date................................... 37
REO Properties..................................... 5
Reserve Fund...................................... 34
residual interests................................ 54
Residual Owner.................................... 62
Retained Yield.................................... 71
Security Instrument............................... 22
Seller............................................. 3
Series............................................. 3
Servicer........................................... 5
Servicer Custodial Account........................ 37
Servicing Agreement............................... 36
Servicing of Mortgage Loans........................ 5
Single Family Loans................................ 4
Single Variable Rate.............................. 56
single-class REMIC................................ 66
SMI................................................ 3
SMMEA.............................................. 6
Special Hazard Insurance Policy................... 32
Special Hazard Insurer............................ 32
Special Servicer............................... 5, 36
Standard Hazard Insurance Policies................ 39
stated redemption price at maturity............... 55
Stripped Interest................................. 75
Stripped Mortgage Asset........................... 71
tax matters person................................ 67
Tiered REMICs..................................... 61
Trust.............................................. 3
Trust Certificates................................ 53
Trust Fractional Certificate...................... 69
Trust Fractional Certificateholder................ 70
Trust Interest Certificate........................ 69
Trust Interest Certificateholder.................. 74
Trustee............................................ 4
U.S. Person....................................... 68
United States shareholder......................... 68
Unstripped Mortgage Assets........................ 73
80
<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 .................................... $ 757,575
Printing and Engraving .................................... 250,000
Trustee's Fees .................................... 250,000
Legal Fees and Expenses .................................... 1,000,000
Blue Sky Fees and Expenses.................................... 25,000
Accountants' Fees and Expenses................................ 450,000
Rating Agency Fees .................................... 750,000
Miscellaneous Fees .................................... 267,425
-------
Total .................................... $3,500,000
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 Depositor and various
transferors of mortgage-related collateral, such transferors are obligated to
indemnify the Depositor 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 Depositor 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 January 1997 Edition).
3.1 Articles of Incorporation incorporated by reference to
Exhibit 3.1 to Registration Statement No. 333-4127.
3.2 Bylaws incorporated by reference to Exhibit 3.2 to
Registration Statement No. 333-4127.
4.1* Form of Agreement (including Forms of Certificates and
Standard Terms January 1997 Edition).
5.1* Opinion of Arter & Hadden with respect to legality.
8.1* Opinion of Arter & Hadden with respect to tax matters.
23.1* Consent of Arter & Hadden (included in its opinion
filed as Exhibit 5.1).
23.2* Consent of Arter & Hadden (included in its opinion
filed as Exhibit 8.1).
*Filed herewith.
(a) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
<PAGE>
II-1
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 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.
(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-3
<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 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Richmond, Commonwealth of Virginia, on
February 19, 1997.
SAXON ASSET SECURITIES COMPANY
By: /s/ Bradley D. Adams
--------------------
Bradley D. Adams
Assistant Vice President
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed on February 19, 1997, by
the following persons in the capacities indicated.
<PAGE>
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ Andrew I. Sirkis Principal Executive Officer and Director |
----------------------- |
Andrew I. Sirkis |
|
|
/s/ Robert Partlow Principal Financial Officer and Controller |
----------------------- |
Robert Partlow |
|
|
/s/ David L. Heavenridge Director |
----------------------- |
David L. Heavenridge |
| By: /s/ Bradley D. Adams
| ------------------------
/s/ Charles E. Coudriet Director | Bradley D. Adams
----------------------- | Attorney-in-Fact
Charles E. Coudriet |
|
|
/s/ Hayden D. McMillian Director |
----------------------- |
Hayden D. McMillian |
|
|
/s/ Bryan S. Reid Director |
----------------------- |
Bryan S. Reid |
</TABLE>
II-3
EXHIBIT 4.1
SAXON SECURITIES ASSET TRUST 1997-__
MORTGAGE LOAN ASSET BACKED CERTIFICATES
SERIES 1997-__
TRUST AGREEMENT
dated as of ________ _, 1997,
among
SAXON ASSET SECURITIES COMPANY,
as Seller
----------------------------------------
as Master Servicer, Custodian, Certificate Registrar and Paying Agent
and
--------------
as Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PRELIMINARY STATEMENT.............................................................................................1
ARTICLE I DEFINITIONS............................................................................................1
Section 1.01. Standard Terms; Section References.........................................................1
Section 1.03. Defined Terms..............................................................................2
ARTICLE II FORMATION OF TRUST; CONVEYANCE OF MORTGAGE LOANS; PRE-FUNDING ACCOUNT AND CAPITALIZED
INTEREST ACCOUNT.........................................................................................17
Section 2.01. Conveyance of Mortgage Loans..............................................................17
Section 2.02. Purchase of Subsequent Mortgage Loans.....................................................19
Section 2.03. Pre-Funding Account and Capitalized Interest Account......................................20
Section 2.04. Acceptance by the Trustee.................................................................20
ARTICLE III REMITTING TO CERTIFICATEHOLDERS.....................................................................20
Section 3.01. The Certificate Insurance Policies........................................................20
Section 3.02. Distributions.............................................................................22
Section 3.03. Reports to the Depositor..................................................................24
Section 3.04. Reports by Master Servicer................................................................25
ARTICLE IV THE CERTIFICATES.....................................................................................27
Section 4.01. The Certificates..........................................................................27
Section 4.02. Denominations.............................................................................27
Section 4.03. Interest Fund.............................................................................27
ARTICLE V MISCELLANEOUS PROVISIONS...............................................................................28
Section 6.01. Request for Opinions......................................................................28
Section 6.02. Form of Certificates......................................................................28
Section 6.03. Schedules and Exhibits....................................................................28
Section 6.04. Governing Law.............................................................................28
Section 6.05. REMIC Administration......................................................................28
Section 6.06. Master Servicer; Month-End Interest.......................................................28
Section 6.07. Trustee; Advances.........................................................................29
Schedule I: The Mortgage Loans: A. Group I Mortgage Loans
B. Group II Mortgage Loans
Schedule II: Sales Agreement and Servicing Agreements
Schedule III: Mortgage Loans for which first payment to the Trust will be after ________________
Schedule IV: Form of Subsequent Sales Agreement
Exhibit A: Form of Class A-[] Certificate
Exhibit R: Form of Class R Certificate
</TABLE>
<PAGE>
TRUST AGREEMENT
THIS TRUST AGREEMENT dated as of ________ _, 1997 (this "Agreement"), by
and among SAXON ASSET SECURITIES COMPANY, a Virginia corporation (the
"Depositor"), __________________________________, as Master Servicer, Custodian,
Certificate Registrar and Paying Agent (in such capacities, the "Master
Servicer", the "Custodian", the "Certificate Registrar" and the "Paying Agent"),
_________________________, a national banking association, as Trustee (in such
capacity, the "Trustee"), under this Agreement and the Standard Terms to Trust
Agreement (January 1997 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 the Depositor 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 Securities Asset Trust 1997-__, Mortgage
Loan Asset Backed Certificates, Series 1997-__ (the "Certificates"). The
Certificates in the aggregate evidence the entire beneficial ownership in the
Trust. The Certificates consist of the following: the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6 and 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, the Depositor, the Master
Servicer, the Custodian, the Certificate Registrar, the Paying Agent and the
Trustee agree as follows:
ARTICLE I DEFINITIONS
Section 1.01. Standard Terms; Section References
(a) The Depositor, the Master Servicer, the Custodian, the Certificate
Registrar, the Paying Agent and the Trustee acknowledge that the Standard Terms
prescribe their duties, responsibilities and obligations with respect to the
Certificates, agree to observe and perform such duties, responsibilities and
obligations to the extent they are not inconsistent with the provisions of this
Agreement and acknowledge that, except to the extent inconsistent with the
provisions of this Agreement, the Standard Terms as of the Closing Date, as
modified by Sections 1.02 and 6.07 hereof, are and shall be a part of this
Agreement to the same extent as if set forth herein in full.
(b) Unless otherwise specified herein, all references in this Agreement
to sections shall mean sections contained in this Agreement.
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. If a term defined in the Standard Terms is also
defined herein, the definition herein shall control.
"Accrual Period": With respect to the Group I Certificates and any
Distribution Date, the calendar month immediately preceding such Distribution
Date; a "calendar month" shall be deemed to be 30 days. With respect to the
Group II Certificates and any Distribution Date, the period commencing on the
immediately preceding Distribution Date (or in the case of the first
Distribution Date, the Closing Date) and ending on the day immediately preceding
the current Distribution Date. All calculations of interest on the Group I
Certificates will be made on the basis of a 360-day year assumed to consist of
twelve 30-day months and all calculations of interest on the Group II
Certificates will be made on the basis of the actual number of days elapsed in
the related Accrual Period and in a year of 360 days.
"Adjusted Pass-Through Rate": A rate equal to the sum of (a) (i) the
weighted average Pass-Through Rates of the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates in the case of Mortgage Loans in Group I or
(ii) the Class A-6 Pass-Through Rate in the case of Mortgage Loans in Group II,
plus (b) any portion of the Premium Amount (calculated as an annual rate based
on the outstanding principal amount of the Class A Certificates) then accrued
and outstanding.
"Available Funds": With respect to Group I, the Group I Available Funds
and, with respect to Group II, the Group II Available Funds.
"Available Funds Shortfall": Any of the Group I Available Funds
Shortfall or the Group II Available Funds Shortfall.
"Book-Entry Certificates": The Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5 and Class A-6 Certificates, except to the extent provided in
Section 5.03 of the Standard Terms.
"Business Day": Any day other than a Saturday, Sunday, or a day on which
the Certificate Insurer and commercial banking institutions in New York City or
the city in which the Corporate Trust Office of the Trustee or the Paying Agent
is located are authorized or obligated by law or executive order to close.
"Capitalized Interest Account": The account created and maintained with
the Paying Agent by the Trust pursuant to Section 2.03.
"Capitalized Interest Requirement": With respect to each Distribution
Date to and including the Distribution Date immediately following the end of the
Funding Period, the excess of (i) the sum of (a) the Current Interest for such
Distribution Date and (b) the Premium Amount for such Distribution Date over
(ii) the sum of the Group I Interest Funds and Group II Interest Funds for the
related Master Servicer Remittance Date.
"Certificate": Any of the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6 or Class R Certificates.
"Certificate Insurance Policies": The Group I Certificate Insurance
Policy and the Group II Certificate Insurance Policy.
"Certificate Insurer": __________________________ or any successor
thereto, as issuer of the Certificate Insurance Policies.
"Certificate Registrar": ________________________________________, a
national banking association, and its successors and assigns in such capacity.
"Class": Each of the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6 or Class R Certificates.
"Class A Certificate": Any one of the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5 or Class A-6 Certificates.
"Class A Distribution Amount": Any of the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5 or Class A-6 Distribution Amounts, respectively.
<PAGE>
"Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6
Certificates Definitions":
<TABLE>
<S> <C>
"Class A-1 "Class A-2 "Class A-3
Certificate": Any Certificate": Any Certificate": Any
Certificate designated as a Certificate designated as Certificate designated as a
"Class A-1 Certificate" on a "Class A-2 Certificate" "Class A-3 Certificate" on
the face thereof, in the on the face thereof, in the face thereof, in the
form of Exhibit A-1 hereto, the form of Exhibit A-2 form of Exhibit A-3 hereto,
representing the right to hereto, representing the representing the right to
distributions as set forth right to distributions as distributions as set forth
herein. set forth herein. herein.
"Class A-1 "Class A-2 "Class A-3
Certificate Principal Certificate Principal Certificate Principal
Balance": The Certificate Balance": The Certificate Balance": The Certificate
Principal Balance of the Principal Balance of the Principal Balance of the
Class A-1 Certificates Class A-1 Certificates Class A-1 Certificates
"Class A-1 "Class A-2 "Class A-3
Certificate Termination Certificate Termination Certificate Termination
Date": The Distribution Date": The Distribution Date": The Distribution
Date on which the Class A-1 Date on which the Class Date on which the Class A-3
Certificate Principal A-2 Certificate Principal Certificate Principal
Balance is reduced to zero. Balance is reduced to zero Balance is reduced to zero.
"Class A-1 Current "Class A-2 "Class A-3 Current
Interest": With respect to Current Interest": With Interest": With respect to
any Distribution Date, the respect to any any Distribution Date, the
aggregate amount of Distribution Date, the aggregate amount of
interest accrued on the aggregate amount of interest accrued on the
Class A-1 Certificate interest accrued on the Class A-3 Certificate
Principal Balance Class A-2 Certificate Principal Balance
immediately prior to such Principal Balance immediately prior to such
Distribution Date during immediately prior to such Distribution Date during
the related Accrual Period Distribution Date during the related Accrual Period
at the Class A-1 the related Accrual Period at the Class A-3
Pass-Through Rate plus any at the Class A-2 Pass-Through Rate plus any
Class A-1 Current Interest Pass-Through Rate plus any Class A-3 Current Interest
remaining unpaid from Class A-2 Current Interest remaining unpaid from
previous Distribution Dates. remaining unpaid from previous Distribution Dates.
previous Distribution
Dates.
"Class A-4 "Class A-5 "Class A-6
Certificate": Any Certificate": Any Certificate": Any
Certificate designated as a Certificate designated as Certificate designated as
"Class A-4 Certificate" on a "Class A-5 Certificate" a "Class A-6 Certificate"
the face thereof, in the on the face thereof, in on the face thereof, in
form of Exhibit A-4 hereto, the form of Exhibit A-5 the form of Exhibit A-6
representing the right to hereto, representing the hereto representing the
distributions as set forth right to distributions as right to distributions as
herein. set forth herein. set forth herein
.
"Class A-4 "Class A-5 "Class A-6
Certificate Principal Certificate Principal Certificate Principal
Balance": The Certificate Balance": The Certificate Balance": The Certificate
Principal Balance of the Principal Balance of the Principal Balance of the
Class A-1 Certificates Class A-1 Certificates Class A-1 Certificates
.
"Class A-4 "Class A-5 "Class A-6
Certificate Termination Certificate Termination Certificate Termination
Date": The Distribution Date": The Distribution Date": The Distribution
Date on which the Class A-4 Date on which the Class Date on which the Class
Certificate Principal A-5 Certificate Principal A-6 Certificate Principal
Balance is reduced to zero. Balance is reduced to zero. Balance is reduced to
zero.
"Class A-4 Current "Class A-5 "Class A-6
Interest": With respect to Current Interest": With Current Interest": With
any Distribution Date, the respect to any respect to any
aggregate amount of Distribution Date, the Distribution Date, the
interest accrued on the aggregate amount of aggregate amount of
Class A-4 Certificate interest accrued on the interest accrued on the
Principal Balance Class A-5 Certificate Class A-6 Certificate
immediately prior to such Principal Balance Principal Balance
Distribution Date during immediately prior to such immediately prior to such
the related Accrual Period Distribution Date during Distribution Date during
at the Class A-4 the related Accrual Period the related Accrual
Pass-Through Rate plus any at the Class A-5 Period at the Class A-6
Class A-4 Current Interest Pass-Through Rate plus any Pass-Through Rate plus
remaining unpaid from Class A-5 Current Interest any Class A-6 Current
previous Distribution Dates. remaining unpaid from Interest remaining unpaid
previous Distribution from previous
Dates. Distribution Dates.
Class A-6 Current
Interest shall not
include any Class A-6
Certificates Carryover.
</TABLE>
<TABLE>
<S> <C>
"Class A-1 "Class A-2 "Class A-3
Distribution Amount": As Distribution Amount": As Distribution Amount": As
to any Distribution Date, to any Distribution Date, to any Distribution Date,
the sum of (x) the Class the sum of (x) the Class the sum of (x) the Class
A-1 Current Interest and A-2 Current Interest and A-3 Current Interest and
(y) the Group I Principal (y) after the Class A-1 (y) after the Class A-2
Distribution Amount. Certificate Principal Certificate Principal
Amount has been reduced to Amount has been reduced to
zero, the Group I zero, the Group I Principal
Principal Distribution Distribution Amount.
Amount.
"Class A-1 "Class A-2 "Class A-3
Pass-Through Rate": _____%. Pass-Through Rate": _____%. Pass-Through Rate": _____%.
"Class A-4 "Class A-5 "Class A-6
Distribution Amount": As Distribution Amount": As Distribution Amount": As
to any Distribution Date, to any Distribution Date, to any Distribution Date,
the sum of (x) the Class the sum of (x) the Class the sum of (x) the Class
A-4 Current Interest and A-5 Current Interest and A-6 Current Interest and
(y) after the Class A-3 (y) after the Class A-4 (y) the Group II
Certificate Principal Certificate Principal Principal Distribution
Amount has been reduced to Amount has been reduced to Amount.
zero, the Group I Principal zero, the Group I
Distribution Amount. Principal Distribution
Amount.
"Class A-4 "Class A-5 "Class A-6
Pass-Through Rate": _____%. Pass-Through Rate": _____%. Pass-Through Rate": For the
initial Distribution Date, ____%
per annum. As of any Distribution
Date thereafter, the least of (x)
One Month LIBOR plus, in the case
of any Distribution Date prior to
the Initial Optional Termination
Date, 0.___% per annum, or in the
case of any Distribution Date that
occurs on or after the Initial
Optional Termination Date, plus
0.___% per annum, (y) the weighted
average of the Maximum Lifetime
Mortgage Interest Rates on the
Mortgage Loans in Group II less
0.582% per annum and (z) the Class
A-6 Available Funds Cap for such
Distribution Date.
</TABLE>
"Class A-6 Certificates Carryover": If on any Distribution Date the
Class Loans A-6 Pass-Through Rate is based upon the Class A-6 Available Funds
Cap, the in excess of (i) the amount of interest the Variable Rate Certificates
would be entitled to receive on such Distribution Date had the Class A-6
Pass-Through Rate been not calculated based on the Class A-6 Available Funds Cap
over (ii) the amount of interest such Certificates received on such Distribution
Date based on the Class A-6 Available Funds Cap, together with the unpaid
portion of any such excess from prior Distribution Dates (and interest accrued
thereon at the then applicable Pass-Through Rate, without giving effect to the
Class A-6 Available Funds Cap).
"Class A-6 Available Funds Cap": As of any Distribution Date, a per
annum rate equal to (I) the quotient of the total scheduled interest on the
Mortgage Loans in Group II during the related Due Period divided by the Class
A-6 Certificate Principal Balance less (II) _____% per annum prior to the
thirteenth Distribution Date and _____% per annum thereafter.
"Class A-6 Termination Date: _________________.
<PAGE>
"Class R Certificate": Any of those Certificates designated as a "Class
R Certificate" on the face thereof, in the form of Exhibit R hereto and
evidencing an interest designated as the "residual interest" in the Trust for
purposes of the REMIC Provisions.
"Closing Date": ________________.
"Current Interest": As of any Distribution Date, the sum of the Class
A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Current Interest,
due on the related Distribution Date.
"Custodian": ___________________________________________, a national
banking association, and its successors and assigns in such capacity..
"Cut-Off Date": As of the close of business on ________ __, 1997.
"Delinquent": A Mortgage Loan is "Delinquent" if any payment due thereon
is not made by the close of business on the last day of the Prepayment Period
immediately following the day such payment is scheduled to be due. A Mortgage
Loan is "30 days Delinquent" if such payment has not been received by the close
of business on the last day of the Prepayment Period of the month immediately
succeeding the month in which such payment was due. Similarly for "60 days
Delinquent," "90 days Delinquent" and so on.
"Distribution Date": The 25th day of each month, or the next Business
Day if such 25th day is not a Business Day, commencing _____________.
"Excess Subordinated Amount": With respect to Group I, the Group I
Excess Subordinated Amount and, with respect to Group II, the Group II Excess
Subordinated Amount.
"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.
"Funding Period": The period commencing on the Closing Date and ending
on the earlier to occur of (i) the date on which the amount on deposit in the
Pre-Funding Account (exclusive of any investment earnings) is less than
$100,000, (ii) the date on which an Event of Default occurs and (iii)
_____________.
10
Group Definitions:
"Group I": The pool of Mortgage Loans
identified in the related Schedules of Mortgage Loans
as having been assigned to Group I, including any
Group I Subsequent Mortgage Loans and Qualified
Substitute Mortgage Loans delivered in replacement
thereof.
"Group I Available Funds": With respect to
any Master Servicer Remittance Date, the sum of (i)
the Group I Interest Funds (as increased, for the
first Distribution Date by $_________, withdrawn from
the Interest Fund), (ii) the Group I Principal Funds
and (iii) the Capitalized Interest Requirement, if
any, allocated to Group I.
"Group I Available Funds Shortfall": With
respect to Group I and any Distribution Date, the
excess of (i) the Group I Distribution Amount
(calculated only with reference to clause (y) of the
definition of Group I Principal Distribution Amount
and without any Group I Subordination Increase
Amount) over (ii) the Group I Available Funds.
"Group I Certificate": Any of the Class A-1,
Class A-2, Class A-3, Class A-4 and Class A-5
Certificates.
"Group I Certificate Insurance Policy": The
certificate guaranty insurance policy (number _____)
dated ________________, issued by the Certificate
Insurer to the Trustee for the benefit of the Holders
of the Group I Certificates.
11
"Group I Certificate Principal Balance": The
sum of the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificate Principal Balances.
"Group I Current Interest": As of any
Distribution Date, the sum of the Class A-1, Class A-
2, Class A-3, Class A-4 and Class A-5 Current
Interest due on the related Distribution Date.
"Group I Deficiency Amount": As defined in
the Group I Certificate Insurance Policy.
"Group I Distribution Amount": With respect
to any Distribution Date, the sum of the Class A-1,
Class A-2, Class A-3, Class A-4 and Class A-5
Distribution Amounts.
"Group I Excess Subordinated Amount": With
respect to Group I and any Distribution Date, the
excess of (x) the Group I Subordinated Amount that
would apply to Group I on such Distribution Date
after taking into account the payment of the related
Group I Distribution Amount on such Distribution Date
(except for any distributions of the Group I
Subordination Reduction Amounts on such Distribution
Date) over (y) the Group I Specified Subordinated
Amount for such Distribution Date.
"Group I Initial Specified Subordinated
Amount": The amount specified in the Insurance
Agreement as the Group I Initial Specified
Subordinated Amount.
"Group I Insured Payment": As defined in the
Group I Certificate Insurance Policy as "Insured
Payment".
12
"Group I Interest Funds": With respect to
Group I and any Master Servicer Remittance Date, the
sum, without duplication, of (i) all scheduled
interest collected during the related Due Period less
the Group I Servicing Fee and the Group I Master
Servicing Fee, (ii) all Advances relating to interest
with respect to Group I, (iii) all Month End Interest
and (iv) Liquidation Proceeds (to the extent such
Liquidation Proceeds relate to interest) less all
Non-Recoverable Advances relating to interest and
expenses pursuant to Section 6.03 of the Standard
Terms.
"Group I Master Servicing Fee": With
reference to each Master Servicer Remittance Date, an
amount payable (or allocable) to the Master Servicer
equal to the product of one-twelfth of the Master
Servicing Fee Rate and the aggregate Scheduled
Principal Balance of the Mortgage Loans in Group I on
the first day of the Due Period preceding such Master
Servicer Remittance Date.
"Group I Master Servicing Fee Rate": 0.0__%
per annum.
"Group I Maximum Collateral Amount":
$___________.
"Group I Preference Amount": As defined in
the Group I Certificate Insurance Policy.
"Group I Original Pre-Funded Amount":
$_____________.
"Group I Pre-Funded Amount" With respect to
any Master Servicer Reporting Date, the amount
remaining on deposit in the Pre-Funding Account with
respect to Group I (exclusive of any Group I Pre-
Funding Account Earnings).
"Group I Premium Amount": With respect to any
Distribution Date, the product of (x) one-twelfth of
the Premium Percentage (as defined in the Insurance
Agreement) and (y) the Group I Certificate Principal
Balance (before taking into account any distributions
of principal to be made to the Holders of the Group I
Certificates on such Distribution Date).
"Group I Principal Distribution Amount": With
respect to the Group I Certificates and any
Distribution Date, the lesser of:
(x) the Group I Total Available Funds plus
any Group I Deficiency Amount paid by the Certificate
Insurer minus the Group I Current Interest and Group
I Premium Amount for such Distribution Date; and
(y) (i) the sum, without duplication, of:
(a) the principal portion of all
Monthly Payments on the Mortgage Loans in Group I due
during the related Due Period, to the extent actually
received by the Trustee on or prior to the related
Master Servicer Remittance Date or to the extent
advanced on or prior to the related Master Servicer
Remittance Date, and the principal portion of all
full and partial principal prepayments made by the
respective Borrowers during the related Prepayment
Period;
(b) the Scheduled Principal Balance
of each Mortgage Loan in Group I that was repurchased
during the related Prepayment Period to the extent an
amount representing such Scheduled Principal Balance
is actually received by the Trustee on or before the
related Master Servicer Remittance Date;
(c) any Substitution Shortfall
delivered in connection with a substitution of a
Mortgage Loan in Group I during the related
Prepayment Period to the extent an amount
representing such Substitution Shortfall is actually
received by the Trustee on or before the related
Master Servicer Remittance Date;
(d) all Liquidation Proceeds
actually collected by each Servicer with respect to
the Mortgage Loans in Group I during the related
Prepayment Period to the extent such Liquidation
Proceeds relate to principal and were actually
received by the Trustee on or before the related
Master Servicer Remittance Date;
(e) the amount of any Group I
Subordination Deficit;
(f) the proceeds received by the
Trustee with respect to Group I (to the extent such
amount relates to principal) on any termination of
the Trust;
(g) the amount of any Subordination
Increase Amount with respect to Group I for such
Distribution Date, to the extent of any Total Monthly
Excess Cashflow available for such purpose; and
(i) with respect to the Distribution
Date immediately following the end of the Funding
Period, the Group I Pre-Funded Amount;
minus
(ii) the amount of any Group I
Subordination Reduction Amount for such Distribution
Date.
"Group I Principal Funds": With respect to
any Master Servicer Remittance Date, the sum, without
duplication, of (i) the scheduled principal actually
collected by each Servicer with respect to Mortgage
Loans in Group I during the related Due Period or
advanced on or before such Master Servicer Remittance
Date, (ii) the prepayments collected by each Servicer
in the related Prepayment Period, (iii) the Scheduled
Principal Balance of each Mortgage Loan in Group I
that was repurchased to the extent such Scheduled
Principal Balance was actually deposited in the
Master Servicer Custodial Account on the related
Master Servicer Remittance Date, (iv) any
Substitution Shortfall delivered by the Seller in
connection with a substitution of a Mortgage Loan in
Group I to the extent such Substitution Shortfall was
actually deposited in the Master Servicer Custodial
Account on such Master Servicer Remittance Date, (v)
all Liquidation Proceeds actually collected by each
Servicer with respect to Mortgage Loans in Group I
during the related Prepayment Period (to the extent
deposited in the Master Servicer Custodial Account on
such Master Servicer Remittance Date) less all Non-
Recoverable Advances relating to principal reimbursed
during the related Due Period and (vi) with respect
to the Distribution Date immediately following the
last day of the Funding Period, the Group I Pre-
Funded Amount.
13
"Group I Reimbursement Amount": With respect
to any Distribution Date, the sum of (x)(i) all Group
I Insured Payments previously received by the Trustee
and not previously repaid to the Certificate Insurer
plus (ii) interest accrued on each such Group I
Insured Payment not previously repaid calculated at
the Late Payment Rate from the date the Trustee
received the related Group I Insured Payment to, but
not including, such Distribution Date and (y)(i) any
amounts then due and owing to the Certificate Insurer
relating to Group I under the Insurance Agreement
plus (ii) interest on such amounts at the Late
Payment Rate. The Insurance Agreement provides that
the Certificate Insurer shall notify the Trustee and
the Depositor of the amount of any Group I
Reimbursement Amount.
"Group I Servicing Fee": With respect to each
Mortgage Loan in Group I and each Remittance Date,
the product of (x) one-twelfth of the Servicing Fee
Rate and (y) aggregate Scheduled Principal Balance of
such Mortgage Loan as of the opening of business on
the first day of the Due Period preceding such
Remittance Date.
"Group I Servicing Fee Rate": With respect to
each Mortgage Loan in Group I, the fixed per annum
rate payable to the applicable Servicer of that
Mortgage Loan as set out on Schedule IA to this
Agreement or to the applicable Subsequent Sales
Agreement.
"Group I Specified Subordinated Amount": As
defined in the Insurance Agreement as the Group I
Specified Subordinated Amount.
"Group I Subordinated Amount": As of any
Distribution Date, the excess of (x) the sum of (i)
the aggregate Scheduled Principal Balances (minus the
principal portion of all Monthly Payments due but not
paid by the Borrowers as of the last day of the
related Prepayment Period) of the Mortgage Loans in
Group I as of the close of business on the last day
of the related Due Period and (ii) the Group I Pre-
Funded Amount less any Pre-Funding Account Earnings
with respect thereto over (y) the Group I Certificate
Principal Balance as of such Distribution Date (after
taking into account the payment of the Group I
Principal Distribution Amount (except for any portion
thereof related to an Insured Payment) on such
Distribution Date).
"Group I Subsequent Mortgage Loans": The
Mortgage Loans in Group I sold to the Trust pursuant
to Section 2.02 hereof, which shall be listed on the
Schedule Mortgage Loans attached to the related
Subsequent Sales Agreement.
"Group I Subordination Deficit": With respect
to Group I and any Distribution Date, the excess of
(x) the Group I Certificate Principal Balance, after
taking into account the payment of the Group I
Principal Distribution Amount on such Distribution
Date (except any payments as to principal from the
proceeds of the Group I Certificate Insurance Policy
to be made on such Distribution Date) over (y) the
sum of (i) the aggregate Scheduled Principal Balances
of the Mortgage Loans in Group I as of the close of
business on the last day of the related Due Period
and (ii) the Group I Pre-Funded Amount less any Pre-
Funding Account Earnings with respect thereto.
"Group I Subordination Deficiency Amount":
With respect to Group I and any Distribution Date,
the excess of (i) the Group I Specified Subordinated
Amount applicable to such Distribution Date over (ii)
the Group I Subordinated Amount applicable to such
Distribution Date prior to taking into account the
payment of any Group I Subordination Increase Amount
on such Distribution Date.
"Group I Subordination Increase Amount": With
respect to Group I and any Distribution Date, the
lesser of (i) the Group I Subordination Deficiency
Amount (after taking into account the payment of the
Group I Principal Distribution Amount on such
Distribution Date (except for any Group I
Subordination Increase Amount)) and (ii) the
aggregate amount of Total Monthly Excess Cashflow to
be allocated to Group I pursuant to Sections
3.02(c)(v) and (d)(vi) on such Distribution Date.
"Group I Subordination Reduction Amount":
With respect to Group I and any Distribution Date,
the lesser of (x) the Group I Excess Subordinated
Amount for such Distribution Date and (y) the Group
I Principal Distribution Amount for such Distribution
Date.
"Group I Total Available Funds": With respect
to Group I and any Distribution Date, the sum of (i)
Group I Available Funds and (ii) any amount of Group
II Total Monthly Excess Cashflow to be applied to the
Group I Certificates on such Distribution Date.
"Group I Total Available Funds Shortfall":
With respect to Group I and any Distribution Date,
the excess of (i) the sum of (a) Group I Current
Interest and (b) the Group I Subordination Deficit
over (ii) Group I Total Available Funds.
"Group I Total Monthly Excess Cashflow": With
respect to Group I and any Distribution Date, the sum
of (a) Group I Total Monthly Excess Spread and (b)
any Group I Subordination Reduction Amount.
"Group I Total Monthly Excess Spread" With
respect to Group I and any Distribution Date, the
excess of (i) the Group I Interest Funds over (ii)
the sum of (x) the Group I Current Interest and (y)
the Group I Premium Amount.
"Group II": The pool of Mortgage Loans
identified in the related Schedules of Mortgage Loans
as having been assigned to Group II, including any
Group II Subsequent Mortgage Loans and any Qualified
Substitute Mortgage Loans delivered in replacement
thereof.
"Group II Available Funds": With respect to
any Master Servicer Remittance Date, the sum of (i)
the Group II Interest Funds (as increased, for the
first Distribution Date by $__________, withdrawn
from the Interest Fund), (ii) the Group II Principal
Funds and (iii) the Capitalized Interest Requirement,
if any, allocated to Group II.
"Group II Available Funds Shortfall": With
respect to Group II and any Distribution Date, the
excess of (i) the Group II Distribution Amount
(calculated only with reference to clause (y) of the
definition of Group II Principal Distribution Amount
and without any Group II Subordination Increase
Amount) over (ii) the Group II Available Funds.
"Group II Certificate": Any of the Class A-6
Certificates.
"Group II Certificate Insurance Policy": The
certificate guaranty insurance policy (number
_______) dated ________________, issued by the
Certificate Insurer to the Trustee for the benefit of
the Holders of the Group II Certificates.
"Group II Certificate Principal Balance": The
Class A-6 Certificate Principal Balance.
"Group II Current Interest": As of any
Distribution Date, the Class A-6 Current Interest due
on the related Distribution Date.
"Group II Deficiency Amount": As defined in
the Group II Certificate Insurance Policy.
"Group II Distribution Amount": With respect
to any Distribution Date. the Class A-6 Distribution
Amount.
"Group II Excess Subordinated Amount": With
respect to Group II and any Distribution Date, the
excess of (x) the Group II Subordinated Amount that
would apply to Group II on such Distribution Date
after taking into account the payment of the related
Group II Distribution Amount on such Distribution
Date (except for any distributions of the Group II
Subordination Reduction Amounts on such Distribution
Date) over (y) the Group II Specified Subordinated
Amount for such Distribution Date.
"Group II Initial Specified Subordinated
Amount": The amount specified in the Insurance
Agreement as the Group II Initial Specified
Subordinated Amount.
"Group II Insured Payment": As defined in the
Group II Certificate Insurance Policy as "Insured
Payment".
"Group II Interest Funds": With respect to
Group II and any Master Servicer Remittance Date, the
sum, without duplication, of (i) all scheduled
interest collected during the related Due Period less
the Group II Servicing Fee and the Group II Master
Servicing Fee, (ii) all Advances relating to interest
with respect to Group II, (iii) all Month End
Interest and (iv) Liquidation Proceeds (to the extent
such Liquidation Proceeds relate to interest) less
all Non-Recoverable Advances relating to interest and
expenses pursuant to Section 6.03 of the Standard
Terms.
"Group II Master Servicing Fee": With
reference to each Master Servicer Remittance Date, an
amount payable (or allocable) to the Master Servicer
equal to the product of one-twelfth of the Master
Servicing Fee Rate and the aggregate Scheduled
Principal Balance of the Mortgage Loans in Group II
on the first day of the Due Period preceding such
Master Servicer Remittance Date.
"Group II Master Servicing Fee Rate": 0.0__%
per annum.
"Group II Maximum Collateral Amount":
$___________.
"Group II Preference Amount": As defined in
the Group II Certificate Insurance Policy.
"Group II Original Pre-Funded Amount":
$___________.
"Group II Pre-Funded Amount" With respect to
any Master Servicer Reporting Date, the amount
remaining on deposit in the Pre-Funding Account with
respect to Group II (exclusive of any Group II Pre-
Funding Account Earnings).
"Group II Premium Amount": With respect to any
Distribution Date, the product of (x) one-twelfth of
the Premium Percentage (as defined in the Insurance
Agreement) and (y) the Group II Certificate Principal
Balance (before taking into account any distributions
of principal to be made to the Holders of the Group
II Certificates on such Distribution Date).
"Group II Principal Distribution Amount":
With respect to the Group II Certificates and any
Distribution Date, the lesser of:
(x) the Group II Total Available Funds plus
any Group II Deficiency Amount paid by the
Certificate Insurer minus the Group II Current
Interest and Group II Premium Amount for such
Distribution Date; and
(y) (i) the sum, without duplication, of:
(a) the principal portion of all
Monthly Payments on the Mortgage Loans in Group II
due during the related Due Period, to the extent
actually received by the Trustee on or prior to the
related Master Servicer Remittance Date or to the
extent advanced on or prior to the related Master
Servicer Remittance Date, and the principal portion
of all full and partial principal prepayments made by
the respective Borrowers during the related
Prepayment Period;
(b) the Scheduled Principal Balance
of each Mortgage Loan in Group II that was
repurchased during the related Prepayment Period to
the extent an amount representing such Scheduled
Principal Balance is actually received by the Trustee
on or before the related Master Servicer Remittance
Date;
(c) any Substitution Shortfall
delivered in connection with a substitution of a
Mortgage Loan in Group II during the related
Prepayment Period to the extent an amount
representing such Substitution Shortfall is actually
received by the Trustee on or before the related
Master Servicer Remittance Date;
(d) all Liquidation Proceeds
actually collected by each Servicer with respect to
the Mortgage Loans in Group II during the related
Prepayment Period to the extent such Liquidation
Proceeds relate to principal and were actually
received by the Trustee on or before the related
Master Servicer Remittance Date;
(e) the amount of any Group II
Subordination Deficit;
(f) the proceeds received by the
Trustee with respect to Group II (to the extent such
amount relates to principal) on any termination of
the Trust;
(g) the amount of any Subordination
Increase Amount with respect to Group II for such
Distribution Date, to the extent of any Total Monthly
Excess Cashflow available for such purpose; and
(i) with respect to the Distribution
Date immediately following the end of the Funding
Period, the Group II Pre-Funded Amount;
minus
(ii) the amount of any Group II
Subordination Reduction Amount for such Distribution
Date.
"Group II Principal Funds": With respect to
any Master Servicer Remittance Date, the sum, without
duplication, of (i) the scheduled principal actually
collected by each Servicer with respect to Mortgage
Loans in Group II during the related Due Period or
advanced on or before such Master Servicer Remittance
Date, (ii) the prepayments collected by each Servicer
in the related Prepayment Period, (iii) the Scheduled
Principal Balance of each Mortgage Loan in Group II
that was repurchased to the extent such Scheduled
Principal Balance was actually deposited in the
Master Servicer Custodial Account on the related
Master Servicer Remittance Date, (iv) any
Substitution Shortfall delivered by the Seller in
connection with a substitution of a Mortgage Loan in
Group II to the extent such Substitution Shortfall
was actually deposited in the Master Servicer
Custodial Account on such Master Servicer Remittance
Date, (v) all Liquidation Proceeds actually collected
by each Servicer with respect to Mortgage Loans in
Group II during the related Prepayment Period (to the
extent deposited in the Master Servicer Custodial
Account on such Master Servicer Remittance Date) less
all Non-Recoverable Advances relating to principal
reimbursed during the related Due Period and (vi)
with respect to the Distribution Date immediately
following the last day of the Funding Period, the
Group II Pre-Funded Amount.
"Group II Reimbursement Amount": With respect
to any Distribution Date, the sum of (x)(i) all Group
II Insured Payments previously received by the
Trustee and not previously repaid to the Certificate
Insurer plus (ii) interest accrued on each such Group
II Insured Payment not previously repaid calculated
at the Late Payment Rate from the date the Trustee
received the related Group II Insured Payment to, but
not including, such Distribution Date and (y)(i) any
amounts then due and owing to the Certificate Insurer
relating to Group II under the Insurance Agreement
plus (ii) interest on such amounts at the Late
Payment Rate. The Insurance Agreement provides that
the Certificate Insurer shall notify the Trustee and
the Depositor of the amount of any Group II
Reimbursement Amount.
"Group II Servicing Fee": With respect to each
Mortgage Loan in Group II and each Remittance Date,
the product of (x) one-twelfth of the Servicing Fee
Rate and (y) aggregate Scheduled Principal Balance of
such Mortgage Loan as of the opening of business on
the first day of the Due Period preceding such
Remittance Date.
"Group II Servicing Fee Rate": With respect to
each Mortgage Loan in Group II, the fixed per annum
rate payable to the applicable Servicer of that
Mortgage Loan as set out on Schedule IB to this
Agreement or to the applicable Subsequent Sales
Agreement.
"Group II Specified Subordinated Amount": As
defined in the Insurance Agreement as the Group II
Specified Subordinated Amount.
"Group II Subordinated Amount": As of any
Distribution Date, the excess of (x) the sum of (i)
the aggregate Scheduled Principal Balances (minus the
principal portion of all Monthly Payments due but not
paid by the Borrowers as of the last day of the
related Prepayment Period) of the Mortgage Loans in
Group II as of the close of business on the last day
of the related Due Period and (ii) the Group II Pre-
Funded Amount less any Pre-Funding Account Earnings
with respect thereto over (y) the Group II
Certificate Principal Balance as of such Distribution
Date (after taking into account the payment of the
Group II Principal Distribution Amount (except for
any portion thereof related to an Insured Payment) on
such Distribution Date).
"Group II Subsequent Mortgage Loans": The
Mortgage Loans sold in Group II to the Trust pursuant
to Section 2.02 hereof, which shall be listed on the
Schedule Mortgage Loans attached to the related
Subsequent Sales Agreement.
"Group II Subordination Deficit" With respect
to Group II and any Distribution Date, the excess of
(x) the Group II Certificate Principal Balance, after
taking into account the payment of the Group II
Principal Distribution Amount on such Distribution
Date (except any payments as to principal from the
proceeds of the Group II Certificate Insurance Policy
to be made on such Distribution Date) over (y) the
sum of (i) the aggregate Scheduled Principal Balances
of the Mortgage Loans in Group II as of the close of
business on the last day of the related Due Period
and (ii) the Group II Pre-Funded Amount less any Pre-
Funding Account Earnings with respect thereto.
"Group II Subordination Deficiency Amount":
With respect to Group II and any Distribution Date,
the excess of (i) the Group II Specified Subordinated
Amount applicable to such Distribution Date over (ii)
the Group II Subordinated Amount applicable to such
Distribution Date prior to taking into account the
payment of any Group II Subordination Increase Amount
on such Distribution Date.
"Group II Subordination Increase Amount":
With respect to Group II and any Distribution Date,
the lesser of (i) the Group II Subordination
Deficiency Amount (after taking into account the
payment of the Group II Principal Distribution Amount
on such Distribution Date (except for any Group II
Subordination Increase Amount)) and (ii) the
aggregate amount of Total Monthly Excess Cashflow to
be allocated to Group II pursuant to Sections
3.02(c)(vi) and (d)(v) on such Distribution Date.
"Group II Subordination Reduction Amount":
With respect to Group II and any Distribution Date,
the lesser of (x) the Group II Excess Subordinated
Amount for such Distribution Date and (y) the Group
II Principal Distribution Amount for such
Distribution Date.
"Group II Total Available Funds": With respect
to Group II and any Distribution Date, the sum of (i)
Group II Available Funds and (ii) any amount of Group
I Total Monthly Excess Cashflow to be applied to the
Group II Certificates on such Distribution Date.
"Group II Total Available Funds Shortfall":
With respect to Group II and any Distribution Date,
the excess of (i) the sum of (a) Group II Current
Interest and (b) the Group II Subordination Deficit
over (ii) Group II Total Available Funds.
"Group II Total Monthly Excess Cashflow":
With respect to Group II and any Distribution Date,
the sum of (a) Group II Total Monthly Excess Spread
and (b) any Group II Subordination Reduction Amount.
"Group II Total Monthly Excess Spread": With
respect to Group II and any Distribution Date, the
excess of (i) the Group II Interest Funds over (ii)
the sum of (x) the Group II Current Interest and (y)
the Group II Premium Amount.
"Initial Capitalized Interest Amount": $__________.
"Initial Mortgage Loans": The mortgage loans listed on Schedule I to
this Agreement.
"Initial Optional Termination Date": For purposes of Section 9.02 of the
Standard Terms, the Distribution Date immediately following the Due Period on
which the aggregate Scheduled Principal Balances of the Mortgage Loans has
declined to 10% or less of the Maximum Collateral Amount.
"Insurance Agreement": The Insurance Agreement dated as of ________ _,
1997, among the Depositor, SMI, Meritech, Dominion Mortgage Services, Inc., the
Master Servicer, the Trustee and the Certificate Insurer, as it may be amended
from time to time.
"Insured Payment": A Group I Insured Payment or a Group II Insured
Payment.
"Interest Determination Date": With respect to any Accrual Period for
the Group II Certificates, the second London Business Day preceding such Accrual
Period.
"Interest Fund": The Fund created and maintained with the Paying Agent
by the Trust pursuant to Section 4.03.
"Late Payment Rate": The meaning set forth in the Insurance Agreement.
"London Business Day": A day on which banks are open for dealing in
foreign currency and exchange in London and New York City.
"Master Servicer": _________________________, a national banking
association, and its successors, in its capacity as administrative agent of
the Trust.
"Master Servicer Remittance Date": The Business Day preceding each
Distribution Date.
"Master Servicer Reporting Date": The opening of business on the third
Business Day preceding each Distribution Date.
"Master Servicing Fee": As applicable, the Group I Master Servicing
Fee or the Group II Master Servicing Fee.
"Maximum Collateral Amount": The sum of the Group I Maximum Collateral
Amount and the Group II Maximum Collateral Amount.
"Meritech": Meritech Mortgage Services, Inc., a Texas corporation.
"Moody's": Moody's Investors Service, Inc., and its successors (99
Church Street, New York, New York 10007).
"Mortgage Loan Group": Either Group I or Group II.
"Mortgage Loans": The Initial Mortgage Loans, the Subsequent Mortgage
Loans and any Qualified Substitute Mortgage Loans.
"Notice Address": For purposes of Section 11.05 of the Standard
Terms, the addresses of the Depositor, the Master Servicer and the Trustee are
as follows:
(i) If to the Depositor:
Saxon Mortgage, Inc.
4880 Cox Road
Glen Allen, Virginia 23060
(ii) If to the Master Servicer:
-------------------------
Corporate Trust Department
----------------------
-----------------------
(iii) If to the Trustee:
-------------------------
-----------------
--------------------
(iv) If to the Certificate Insurer:
--------------------------
----------------
----------------------
Attention: __________________ (Saxon 1997-__)
Tel: (___) ___-____; Fax: (___) ___-____
"One Month LIBOR": As of any Interest Determination Date, the rate for
deposits in United States dollars for one-month U.S. dollar deposits which
appears in the Telerate Page 3750, as of 11:00 a.m., (London time) on such
Interest Determination Date. If such rate does not appear on Telerate Page 3750,
the rate for that day will be determined on the basis of the rates at which
deposits in United States dollars are offered by the Reference Banks at
approximately 11:00 a.m., London time, on that day to prime banks in the London
interbank market for a period equal to the relevant Accrual Period (commencing
on the first day of such Accrual Period). The Paying Agent will request the
principal London office of each of the Reference Banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate for that day
will be the arithmetic-mean of the
<PAGE>
quotations. If fewer than two quotations are provided as requested, the rate for
that day will be the arithmetic-mean of the rates quoted by major banks in New
York City, selected by the Paying Agent, at approximately 11:00 a.m., New York
City time, on that day for loans in United States dollars to leading European
banks for a period equal to the relevant Accrual Period (commencing on the first
day of such Accrual Period). The Paying Agent shall review Telerate Page 3750 at
the required time, make the required requests to the principal offices of the
Reference Banks and selections of major banks in New York City and shall
determine the rate which constitutes One Month LIBOR for each Interest
Determination Date. The Trustee shall be entitled for a determination of One
Month LIBOR to rely on the Paying Agent.
"Overfunded Interest Amount": With respect to each Subsequent Sales
Date, the excess of (i) interest accruing from the related Subsequent Cut-Off
Date to the Distribution Date immediately following the last date on which the
Funding Period may then end on the aggregate Scheduled Principal Balances of the
Subsequent Mortgage Loans acquired by the Trust on such Subsequent Transfer
Date, calculated at a rate equal to the Net Rate on such Subsequent Mortgage
Loans over (ii) interest accruing from such Subsequent Cut-Off Date to such
Distribution Date on the aggregate Scheduled Principal Balances of the
Subsequent Mortgage Loans acquired by the Trust on such Subsequent Sales Date,
calculated at the rate at which moneys in the Pre-Funding Account are invested
as of such Subsequent Sales Date.
"Paying Agent": _________________________, a national banking
association, and its successors and assigns in such capacity.
"Preference Amount": Either of the Group I Preference Amount or the
Group II Preference Amount.
"Pre-Funded Amount": As of any Distribution Date, the sum of the Group
I Pre-Funded Amount and the Group II Pre-Funded Amount.
"Pre-Funding Account": The account created and maintained with the
Paying Agent by the Trust pursuant to Section 2.03.
"Pre-Funding Account Earnings": With respect to each Distribution Date
to and including the Distribution Date immediately following the end of the
Funding Period, the actual investment earnings during the related Prepayment
Period on the Pre-Funded Amount as calculated by the Master Servicer (based on
information supplied by the Paying Agent) pursuant to Section 2.03(c) hereof.
"Premium Amount": As to any Distribution Date, the Group I Premium
Amount and the Group II Premium Amount.
"Private Certificate": The Class R Certificates.
"Private Subordinated Certificate": The Class R Certificates.
"Rating Agency": Each of 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 the
Depositor, with the consent of the Certificate Insurer, notice of which
designation shall be given to the Trustee and the Master Servicer).
"Reference Banks" means leading banks selected by the Paying Agent and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market.
"Regular Certificates": Any of the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5 and Class A-6 Certificates which represent the "Regular
Interests" in the REMIC for purposes of the REMIC Provisions.
<PAGE>
"Reimbursement Amount": A Group I Reimbursement Amount or a Group II
Reimbursement Amount.
"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, a Division of The
McGraw-Hill Companies, Inc., and its successors (26 Broadway, New York, New
York 10004).
"Sales Agreement": The Sales Agreement dated ________ __, 1997, by and
between the Depositor and SMI regarding the sale of the Mortgage Loans.
"Servicing Agreement": The Servicing Agreements listed on Schedule II
hereto which shall be deemed to be a "Servicing Agreement" for purposes of the
Standard Terms.
"Securities Act": The Securities Act of 1933, as amended.
"Servicer": Meritech or Long Beach Mortgage Company and their
permitted successors and assigns.
"State": New York
"Subsequent Cut-Off Date": The time and date specified in a Subsequent
Sales Agreement with respect to those Subsequent Mortgage Loans which are
transferred and assigned to the Trust pursuant to the related Subsequent Sales
Agreement.
"Subsequent Mortgage Loans": The Group I Subsequent Mortgage Loans and
the Group II Subsequent Mortgage Loans.
"Subsequent Sales Agreement": Each Subsequent Sales Agreement dated as
of a Subsequent Sales Date executed by the Master Servicer, the Seller and SMI
substantially in the form of Schedule IV hereto, by which Subsequent Mortgage
Loans are sold and assigned to the Trust.
"Subsequent Sales Date": The date specified in each Subsequent Sales
Agreement which shall be a date no later than the end of the Funding Period.
"Tax Matters Person": _________________________, a national banking
association, and its successors and assigns in such capacity.
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"Total Available Funds Shortfall": As applicable, the Group I Total
Available Funds Shortfall and the Group II Total Available Funds Shortfall.
"Total Monthly Excess Cash Flow": With respect to any Distribution
Date, the sum of Group I Total Monthly Excess Cashflow and Group II Total
Monthly Excess Cashflow.
"Total Monthly Excess Spread": With respect to any Distribution
Date, the sum of the Group I Total Monthly Excess Spread and the Group II Total
Monthly Excess Spread.
"Trust Estate": As defined in Section 2.01.
<PAGE>
"Trustee": ______________, ______________________________, its
successor in interest or any successor trustee appointed in accordance with
the Trust Agreement.
"Trustee Fee": The fee payable monthly to the Trustee by the Master
Servicer.
"Underwriters": __________________________________,
____________________., _________________________________________________
and ------------------------.
"Underwriting Agreement": The Underwriting Agreement dated ________
__, 1997, among the Underwriters, the Depositor, SMI and Dominion Mortgage
Services, Inc.
ARTICLE II
FORMATION OF TRUST; CONVEYANCE OF MORTGAGE LOANS; PRE-FUNDING ACCOUNT AND
CAPITALIZED INTEREST ACCOUNTST ACCOUNT
FORMATION OF TRUST; CONVEYANCE OF MORTGAGE LOANS; PRE-FUNDING ACCOUNT AND
CAPITALIZED INTEREST ACCOUNT
Section 2.01. Conveyance of Mortgage Loans
(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, the
Depositor hereby bargains, sells, conveys, assigns and transfers to the Trustee,
in trust, without recourse and for the exclusive benefit of the
Certificateholders and the Certificate Insurer as their interests may appear,
all the Depositor's right, title and interest in and to any and all benefits
accruing to the Depositor from: (i) the Initial Mortgage Loans, which the
Depositor 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 in each case with the related Trustee Mortgage Loan Files
and the Depositor's interest in any Collateral that secured an Initial Mortgage
Loan but that is acquired by foreclosure or deed-in-lieu of foreclosure after
the Closing Date, and all Monthly Payments due after the Cut-Off Date and all
curtailments or other principal prepayments received with respect to the Initial
Mortgage Loans paid by the Borrower after the Cut-Off Date (except for any
prepayments received after the Cut-Off Date but reflected in the aggregate
Scheduled Principal Balance of the Initial Mortgage Loans as of the Cut-Off
Date) and proceeds of the conversion, voluntary or involuntary, of the
foregoing; and the Subsequent Mortgage Loans, which the Depositor causes to be
delivered to the Trustee (or the Custodian) pursuant to a Subsequent Sales
Agreement (and Qualified Substitute Mortgage Loans substituted therefor as
provided by Section 2.03 of the Standard Terms and pursuant to the terms of a
Subsequent Sales Agreement), together with the related Trustee Mortgage Loan
files and the Depositor's interest in any Collateral that secured a Subsequent
Mortgage Loan but that is acquired by foreclosure or deed-in-lieu of foreclosure
after the applicable Subsequent Sales Date, and all Monthly Payments due after
the Subsequent Cut-Off Date and all curtailments or other principal prepayments
received with respect to the Subsequent Mortgage Loans paid by the Borrower
after the applicable Subsequent Cut-Off Date (except for any prepayments
received after the applicable Subsequent Cut-Off Date but reflected in the
aggregate Scheduled Principal Balance of the Subsequent Mortgage Loans as of the
applicable Subsequent Cut-Off Date) and proceeds of the conversion, voluntary or
involuntary, of the foregoing; (ii) each Servicing Agreement; (iii) the Sales
Agreement, except that the Depositor does not assign to the Trustee any of its
rights under Sections 9 and 12 of the Sales Agreement and any Subsequent Sales
Agreement; (iv) the Asset Proceeds Account, the Capitalized Interest Account and
the Pre-Funding 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 and
the Certificate Insurer as specified herein (items (i) through (v) above,
collectively, the "Trust Estate").
<PAGE>
The Depositor hereby assigns to the Master Servicer all right, title
and interest of the Depositor 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 and the Certificate Insurer,
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 Meritech, 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 paragraphs, 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
and the Certificate Insurer may be adequately and effectively protected in
accordance with the terms and conditions of this Agreement.
(b) The Trustee acknowledges receipt of the Certificate Insurance
Policies and agrees that it will hold the Certificate Insurance Policies in
trust and that it will hold any proceeds of any claim made upon such Certificate
Insurance Policies solely for the use and benefit of the Holders of the Class A
Certificates in accordance with the terms of the Trust Agreement and of such
Policies.
Section 2.02. Purchase of Subsequent Mortgage Loans.
(a) Subject to the satisfaction of the conditions set forth in
paragraph (b) below in consideration of the delivery on a Subsequent Sales Date
to or upon the order of the Seller of all or a portion of Group I Pre-Funded
Amount or the Group II Pre-Funded Amount, as the case may be, the Seller shall
on such Subsequent Sales Date sell, transfer, assign, set over and otherwise
convey without recourse, to the Trust, and the Trustee shall purchase on behalf
of the Trust, all the Seller's right, title and interest in and to the
Subsequent Mortgage Loans, together with the related Trustee Mortgage Loan
Files, covered by the Subsequent Sales Agreement delivered on such date.
(b) The obligation of the Trust to acquire Subsequent Mortgage Loans is
subject to the satisfaction of each of the following conditions on or prior to
the related Subsequent Sales Date:
(i) the Seller shall have delivered to the Trustee with a copy
to the Master Servicer a duly executed written Subsequent Sales
Agreement in substantially the form of Schedule VI hereto, which shall
include a Schedule of Subsequent Mortgage Loans, listing separately the
Group I Subsequent Mortgage Loans and Group II Subsequent Loans and
specifying the amount to be withdrawn from the Group I Pre-Funded
Amount and the amount to be withdrawn from the Group II Pre-Funded
Amount and shall have delivered notice of such proposed transfer to the
Certificate Insurer at least five days prior to the Subsequent Sales
Date;
(ii) the original term to maturity of each Subsequent
Mortgage Loan may not exceed 30 years;
(iii) the Seller shall have provided the Master Servicer, the
Trustee and the Certificate Insurer any information reasonably
requested by any of them with respect to the Subsequent Mortgage Loans
then to be sold to the Trust;
<PAGE>
(iv) the Seller shall have delivered to the Master Servicer
for deposit in the Master Servicer Custodial Account all principal and
interest due in respect of such Subsequent Mortgage Loans after the
related Subsequent Cut-Off Date;
(v) as of each Subsequent Sales Date, neither the Seller
nor SMI shall be insolvent, nor will either of them be made insolvent
by such transfer;
(vi) the Funding Period shall not have ended; and
(vii) the Certificate Insurer shall have consented.
(c) On each Subsequent Sales Date and on the Master Servicer Reporting
Date immediately following the end of the Funding Period, the Master Servicer
shall determine: (i) the amount and correct disposition of the Pre-Funded Amount
(and the portion thereof to be allocated to Group I Available Funds and the
portion thereof to be allocated to Group II Available Funds), and the amount
remaining in the Capitalized Interest Account and (ii) any other necessary
matters in connection with the administration of the Pre-Funded Account and the
Capitalized Interest Account. With respect to each Subsequent Sales Date the
Master Servicer shall determine the Overfunded Interest Amount. If any amounts
are released as a result of an error in calculation to the Holders or the Seller
from the Pre-Funding Account or from the Capitalized Interest Account, the
Seller shall immediately repay such amounts to the Master Servicer or, in the
case of the Holders, the Master Servicer shall have the right to cause the
Paying Agent to withhold such amounts from future distributions on such
Certificates for redeposit in the Pre-Funding Account or Capitalized Interest
Account, as the case may be.
Section 2.03. Pre-Funding Account and Capitalized Interest Account.
(a) The Trustee shall establish and maintain with the Paying Agent the
Pre-Funding and the Capitalized Interest Account, each to be held in trust for
the benefit of the Certificateholders and the Certificate Insurer. Each of the
Pre-Funding Account and the Capitalized Interest Account shall be an Eligible
Account. On the Closing Date, the Depositor will cause to be deposited in the
Pre-Funding Account the Group I Original Pre-Funded Amount and the Group II
Original Pre-Funded Amount and in the Capitalized Interest Account the Initial
Capitalized Interest Amount.
(b) On any Subsequent Sales Date, the Seller shall instruct the Paying
Agent, with a copy to the Master Servicer, (i) to withdraw from the Group I
Pre-Funded Amount in the Pre-Funding Account an amount equal to 100% of the
aggregate Scheduled Principal Balances of the Group I Subsequent Mortgage Loans
as of the applicable Subsequent Cut-Off Date sold to the Trust on such
Subsequent Sales Date; (ii) to withdraw from the Group II Pre-Funded Amount in
the Pre-Funding Account an amount equal to 100% of the aggregate Scheduled
Principal Balances of the Group II Subsequent Mortgage Loans as of the
applicable Subsequent Cut-Off Date sold to the Trust on such Subsequent Sales
Date; and (iii) to pay such amounts to or upon the order of the Seller upon
satisfaction of the conditions set forth in Section 2.02(b) hereof with respect
thereto. In no event shall the Paying Agent withdraw from the Pre-Funding
Account an amount in excess of the Group I Original Pre-Funded Amount with
respect to Group I Mortgage Loans or an amount in excess of the Group II
Original Pre-Funded Amount with respect to Group II Mortgage Loans.
(c) On each Master Servicer Remittance Date to and including the
Distribution Date immediately following the end of the Funding Period, the
Master Servicer shall instruct the Paying Agent to transfer: (i) to the
Capitalized Interest Account from the Pre-Funding Account, the Pre-Funding
Account Earnings; and (ii) to the Asset Proceeds Account from the Capitalized
Interest Account, the Capitalized Interest Requirement.
(d) On each Subsequent Sales Date the Master Servicer shall instruct
the Paying Agent to distribute the Overfunded Interest Amount, if any, to SMI.
At the end of the Funding Period, all amounts, if any, remaining
<PAGE>
in the Capitalized Interest Account shall be transferred to the Seller and the
Capitalized Interest Account shall be closed.
(e) On the Master Servicer Remittance Date immediately following the
end of the Funding Period, the Master Servicer shall instruct the Paying Agent
to transfer the Pre-Funded Amount to the Asset Proceeds Account for distribution
to the Holders of the Class A Certificates in accordance with Section 3.02
hereof.
(f) The Pre-Funding Account and the Capitalized Interest Account shall
not be assets of the REMIC.
Section 2.04. 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 and the Certificate Insurer.
ARTICLE III
REMITTING TO CERTIFICATEHOLDERS
Section 3.01. The Certificate Insurance Policies. (a) Three Business
Days prior to each Distribution Date the Master Servicer shall
determine:
(i) The Group I Available Funds, the Group I Total Available Funds
and, if applicable, the Group I Total Available Funds Shortfall; and
(ii) The Group II Available Funds, the Group II Total Available Funds
and, if applicable, the Group II Total Available Funds Shortfall.
(b) (i) If there will be a Deficiency Amount (as defined in the Group I
Certificate Insurance Policy or the Group II Certificate Insurance
Policy) for any Distribution Date, the Master Servicer shall before
9:00 a.m., New York City time, two Business Days prior to such
Distribution Date, advise the Trustee.
(ii) If the Trustee receives notice from the Master Servicer that
there will be a Deficiency Amount (as defined in the appropriate
Certificate Insurance Policy) for such Distribution Date, the Trustee
shall complete a notice in the form of Exhibit A to the appropriate
Certificate Insurance Policy (a "Notice") and submit such Notice to the
Certificate Insurer or its agent, as set forth in the appropriate
Certificate Insurance Policy, not later than 12:00 noon, New York City
time, on the second Business Day preceding such Distribution Date as a
claim for an Insured Payment in an amount equal to such Deficiency
Amount.
(iii) The Trustee (or the Paying Agent on behalf of the Trustee)
shall (i) receive as attorney-in-fact of each Class A Certificateholder
any Insured Payment from the Certificate Insurer or on behalf of the
Certificate Insurer and (ii) disburse such Insured Payment as Group I
Total Available Funds or Group II Total Available Funds, as
appropriate, would be distributed with respect to amounts included in
such Insured Payment as set forth in Section 3.02 hereof for the
benefit of the related Class A Certificateholders. Any Insured Payment
received by the Trustee (or the Paying Agent on behalf of the Trustee)
shall be held by the Trustee (or the Paying Agent on behalf of the
Trustee) uninvested. Insured Payments disbursed by the Trustee (or the
Paying Agent on behalf of the Trustee) from proceeds of a Certificate
Insurance Policy shall not be considered payment by the Trust with
respect to the Certificates, nor shall such payments discharge the
obligation of the Trust with respect to such Class A Certificates,
<PAGE>
and the Certificate Insurer shall become the owner of such unpaid
amounts due from the Trust in respect of such Insured Payments as the
deemed assignee and subrogee of such Class A Certificateholders and
shall be entitled to receive the Reimbursement Amount in respect
thereof. Each of the Trustee and the Paying Agent hereby agree on
behalf of each Certificateholder for the benefit of the Certificate
Insurer that, to the extent the Certificate Insurer makes Insured
Payments for the benefit of the Class A Certificateholders, the
Certificate Insurer will be entitled to receive the related
Reimbursement Amount in accordance with the priority of distributions
set forth in Section 3.02 hereof.
(iv) The Trustee (or the Paying Agent on behalf of the
Trustee) shall keep a complete and accurate record of the amount of
interest and principal paid in respect of any Class A Certificates from
moneys received under a Certificate Insurance Policy. The Certificate
Insurer shall have the right to inspect such records at reasonable
times during normal business hours upon one Business Day's prior
written notice to the Trustee (or the Paying Agent on behalf of the
Trustee). If the Certificate Insurer has paid the entire outstanding
Certificate Principal Balance of a Class A Certificate, the Certificate
Registrar shall re-register such Class A Certificate in the name of the
Certificate Insurer.
(v) Each of the Trustee and the Paying Agent shall promptly
notify the Certificate Insurer of any proceeding or the institution of
any action, of which an Officer of the Paying Agent or the Trustee,
respectively, has actual knowledge, which has or is likely to give rise
to a Preference Amount in respect of any distribution made on the
Certificates. Each Class A Certificateholder that pays any Preference
Amount on account of a Class A Certificate will be entitled to receive
reimbursement for such Preference Amount from the Certificate Insurer
in accordance with the terms of the related Certificate Insurance
Policy. Each Class A Certificateholder, by its purchase of Class A
Certificates, and each of the Trustee and the Paying Agent hereby agree
that, the Certificate Insurer (so long as no Certificate Insurer
Default exists) may at any time during the continuation of any
proceeding relating to a Preference Amount direct all matters relating
to such Preference Amount, including, without limitation, (i) the
direction of any appeal of any order relating to such Preference Amount
and (ii) the posting of any surety, supersedes or performance bond
pending any such appeal. In addition and without limitation of the
foregoing, the Certificate Insurer shall be subrogated to the rights of
the Trustee and each Class A Certificateholder, including, without
limitation, all rights of any party to any adversary proceeding action
with respect to any court order issued in connection with any such
Preference Amount.
(vi) Each Class A Certificateholder, by its purchase of any
Class A Certificate, and each of the Trustee and the Paying Agent
hereby agree that, unless a Certificate Insurer Default exists, the
Certificate Insurer shall have the right to direct all matters relating
to the Class A Certificates in any proceeding in a bankruptcy of the
Trust, including without limitation any proceeding relating to a
premium claim, any appeal of any order relating to a premium claim and
the posting of any surety or bond pending any such appeal.
Section 3.02. Distributions. On each Distribution Date, the Trustee (or
the Paying Agent on behalf of Trustee) shall make the following allocations,
disbursements and transfers with respect to amounts deposited in the Asset
Proceeds Account for each Mortgage Loan Group in the following order of
priority, and each such allocation, transfer and disbursement shall be treated
as having occurred only after all preceding allocations, transfers and
disbursements have occurred:
(a) On each Distribution Date, prior to any distributions
provided for in this Section 3.02, the Trustee (or the Paying Agent on
behalf of the Trustee) shall withdraw from the Group I Available Funds
and Group II Available Funds, for distribution to the Certificate
Insurer, the Group I Premium Amount and Group II Premium Amount,
respectively.
(b) On each Distribution Date, the Trustee (or the Paying
Agent on behalf of the Trustee) shall distribute:
<PAGE>
(i) to the Class A-1, Class A-2, Class A-3, Class A-4
and Class A-5 Certificates, respectively, from the Group I
Total Available Funds, the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Current Interest; and
(ii) to the Class A-6 Certificates, from the Group II
Total Available Funds, Class A-6 Current Interest (in each
case after giving effect to the withdrawals described in
clause (a) above).
Following such distribution, the Trustee (or the Paying Agent
on behalf of the Trustee) shall distribute, in reduction of the related
Certificate Principal Balances:
(i) from remaining Group I Total Available Funds, the
Group I Principal Distribution Amount to the Group I
Certificates until the Certificate Principal Balances of the
Group I Certificates have been reduced to zero; provided
however, that amounts in respect of the Group I Principal
Distribution Amount shall be distributed sequentially to the
Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates so that no such distribution shall be made to any
such Class until the Certificate Principal Balances of all
prior Classes shall have been reduced to zero; and
(ii) from remaining Group II Total Available Funds,
to the Class A-6 Certificates, the Group II Principal
Distribution Amount until the Class A-6 Certificate Principal
Balance shall have been reduced to zero.
(c) On each Distribution Date, Group I Total Monthly Excess
Cashflow (in the cases of clauses (i) and (ii) below, by allocation as
part of Group I Total Available Funds in clause (b) above) shall be
distributed in the following order of priority:
(i) to the Group I Certificates, in respect of any Group
I Available Funds Shortfall on such Certificates;
(ii) to the Group II Certificates, in respect of any Group
II Available Funds Shortfall on such Certificates;
(iii) to the Certificate Insurer, in respect of any Group I
Reimbursement Amount on such Distribution Date;
(iv) to the Certificate Insurer, in respect of any Group
II Reimbursement Amount on such Distribution Date;
(v) to the Group I Certificates, applied as a part of the
Group I Principal Distribution Amount for such Distribution
Date, any Group I Subordination Increase Amount for such
Distribution Date;
(vi) to the Group II Certificates, applied as a part
of the Group II Principal Distribution Amount for such
Distribution Date, any Group II Subordination Increase Amount
for such Distribution Date; and
(vii) to the Class R Certificates, the balance of Group I
Total Monthly Excess Cashflow for such Distribution Date,
<PAGE>
(d) On each Distribution Date, Group II Total Monthly Excess
Cashflow (in the cases of clauses (i) and (ii) below, by allocation as
part of Group II Total Available Funds in clause (b) above) shall be
distributed in the following order of priority:
(i) to the Group II Certificates, in respect of any Group
II Available Funds Shortfall on such Certificates;
(ii) to the Group I Certificates, in respect of any Group I
Available Funds Shortfall on such Certificates;
(iii) to the Certificate Insurer, in respect of any Group II
Reimbursement Amount on such Distribution Date;
(iv) to the Certificate Insurer, in respect of any Group I
Reimbursement Amount on such Distribution Date;
(v) to the Group II Certificates, applied as a part of the
Group II Principal Distribution Amount for such Distribution
Date, any Group II Subordination Increase Amount for such
Distribution Date;
(vi) to the Group I Certificates, applied as a part of the
Group I Principal Distribution Amount for such Distribution
Date, any Group II Subordination Increase Amount for such
Distribution Date;
(vii) to the Group II Certificates, in respect of any Class
A-6 Certificates Carryover; and
(viii) to the Class R Certificates, the balance of Group II
Total Monthly Excess Cashflow for such Distribution Date.
Section 3.03. Reports to the Depositor. On or before the Business Day
preceding each Distribution Date, the Master Servicer shall notify the Depositor
and the Certificate Insurer of the following information with respect to the
next Distribution Date (which notification may be given by facsimile, or by
telephone promptly confirmed in writing):
(a) the aggregate amount then on deposit in the Asset
Proceeds Account and the source thereof (identified as interest,
scheduled principal or unscheduled principal);
(b) the Class A Distribution Amount (broken down into
principal and interest), with respect to each Class individually, and
all Classes in the aggregate, on the next Distribution Date;
(c) the amount of any Group I Subordination Increase Amount
or Group II Subordination Increase Amount;
(d) the amount of any Insured Payment to be made by the
Certificate Insurer on such Distribution Date;
(e) the application of the amounts described in clauses (a),
(b) and (d) preceding to the allocation and distribution of the related
Class A Distribution Amounts on such Distribution Date in accordance
with Section 3.02 hereof;
<PAGE>
(f) the Certificate Principal Balance of each Class of Class A
Certificates, the aggregate amount of the principal of each Class of
the Class A Certificates to be paid on such Distribution Date and the
remaining Certificate Principal Balance of each Class of Class A
Certificates following any such payment;
(g) the Group I Available Funds, the Group I Total Available
Funds and, if applicable, the Group I Total Available Funds
Shortfall;
(h) the Group I Reimbursement Amount;
(i) the Group II Available Funds, the Group II Total Available
Funds and, if applicable, the Group II Total Available Funds
Shortfall.
(j) the Group II Reimbursement Amount;
(k) the amount, if any, of any Realized Losses for the related
Prepayment Period;
(l) the amount of any Group I Subordination Reduction Amount
or Group II Subordination Reduction Amount;
(m) whether the Servicer Termination Test has been satisfied
stating separately each component thereof and a computation of the
Group I Specified Subordination Amount and Group II Specified
Subordination Amount and stating the provision of the definition
thereof relied upon in such computation and the reason therefor; and
(n) for each Distribution Date during the Funding Period, (i)
the Group I Pre-Funded Amount and the Group II Pre-Funded Amount
previously used to acquire Subsequent Mortgage Loans, (ii) the Group I
Pre-Funded Account Earnings and the Group II Pre-Funded Account
Earnings transferred to the Asset Proceeds Account, (iii) the Group I
Capitalized Interest Requirement and the Group II Capitalized Interest
Requirement transferred to the Asset Proceeds Account; and (iv) the
Group I Pre-Funded Amount and the Group II Pre-Funded Amount; and for
the Distribution Date following the end of the Funding Period, the
Group I Pre-Funded Amount distributed as a part of a Group I Principal
Distribution and the Group II Pre-Funded Amount distributed as a part
of a Group II Principal Distribution Amount.
Section 3.04. Reports by Master Servicer.
(a) On each Distribution Date the Master Servicer shall report in
writing to the Depositor (in hard copy), each Holder of a Class A Certificate,
the Certificate Insurer, the Underwriters and the Trustee and their designees
(designated in writing to the Master Servicer) and the Rating Agencies:
(i) the amount of the distribution with respect to
each Class of Class A Certificates (based on a Class A
Certificate in the original principal amount of $1,000);
(ii) the amount of such distributions allocable to
principal, separately identifying the aggregate amount of any
prepayments or other recoveries of principal included therein,
and any Subordination Increase Amount with respect to the
related Mortgage Loan Group (based on a Class A Certificate in
the original principal amount of $1,000);
(iii) the amount of such distributions allocable to
interest (based on a Class A Certificate in the original
principal amount of $1,000);
<PAGE>
(iv) if the distribution with respect to any Class of
the Class A Certificates on such Distribution Date was less
than the related Class A Distribution Amount on such
Distribution Date, the allocation thereof to the related
Classes of the Class A Certificates resulting therefrom;
(v) the amount of any Insured Payment included in
the amounts distributed to the Class A Certificates on such
Distribution Date;
(vi) the Certificate Principal Balance of each Class
of Class A Certificates and the aggregate Scheduled Principal
Balance of each Group, in each case after giving effect to any
Class A Principal Distribution on such Distribution Date;
(vii) the Subordinated Amount or Subordination
Deficit, if any, for each Group remaining after giving effect
to all distributions and transfers on such Distribution Date;
(viii) the total of any Substitution Shortfalls and
any repurchase amounts included in such distribution with
respect to each Group;
(ix) the weighted average Net Rate of the Mortgage
Loans with respect to each Group;
(x) such other information as the Certificate
Insurer may reasonably request with respect to
Delinquent Mortgage Loans;
(xi) the largest Mortgage Loan balance outstanding
in each Group;
(xii) the Servicing Fees, Master Servicing Fees and
Premium Amount allocable to each Group;
(xiii) One-Month LIBOR on the most recent Interest
Determination Date;
(xiv) the Pass-through Rates for the Class A-6
Certificates for the Current Accrual Period; and
(xv) for each Distribution Date during the Funding
Period, the Pre-Funded Amount allocable to each
Group.
(b) In addition, on each Distribution Date the Master Servicer will
distribute to the Depositor, each Holder, the Certificate Insurer, the
Underwriters and the Rating Agencies and the Trustee, together with the
information described in subsection (a) preceding, the following information
with respect to each Mortgage Loan Group in hard copy:
(i) the number and aggregate principal balances of Mortgage
Loans in each Group (a) 30-59 days Delinquent, (b) 60-89 days
Delinquent and (c) 90 or more days Delinquent, as of the close of
business as of the end of the related Prepayment Period.
(ii) the percentage that each of the Scheduled Principal
Balances set forth pursuant to clauses (a), (b) and (c) of paragraph
(i) above represent with respect to all Mortgage Loans in each Group;
(iii) the number and Scheduled Principal Balance of all
Mortgage Loans in each Group in foreclosure proceedings as of the close
of business as of the end of the related Prepayment Period and in the
immediately preceding Prepayment Period;
<PAGE>
(iv) the number of Mortgagors and the Scheduled Principal
Balances of Mortgage Loans in each Group involved in bankruptcy
proceedings as of the close of business as of the end of the related
Prepayment Period;
(v) the aggregate number and aggregate book value of any REO
Property in each Group as of the close of business as of the end of the
related Prepayment Period;
(vi) the 60+ Delinquency Percentage and the number and amount by
principal balance of 60 Day Delinquent Loans in each Group (as defined
in the Servicer Termination Test), in each case by Servicer and as of
the end of the related Prepayment Period.
(c) On each Distribution Date, the Master Servicer shall deliver to the
Certificate Insurer a list of all Mortgage Loans Delinquent 90 or more days
(including the Borrower's name, principal balance and the Loan to Value Ratio of
each such Mortgage Loan).
ARTICLE IV
THE CERTIFICATES
Section 4.01. The Certificates.
The Certificates shall be designated generally as the Mortgage Loan
Asset Backed Certificates, Series 1997-__. 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:
Initial Final Scheduled
Class Pass-Through Rate Certificate Distribution Date
Principal
Balance
A-1 _____%. $__________ _____________
A-2 _____%. __________ _________________
A-3 _____%. __________ __________________
A-4 _____% __________ _____________
A-5 _____% __________ _____________
A-6 (1) ___________ _________________
R (2) (2)
(1) As calculated for each Distribution Date based on the definition of
Class A-6 Interest Rate.
(2) 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. The Holders of a majority of the Percentage
Interests of the Class R Certificates shall have the rights to
terminate the Trust as provided in Section 9.02 of the Standard Terms.
<PAGE>
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 $1,000 and integral multiples of $1,000 in
excess thereof. The Class R Certificates shall be issued in certificated,
fully-registered form 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. Interest Fund.
An Interest Fund shall be established by the Trustee (or the Paying
Agent on behalf of the Trustee). The Interest Fund shall initially consist of
cash in the amount of $____________ (of which $_________ is allocated to Group I
and $__________ is allocated to Group II). The Interest Fund shall be an
Eligible Account and, as soon as practicable after the Closing Date, the Trustee
(or the Paying Agent on behalf of 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 _____________, Distribution
Date, the Trustee (or the Paying Agent on behalf of 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 the Depositor on
_______________. The Interest Fund shall not be an asset of the REMIC. Any
earnings on the Interest Fund shall be payable on such date to Meritech.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Request for Opinions.
(a) The Depositor hereby requests and authorizes Arter & Hadden, as its
counsel in this transaction, to issue on behalf of the Depositor such legal
opinions to the Trustee, the Master Servicer, the Certificate Insurer 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, the Master Servicer, the Certificate Insurer, any Rating Agency or
their respective counsels.
(b) The Trustee and the Master Servicer hereby request and authorize
their respective counsel to issue on behalf of the Trustee and the Master
Servicer such legal opinions to the Depositor, the Master Servicer, the Trustee,
the Certificate Insurer 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 A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6
Certificates shall be substantially in the respective forms set forth in Exhibit
A 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.
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.
<PAGE>
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
New York, without regard to any conflicts of laws principles thereof.
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.
Section 5.06. Master Servicer; Month-End Interest.
_________________________ is hereby appointed (a) as administrative agent of the
Trust to perform the duties and responsibilities of the Master Servicer
hereunder, (b) Custodian, (c) Certificate Registrar and (d) Paying Agent.
Notwithstanding anything in the Trust Agreement to the contrary, the Trustee
shall be obligated to pay Month-End Interest under any circumstance, including
without limitation, the failure of a Servicer to do so.
Section 5.07. Trustee; Advances. Sections 3.04(c) and (d) of the
Standard Terms (relating to the Trustee's obligation to make Advances) are
deleted in their entirety and references to "or the Trustee" in Section 3.04(e)
of the Standard Terms and to "and Trustee" in the heading of Section 3.04 of the
Standard Terms are deleted. The Trustee shall not be obligated to make Advances.
IN WITNESS WHEREOF, the Depositor, the Master Servicer, the Certificate
Registrar, the Paying Agent, the Custodian 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 _________,
1997.
SAXON ASSET SECURITIES COMPANY
By: ____________________________________
________________, Vice President
----------------------------------------
as Master Servicer, Custodian, Certificate
Registrar and Paying Agent
By: __________________________________________
_____________, Vice President
--------------
not in its individual capacity but solely as
trustee under the Trust Agreement
By: _________________________________
_______________, Vice President
<PAGE>
COMMONWEALTH OF VIRGINIA )
) ss.:
CITY OF RICHMOND )
The foregoing instrument was acknowledged before me ________________, by
________________, a Vice President of Saxon Asset Securities Company, a Virginia
corporation, on behalf of the corporation.
-----------------------------------
Notary Public
My Commission expires:
29
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
The foregoing instrument was acknowledged before me on
________________, by ______________, a Vice President of
_________________________, a national banking association, on behalf of the
bank.
-----------------------------------
Notary Public
My Commission expires:
30
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this ____day of
December, 1996, by Denise Banaszek, a Vice President of
_________________________, a national banking association, on behalf of the
bank.
------------------------------------
Notary Public
My Commission expires:
31
<PAGE>
Schedule I
Mortgage Loans
A. Group I Mortgage Loans.
B. Group II Mortgage Loans.
32
<PAGE>
Schedule II
Sales Agreement
33
<PAGE>
Schedule III
Mortgage Loans for which first payment to the Trust will
be after ______________________
34
<PAGE>
Schedule IV
Form of Subsequent Sales Agreement
Subsequent Sales Agreement made on 199 , by Saxon Mortgage, Inc., a
Virginia corporation (the "SMI"), Saxon Asset Securities Company, a Virginia
corporation (the "Depositor"), and _________________________ as Master Servicer,
the Certificate Registrar, the Paying Agent and the Custodian under the Trust
Agreement referred to below (the "Master Servicer") on behalf of the Trust
referred to below.
WHEREAS, SMI and the Depositor are parties to a Sales Agreement dated
________ __, 1997 (the "Sales Agreement"), with respect to the sale by SMI and
purchase by the Depositor of certain mortgage loans;
WHEREAS, the Depositor has transferred the mortgage loans covered by
the Sales Agreement and certain other assets to Saxon Securities Asset Trust
1997-__ (the "Trust") established pursuant to the Trust Agreement dated as of
________ _, 1997 (the "Trust Agreement"), among the Depositor,
_________________________ (the "Trustee") and the Master Servicer;
WHEREAS, the Trust Agreement contemplates that SMI will transfer
additional mortgage loans to the Depositor and that the Depositor will transfer
such mortgage loans to the Trust;
NOW THEREFORE, SMI, for and in consideration of an amount equal to the
aggregate Scheduled Principal Balance of the Mortgage Loans identified on
Schedules IA and IB hereto (the "Subsequent Mortgage Loans") hereto paid to it
by the Trust upon the order of the Depositor, and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, does hereby
bargain, sell, convey, assign and transfer to the Depositor, without recourse,
free and clear of any liens, claims or other encumbrances, all its right, title
and interest in and to each of the Subsequent Mortgage Loans, together with the
Mortgage Loan Documents and other documents maintained as part of the related
Trustee Mortgage Loan Files and $ constituting all payments thereon and proceeds
of the conversion, voluntary or involuntary of the foregoing on and after , 199
_ (the "Subsequent Cut-Off Date").
SMI hereby acknowledges receipt of the amount set forth above, which
constitutes the Purchase Price for the Subsequent Mortgage Loans.
SMI makes, with respect to the Subsequent Mortgage Loans, the
representations and warranties set forth in Exhibit B to the Sales Agreement and
represents and warrants that that all conditions set forth in Section 2.02 of
the Trust Agreement have been met.
Since the date of the Sales Agreement, no event has occurred which,
with notice or the passage of time, would constitute a default under the Sales
Agreement, and 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 Seller.
Unless otherwise defined herein, capitalized terms used in this
Subsequent Sales Agreement shall have the meanings assigned to them in the Sales
Agreement, or if not assigned in the Sales Agreement, the Trust Agreement.
The Depositor hereby acknowledges receipt from SMI of the Subsequent
Mortgage Loans, subject to its right of inspection set forth in Section 3 of the
Sales Agreement, pursuant to the Trust Agreement confirms the assignment of the
Subsequent Mortgage Loans to the Trust, and acknowledges that the Trust has paid
the Purchase Price for the Subsequent Mortgage Loans upon the order of the
Depositor.
35
<PAGE>
The Custodian, on behalf of the Trust, acknowledges receipt from the
Depositor of the Subsequent Mortgage Loans together with the Mortgage Loan
Documents and other documents maintained as part of the related Trustee Mortgage
Loan Files and has directed the Paying Agent to withdraw $_______ from the Group
I Pre-Funded Amount and $________ from the Group II Pre-Funded Amount.
IN WITNESS WHEREOF, the Depositor, SMI and _________________________,
as the Master Servicer, the Certificate Registrar, the Paying Agent and the
Custodian, have caused this Subsequent Sales Agreement to be executed and
delivered by its respective officer thereunto duly authorized as of the date
above written.
SAXON ASSET SECURITIES COMPANY
By: ____________________________________
________________, Vice President
SAXON MORTGAGE, INC.
By: __________________________
----------------------------------------
as Master Servicer, Custodian, Certificate
Registrar and Paying Agent
By: __________________________________________
____________________, Vice President
36
<PAGE>
Exhibit A-1
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 TRUST 1997-__
MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 1997-__
CLASS A-[] CERTIFICATE
THE PRINCIPAL OF THIS CLASS A-[] 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 A-[] CERTIFICATE REPRESENTS A REMIC REGULAR INTEREST FOR FEDERAL
INCOME TAX PURPOSES.
DENOMINATION: $__________ INITIAL PRINCIPAL BALANCE: $__________
PASS-THROUGH RATE:_____%
REGISTERED HOLDER: CEDE & CO.
Certificate No. A-[]-1 CUSIP No: ___________
This Certificate evidences a beneficial ownership interest in a Trust
consisting primarily of a pool of Mortgage 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.
The Registered Holder named above is the owner of the Percentage
Interest calculated as set forth below in the above mentioned Class of
Certificates issued by the Trust (the "Trust") created pursuant to a trust
agreement dated ________ _, 1997 (the "Trust Agreement"), among Saxon Asset
Securities Company (herein called the "Depositor," which term includes any
successor entity under the "Trust Agreement"), _________________________, as
A-1-1
<PAGE>
Master Servicer, Paying Agent, Custodian and Certificate Registrar, and
_________________________, as Trustee, a summary of certain of the pertinent
provisions of which is set forth herein. To the extent not defined herein,
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.
This Certificate is one of a duly authorized issue of Certificates
designated as Mortgage Loan Asset Backed Certificates, Series 1997-__ (herein
called the "Certificates") and represents a Percentage Interest in the above
mentioned Class of Certificates equal to the quotient, expressed as a
percentage, obtained by dividing the Denomination of this Certificate specified
above by the Initial Principal Balance specified above of the above mentioned
Class of Certificates. The Certificates are issued in multiple 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.
To the extent and subject to the limitations set forth in the Trust
Agreement, 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") is entitled to receive the
Distribution Amount with respect to the above mentioned Class of Certificates 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
_____________. All amounts distributable with respect to 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.
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 Paying Agent will make distributions on this
Certificate by wire transfer of immediately available funds to the Clearing
Agency or its nominee. Otherwise, all distributions under the Trust Agreement
will be made by the Paying Agent 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 Paying Agent 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 Paying Agent 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 Paying
Agent 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 Paying Agent for that purpose and
such other locations provided in the Trust Agreement.
The Certificate Insurer is required, subject to the terms of the
Certificate Insurance Policy, to make Insured Payments available to the Trustee
(directly or through a Paying Agent) on or prior to the related Distribution
Date for distribution to the Holders.
Upon receipt of amounts under the Certificate Insurance Policy on
behalf of the Holders of the above mentioned Class of Certificates, the Trustee
shall distribute in accordance with the Trust Agreement such amounts (directly
or through a Paying Agent) to the Holders of the above mentioned Class of
Certificates.
The Trustee will duly and punctually make distributions with respect to
this Certificate in accordance with the terms hereof and the Trust Agreement.
Amounts properly withheld under the Code by any Person from a distribution to
any Holder shall be considered as having been distributed to such Holder for all
purposes of the Trust Agreement.
A-1-2
<PAGE>
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Depositor and the Trustee and the rights of the Holders of the Certificates
under the Trust Agreement at any time by the Depositor, the Master Servicer and
the Trustee with 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 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. Unless there is a Certificate Insurer Default, the
Certificate Insurer is entitled to exercise all Voting Rights of the Class A
Certificateholders.
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
Certificate Registrar 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 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 $1,000 and integral multiples of $1,000 in excess
thereof.
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 Certificate Registrar 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.
The Depositor, the Master Servicer, the Trustee, the Paying Agent and
the Certificate Registrar and any agent of the Depositor, the Master Servicer,
the Trustee, the Paying Agent 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 the Depositor, the Master Servicer, the Trustee, the
Paying Agent, the Certificate Registrar or any such agent shall be affected by
notice to the contrary.
The Trust Agreement provides that the obligations created thereby will
terminate upon the earlier of (i) the payment to the Holders of all Certificates
from amounts other than those available under the related Certificate Insurance
Policy of all amounts held by the Trustee and required to be paid to such
Holders pursuant to the Trust Agreement upon the later to occur of (a) the final
payment or other liquidation (or any advance made with respect thereto) of the
last Mortgage Loan in the Trust Estate or (b) the disposition of all property
acquired in respect of any Mortgage Loan remaining in the Trust Estate or (ii)
at any time when a qualified liquidation of the Trust Estate is effected as
described in the Agreement.
The Trust Agreement also provides that (i) the Holders of a majority of
the Class R Certificates may, at their option, purchase from the Trust all
remaining Mortgage Loans and other property then constituting the Trust Estate,
and thereby effect early retirement of the Certificates, on any Distribution
Date after the Initial Optional Redemption Date and (ii) under certain
circumstances relating to the qualification of the REMIC as a REMIC under the
Code the Mortgage Loans may be sold, thereby effecting the early retirement of
the Certificates.
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.
A-1-3
<PAGE>
THIS CERTIFICATE AND THE TRUST AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK.
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 A-[] CERTIFICATES REFERRED TO IN THE WITHIN-MENTIONED
TRUST AGREEMENT.
----------------------------------------
AS CERTIFICATE REGISTRAR
BY: __________________________
Authorized Signatory
A-1-4
<PAGE>
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.
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:
<TABLE>
<S> <C>
TEN COM as tenants in common UNIT GIFT MIN ACT Custodian.............
(Cus)(Minors)
TEN ENT. as tenants by the entireties Under Uniform Gifts to Minors Act
JT TEN. as joint tenants with rights of ........................
survivorship and not as [State]
Tenants in Common
</TABLE>
Additional abbreviations may also be used though not in the above list.
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.
A-1-5
<PAGE>
Exhibit R-1
SAXON ASSET SECURITIES COMPANY
MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 1997-__
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 CERTIFICATE REGISTRAR 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
CERTIFICATE REGISTRAR 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.
PERCENTAGE INTEREST: %
REGISTERED HOLDER: .
Certificate No. A-R-1
This Certificate evidences a beneficial ownership interest in a Trust consisting
primarily of a pool of Mortgage 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.
The Registered Holder named above is the owner of the Percentage
Interest set forth above in the above mentioned Class of Certificates issued by
the Trust (the "Trust") created pursuant to a trust agreement dated ________ _,
1997 (the "Trust Agreement"), among Saxon Asset Securities Company (herein
called the "Depositor," which term includes any successor entity under the
"Trust Agreement"), _________________________, as Master Servicer, Paying Agent
and Certificated Registrar, and _________________________, as Trustee, a summary
of certain of the pertinent provisions of which is set forth herein. 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.
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 Mortgage Loan Asset Backed
Certificates, Series 1997-__ (herein called the "Certificates"), and
representing the Percentage Interest in the Class R Certificates specified
above. The Certificates are issued in multiple 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.
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
<PAGE>
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 Paying
Agent 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
Paying Agent of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the Paying Agent'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.
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 otherwise
provided to each such Holder 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 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 the
Depositor and the Trustee and the rights of the Holders under the Trust
Agreement at any time by the Depositor, 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 hereafter 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. Unless there is a Certificate Insurer Default, the
Certificate Insurer is entitled to exercise all Voting Rights of the Class A
Certificateholders.
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 Certificate Registrar 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 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.
A-1-2
<PAGE>
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 Certificate Registrar 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.
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 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 Certificate Registrar 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 Certificate Registrar with an Opinion of Counsel (which shall
not be an expense of the Master Servicer or the Certificate Registrar) that the
transfer will not jeopardize the REMIC status of the related REMIC).
Furthermore, (i) the Certificate Registrar 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 the Depositor from
the Depositor or an Affiliate of the Depositor, the Certificate Registrar 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 Certificate Registrar or the Master Servicer. In any event, the
Certificate Registrar 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 Certificate Registrar.
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, the Certificate Registrar, the
Paying Agent, the Depositor, the Trust, the Servicer, 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.
The Depositor, the Master Servicer, the Trustee, the Paying Agent and
the Certificate Registrar and any agent of Saxon, the Master Servicer, the
Trustee, the Paying Agent 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 Saxon, 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 Saxon 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 (i) Distribution Date on which the aggregate
Scheduled Principal Balance of the Mortgage Loans in the Trust has declined to
10% or less of the Scheduled Principal Balance of the Mortgage Loans in the
Trust as of the Cut-Off Date, at a redemption price equal to 100% of the then
Certificate Principal Balance of the Class A Certificates, plus accrued interest
thereon. If 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. 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
A-1-3
<PAGE>
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 NEW YORK.
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 ONE OF THE CLASS R CERTIFICATES REFERRED TO IN THE
WITHIN-MENTIONED TRUST AGREEMENT.
________________________________________,AS
CERTIFICATE REGISTRAR
BY: ______________________________________
AUTHORIZED SIGNATORY
A-1-4
<PAGE>
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.
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:
<TABLE>
<S> <C>
TEN COM as tenants in common UNIT GIFT MIN ACT Custodian................
(Cus)(Minors)
TEN ENT. as tenants by the entireties Under Uniform Gifts to Minors Act
JT TEN. as joint tenants with rights of ..........................
survivorship and not as [State]
Tenants in Common
</TABLE>
Additional abbreviations may also be used though not in the above list.
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.
A-1-5
<PAGE>
SAXON ASSET SECURITIES COMPANY
ASSET BACKED CERTIFICATES
STANDARD TERMS TO TRUST AGREEMENT
(January 1997 Edition)
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
PRELIMINARY STATEMENT.............................................................................................1
ARTICLE I DEFINITIONS.............................................................................................1
Section 1.01. Defined Terms.............................................................................1
Section 1.02. Section References; Calculations; Ratings; Consents; Certain References..................15
Section 1.03. Certain Matters Relating any Certificate Insurance Policy................................15
ARTICLE II MORTGAGE LOAN FILES...................................................................................16
Section 2.01. Mortgage Loan Files......................................................................16
Section 2.02. Acceptance by the Trustee................................................................17
Section 2.03. Purchase or Substitution of Mortgage Loans by a Seller, a Servicer or Saxon..............19
Section 2.04. Representations and Warranties of Saxon..................................................22
Section 2.05. Representations and Warranties of the Master Servicer....................................23
ARTICLE III ADMINISTRATION OF THE TRUST..........................................................................24
Section 3.01. Master Servicer Custodial Account........................................................24
Section 3.02. Asset Proceeds Account...................................................................26
Section 3.03. Issuing REMIC Accounts...................................................................27
Section 3.04. Advances by Master Servicer and Trustee..................................................27
Section 3.05. Month End Interest.......................................................................28
Section 3.06. Trustee to Cooperate; Release of Mortgage Files..........................................28
Section 3.07. Reports to the Trustee; Annual Compliance Statements.....................................29
Section 3.08. Title, Management and Disposition of REO Properties......................................30
Section 3.09. Amendments to Servicing Agreements; Modification of the Guide............................32
Section 3.10. Oversight of Servicing...................................................................32
Section 3.11. Credit Enhancement.......................................................................33
ARTICLE IV REPORTING/REMITTING TO CERTIFICATEHOLDERS.............................................................33
Section 4.01. Statements to Certificateholders.........................................................33
Section 4.02. Remittance Reports.......................................................................34
Section 4.03. Compliance with Withholding Requirements.................................................34
Section 4.04. Reports to the Clearing Agency...........................................................34
Section 4.05. Preparation of Regulatory Reports........................................................35
ARTICLE V THE POOLING INTERESTS AND THE CERTIFICATES.............................................................36
Section 5.01. Pooling REMIC Interests..................................................................36
Section 5.02. The Certificates.........................................................................36
Section 5.03. Book-Entry Certificates..................................................................36
Section 5.04. Registration of Transfer and Exchange of Certificates....................................37
Section 5.05. Restrictions on Transfers................................................................38
Section 5.06. Mutilated, Destroyed, Lost or Stolen Certificates........................................39
Section 5.07. Persons Deemed Owners....................................................................39
Section 5.08. Paying Agent.............................................................................40
ARTICLE VI SAXON AND THE MASTER SERVICER.........................................................................40
Section 6.01. Liability of, and Indemnification by, Saxon and the Master Servicer......................40
Section 6.02. Merger or Consolidation of Saxon or the Master Servicer..................................40
Section 6.03. Limitation on Liability of Saxon, the Master Servicer and Others.........................41
Section 6.04. Resignation of the Master Servicer.......................................................41
Section 6.05. Compensation to the Master Servicer......................................................41
Section 6.06. Assignment or Delegation of Duties by Master Servicer....................................41
ARTICLE VII TERMINATION OF SERVICING AND MASTER SERVICING ARRANGEMENTS...........................................42
Section 7.01. Termination and Substitution of Servicing Agreements.....................................42
Section 7.02. Termination of Master Servicer; Trustee to Act...........................................42
Section 7.03. Notification to Certificateholders.......................................................44
ARTICLE VIII CONCERNING THE TRUSTEE..............................................................................44
Section 8.01. Duties of Trustee........................................................................44
Section 8.02. Certain Matters Affecting the Trustee....................................................45
Section 8.03. Trustee Not Liable for Certificates or Mortgage Loans....................................46
Section 8.04. Trustee May Own Certificates.............................................................46
Section 8.05. Trustee's Fees...........................................................................47
Section 8.06. Eligibility Requirements for Trustee.....................................................47
Section 8.07. Resignation and Removal of the Trustee...................................................47
Section 8.08. Successor Trustee........................................................................48
Section 8.09. Merger or Consolidation of Trustee.......................................................48
Section 8.10. Appointment of Trustee or Separate Trustee...............................................48
Section 8.11. Appointment of Custodians................................................................49
Section 8.12. Trustee May Enforce Claims Without Possession of Certificates............................49
ARTICLE IX TERMINATION OF THE TRUST; PURCHASE OF CERTIFICATES....................................................49
Section 9.01. Termination of Trust.....................................................................49
Section 9.02. Optional Termination.....................................................................50
Section 9.03. Optional Purchase........................................................................50
Section 9.04. Termination Upon Loss of REMIC Status....................................................50
Section 9.05. Disposition of Proceeds..................................................................52
ARTICLE X REMIC TAX PROVISIONS...................................................................................52
Section 10.02. Prohibited Activities...................................................................53
ARTICLE XI MISCELLANEOUS PROVISIONS..............................................................................54
Section 11.01. Amendment of Trust Agreement............................................................54
Section 11.02. Recordation of Agreement; Counterparts..................................................54
Section 11.03. Limitation of Rights of Certificateholders..............................................55
Section 11.04. Governing Law...........................................................................55
Section 11.05. Notices.................................................................................55
Section 11.06. Severability of Provisions..............................................................55
Section 11.07. Sale of Mortgage Loans..................................................................56
Section 11.08. Notice to Rating Agency.................................................................56
</TABLE>
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 ("Saxon"), a bank or mortgage banking
company, as administrative agent (in such capacity, 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 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, Saxon, 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.
"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 Saxon 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.
"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 Saxon, 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 Saxon, 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 Saxon, 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, or a day on which the Certificate Insurer or
commercial banking institutions in New York City or the city in which the
Corporate Trust Office of the Trustee or the Paying Agent 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 Guaranty Insurance Policy" means any certificate or
financial guaranty insurance policy identified in the Trust Agreement.
"Certificate Insurer" means the issuer, if any, of a Certificate
Guaranty Insurance Policy with respect to the Certificates named in the Trust
Agreement.
"Certificate Insurer Default": The existence and continuance of any of
the following:
(a) the Certificate Insurer fails to make a payment required under the
Certificate Insurance Policies in accordance with their terms; 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 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 Insurer as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Certificate 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 any substantial part of the
Certificate Insurer's property, or ordering the winding-up or liquidation of its
affairs, 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 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 as bankrupt or insolvent, or the consent of the
Certificate Insurer to the entry of a decree or order for relief in respect of
the Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency case or
proceeding against the Certificate Insurer, or the consent by the Certificate
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 Insurer of any substantial part of its
property, or the failure of the Certificate Insurer to pay debts generally as
they become due, or the admission by the Certificate Insurer in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Certificate Insurer in furtherance of any such action;
provided, however, the Certificate Insurer's rights shall be reinstated
following a cure, to the satisfaction of the Trustee, of any Certificate Insurer
Default.
"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) less 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 (except, for
purposes of effecting the Certificate Insurer's subrogation rights, any payment
made by the Certificate Insurer with respect to principal of the Certificates).
"Certificate Register": The register maintained pursuant to the related
Trust Agreement.
"Certificate Registrar": The registrar designated in the related
Trust Agreement, or appointed pursuant to Section 5.02 hereof.
"Certificateholders": The holders of the Certificates as recorded on
the Certificate Register.
"Class": The Certificates of a Series bearing the same designation.
"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 any real property (other than the related Mortgaged Premises), personal
property, securities, cash, instruments, contracts, or other documents, if any,
constituting or evidencing collateral pledged as additional security for such
Mortgage Loan.
"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 to 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, any Paying Agent or any Certificate Registrar 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, Certificate
Guaranty Insurance Policy, third party guaranty or other form of insurance
specified in the Trust Agreement that is obtained by or on behalf of Saxon 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.
"Credit Enhancement Fee Rate": With respect to each form of Credit
Enhancement, each Mortgage Loan and each Distribution Date, an amount equal to
the Credit Enhancement Fee with respect to the related Certificates, divided by
the aggregate Scheduled Principal Balance of the related Mortgage Loans.
"Custodian": The Custodian 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 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-1 attached hereto, and, if
provided by a U.S. Person, an affidavit substantially in the form of Exhibit H-2
attached hereto.
"Distribution Account": With respect to any Double REMIC Series, an
Eligible Account established and maintained with the Paying Agent 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 Date": The first day of the month of the related Distribution
Date.
"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), respectively, are rated by each Rating Agency in one of
its two highest long-term rating categories and its highest short-term rating
category 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, paying agent
or master servicer, 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) hereof.
"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 January 1 (or from the Closing Date, in
the case of the first fiscal year) through the last day of December.
"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.
"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 to determine the Mortgage Interest Rate for such ARM Loan.
"Guide": Unless otherwise provided in the Trust Agreement, the SMI
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.
"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 lien on such residential
property.
"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, to determine the
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.
"Initial Mortgage Loans": Any of the Mortgage Loans listed on the
Mortgage Loan Schedule attached to the Trust Agreement.
"Initial Optional Termination Date": As defined in the Trust Agreement.
"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.
"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 any REMIC but shall be for the benefit of the
Certificateholders.
"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 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 bank or 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 hereof.
"Master Servicer Errors and Omissions Insurance Policy": If the Master
Servicer is not a national banking association, 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": If the Master Servicer is not a
national banking association, 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 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 third 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 preceding Due Date.
"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 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 Servicer with respect to such Mortgage Loan, in each case net of the
Servicing Fee applicable thereto. No Month End Interest shall accrue with
respect to a prepayment of a Mortgage Loan or 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,
Home Improvement Loans, or Cooperative Loans sold by Saxon to the Trust and
listed on the Mortgage Loan Schedule to the Trust Agreement or any Subsequent
Sales Agreement and any loans substituted therefor pursuant to the terms of the
Trust Agreement.
"Mortgage Loan Schedule": The schedule(s) of the Mortgage Loans which
are attached to the Trust Agreement, in the case of the Initial Mortgage Loans,
and to the Subsequent Sales Agreement(s) in the case of Subsequent Mortgage
Loans, and set forth for each Mortgage Loan (i) the Servicer (Saxon) 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, the Master Servicer
or any Certificate Insurer.
"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, issued
by an insurance company, surety company, bank, trust company, savings and loan
association, financial institution or other Person 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 lien on a
rental apartment building, a cooperative housing corporation or a mixed
commercial and residential use property.
"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 and Distribution Date, the related Mortgage
Interest Rate less the sum of the Servicing Fee Rate, the Master Servicing Fee
Rate, the Trustee Fee Rate and the Credit Enhancement Fee Rate relating thereto.
"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, Custodian, Paying Agent,
Certificate Registrar or Master Servicer, any senior vice president, any vice
president, any assistant vice president, any assistant treasurer, any trust
officer, any assistant secretary, or any other officer customarily performing
functions similar to those performed by the persons who at the time shall be
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 Saxon or the Master Servicer, acceptable to the Trustee, the Certificate
Insurer and the Master Servicer. Except with the consent of each Rating Agency
and the Certificate Insurer, an Opinion of Counsel may not 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 designated in the related Trust
Agreement or appointed pursuant to Section 5.08 hereof.
"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 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": Except as otherwise provided in the Trust
Agreement, 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 of a depository institution or trust
company (acting as principal) (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 and its highest
short-term unsecured debt rating category;
(d) 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 have been rated by each
Rating Agency in one of its two highest long-term unsecured debt rating
categories and the short term unsecured debt rating of such bank or
trust company at the date of acquisition thereof by each Rating Agency
is the highest short term unsecured debt rating by each Rating Agency;
(e) 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 (without regard to the
existence of any Credit Enhancement); and
(f) any other investment approved by the Certificate Insurer;
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.
"Pre-Funding Account": An Eligible Account that may be established with
the Paying Agent for the purpose of providing for the purchase by the Trust of
Subsequent Mortgage Loans.
"Prepayment Period": The period specified in each Servicing Agreement
with respect to which prepayments or Liquidation Proceeds with respect to a
Mortgage Loan will be remitted on a Remittance Date.
"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.
"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 Saxon, 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
Saxon or a Seller for a Deleted Mortgage Loan that, on the date of such
substitution: (i) has 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) has 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) has a Net Rate not less than the Net Rate of the Deleted
Mortgage Loan, (iv) has 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) has 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) complies 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, complies with each applicable
representation, warranty, or covenant pertaining to the Mortgage Loans set forth
in the related Sales Agreement or Subsequent 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:
(a) has a Minimum Lifetime Mortgage Interest Rate that is not less than the
Minimum Lifetime Mortgage Interest Rate on the Deleted Mortgage Loan, (b) has a
Maximum Lifetime Mortgage Interest Rate that is not less than the Maximum
Lifetime Mortgage Interest Rate on the Deleted Mortgage Loan, (c) 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, (d) has a Gross
Margin that is not less than the Gross Margin of the Deleted Mortgage Loan, (e)
has a Periodic Rate Cap equal to the Periodic Rate Cap on the Deleted Mortgage
Loan, (f) 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, (g) does not have a permitted increase or decrease in the Monthly Payment
less than the permitted increase or decrease applicable to the Deleted Mortgage
Loan, (h) was underwritten on the basis of credit underwriting standards at
least as strict as the credit underwriting standards used with respect to the
Deleted Mortgage Loan; and (i) is not convertible to a fixed Mortgage Interest
Rate unless the Deleted Mortgage Loan is so convertible. If more than one
mortgage loan is substituted for one or more Deleted Mortgage Loans, the amount
described in clause (i) of the preceding sentence shall be determined on the
basis of aggregate Unpaid Principal Balances, the rates described in clauses
(iii) of the preceding sentence and clauses (a), (b) and (c) of the proviso to
the preceding sentence 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) of the preceding sentence shall be determined on the basis of
weighted average remaining term to maturity, provided that no Qualified
Substitute Mortgage Loan may have an original term to 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 (d) of the
proviso to the preceding sentence shall be determined on the basis of weighted
average Gross Margins, and the interest adjustment dates described in clause (g)
of the proviso to the preceding sentence 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 60 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 Saxon.
"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 and reimbursement of Advances), 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 hereof identifying those Mortgage Loans for which a Security Instrument or
an Assignment remains unrecorded.
"Redeeming Purchase": The purchase of all 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.
"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": The date specified in each Servicing Agreement as the
date on which the related Servicer is to make the remittance required by Section
3.01(b) hereof.
"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.
"Sales Agreement": The Sales Agreement identified in the Trust
Agreement.
"Saxon": Saxon Asset Securities Company, 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, SMI or any other party
other than Saxon 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.
"Series": A group of Certificates issued by the Trust.
"Servicer": With respect to each Mortgage Loan, the Person
responsible for the servicing thereof in accordance with the Guide.
"Servicer Compensation": The Servicing Fee and any additional
compensation payable to the Servicer.
"Servicing Agreement": Any agreement between a Servicer and SMI or Saxon
relating to the servicing of Mortgage Loans which is in form and substance
satisfactory to the Master Servicer.
"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.
"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.
"SMI": Saxon Mortgage, Inc., a Virginia corporation.
"Special Hazard Fund": A fund consisting of: (i) a surety bond,
insurance policy, Letter of Credit, guarantee or other credit instrument issued
by an insurance company, surety company, bank, trust company, savings and loan
association, financial institution or other Person 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 any
REMIC but shall be for the benefit of the Certificateholders and the Certificate
Insurer. 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 deemed established by the Paying Agent
solely for purposes of the REMIC Provisions pursuant to Section 3.03(a) hereof.
"Subsequent Cut-Off Date": The time and date specified in a Subsequent
Sales Agreement with respect to those Subsequent Mortgage Loans which are
acquired by the Trust pursuant to such Subsequent Sales Agreement.
"Subsequent Mortgage Loans": Any of the Mortgage Loans listed on a
Mortgage Loan Schedule attached to a Subsequent Sales Agreement.
"Subsequent Sales Agreement": Each Subsequent Sales Agreement executed
by the Master Servicer (on behalf of itself and the Trustee), the Seller and SMI
by which Subsequent Mortgage Loans are sold to the Trust in the form attached to
the related Trust Agreement.
"Substitution Shortfall": The meaning set forth in Section 2.03(h)
hereof.
"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
under the Trust Agreement to act as the "tax matters person" (within the meaning
of the REMIC Provisions) of a REMIC.
"Title Insurance Policy": A title insurance policy insuring the title to
Mortgaged Premises for the benefit of the holder of the related Mortgage Note.
"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 Saxon, 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
and to be transferred and assigned to the Trustee for the benefit of the
Certificateholders by Saxon pursuant to the conveyance clause of the Trust
Agreement.
"Trustee": The bank or trust company identified as the Trustee in the
Trust Agreement.
"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 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 certified by an Officer of the 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 a
Subsequent Sales 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 any Certificate Guaranty Insurance Policy) or required by
the Certificate Insurer.
"UCC": The Uniform Commercial Code, as in effect in the State from time
to time.
"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 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 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 the Certificates, then all 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. The foregoing
notwithstanding the Certificate Insurer (unless a Certificate Insurer Default
exists) shall be entitled to exercise the Voting Rights other than with respect
to amendments to the Trust Agreement pursuant to Section 11.01 hereof requiring
the consent of Certificateholders, of any Class of the Certificates which are
covered by a Certificate Guaranty Insurance Policy issued by such Certificate
Insurer and the Certificateholders may not exercise such rights without the
prior written consent of the Certificate Insurer.
"Withholding Agent": The 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; Consents;
Certain References; Certificate Guaranty Insurance Policy
(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.
(d) Whenever the consent of any Person is required hereunder, such
Person shall not be entitled to withhold its consent unreasonably.
Section 1.03. Certain Matters Relating any Certificate Insurance Policy
(a) The Trustee shall surrender any Certificate Insurance Policy to the
Certificate Insurer for cancellation upon termination of the Trust pursuant to
the applicable provisions of the Trust Agreement.
(b) All notices, statements, reports, certificates or opinions required
by the Trust Agreement to be sent to any party hereto or to any of the
Certificateholders shall also be sent to the Certificate Insurer. The Trust and
the Trustee shall make available to the Certificate Insurer their books and
records during normal business hours for the purpose of copying and inspecting
any information about the Certificates, the Trust Estate or the
Certificateholders.
(c) Unless a Certificate Insurer Default exists and is continuing
(i) the Certificate Insurer shall have the right to
institute any suit, action or proceeding in equity or at law upon or
under or with respect to the Trust Agreement if it previously shall
have given the Trustee a written notice of default and of the
continuance thereof, as hereinbefore provided, 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 refund to institute any
such action, suit or proceeding;
(ii) the Certificate Insurer's prior written consent will
be required (A) to remove any Trustee, Custodian, Master Servicer or
Servicer, (B) to appoint any successor Trustee, Custodian, Master
Servicer or Servicer or (C) to amend the Agreement or the Guide;
(iii) the Certificate Insurer may direct the Trustee
to exercise any right to remove any Trustee, Custodian, Master
Servicer or Servicer;
(iv) the Trustee shall not exercise the right, without
the prior written consent of the Certificate Insurer (A) to consent to
the resignation of the Master Servicer pursuant to Section 6.04 hereof;
(B) consent to the resignation of the Servicer pursuant to the
Servicing Agreement; (B) to undertake any litigation pursuant to the
Agreement; (C) to exercise any of the remedies set forth in Section
7.01 or Section 7.02 hereof; or (v) to agree to any amendment to the
Sales Agreement, the Servicing Agreement or the Custody Agreement; and
(v) the Trustee shall cooperate in all respects with any
reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests hereunder or
under the Trust Agreement without limiting the rights or affecting the
interests of the Holders as otherwise set forth herein or under the
Trust Agreement.
(d) Whenever reference is made in these Standard Terms, the Trust
Agreement or the Certificates to "on behalf of the Certificateholders (and for
the exclusive use and benefit of all present and future Certificateholders)",
"the benefit of the Certificateholders", or "for the benefit of the
Certificateholders", such references shall be deemed to include the Certificate
Insurer, and references to "the interest of the Trust", "an adverse effect on
the Certificateholders or the Trust" or "the interests of the
Certificateholders" shall be deemed to include the Certificate Insurer.
(e) References to Certificate Insurer and Certificate Insurer Default
shall be deemed to be deleted in any Trust Agreement if a Certificate Guaranty
Insurance Policy is not issued with respect to one or more Classes of
Certificates issued pursuant thereto.
ARTICLE II
MORTGAGE LOAN FILES
Section 2.01. Mortgage Loan Files
(a) Pursuant to the Trust Agreement, Saxon has sold to the Trustee, for
the benefit of the Certificateholders without recourse all the right, title and
interest of Saxon in and to the Initial Mortgage Loans, any and all rights,
privileges and benefits accruing to Saxon under the Sales Agreement and
Servicing Agreement with respect to the Initial Mortgage Loans (except, in the
case of the Sales Agreement, any rights of Saxon 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 Saxon's
rights to Monthly Payments on the Initial 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 (other than
amounts deposited in a Pre-Funding Account).
In connection with such sale, Saxon shall deliver, or cause to be
delivered, to the Trustee or the Custodian on or before the Closing Date, a
Trustee Mortgage Loan File with respect to each Initial Mortgage Loan. If any
Security Instrument or assignment of a Security Instrument to the related
Servicer, the Trustee, or the Custodian, as applicable, or any intervening
assignment is in the process of being recorded on the Closing Date, Saxon shall
cause each such original recorded document, or a certified copy thereof, to be
delivered to the Custodian promptly following its recordation. Saxon also shall
cause to be delivered to the Custodian any other original Mortgage Loan
Documents to be included in the Trustee Mortgage Loan File if a copy thereof
initially was delivered.
Saxon has delivered or caused to be delivered to each Servicer, on or
before the Closing Date, a Servicer File with respect to each Initial 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.
(b) Pursuant to the Trust Agreement, Saxon may sell to the Trustee, for
the benefit of the Certificateholders without recourse all the right, title and
interest of Saxon in and to the Subsequent Mortgage Loans, any and all rights,
privileges and benefits accruing to Saxon under the Subsequent Sales Agreements
and the Servicing Agreement with respect to the Mortgage Loans (except, in the
case of the Subsequent Sales Agreement, any rights of Saxon 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.
Any such sale shall include all Saxon's rights to Monthly Payments on the
Subsequent Mortgage Loans due after the applicable Subsequent Cut-Off Date, and
all other payments of principal (and interest) made on or after the applicable
Subsequent Cut-Off Date that are reflected in the purchase price therefor.
In connection with any such sale, Saxon shall deliver, or cause to be
delivered, to the Trustee or the Custodian on or before the applicable
Subsequent Sales 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 applicable, or any
intervening assignment is in the process of being recorded on the applicable
Subsequent Sales Date, Saxon shall cause each such original recorded document,
or a certified copy thereof, to be delivered to the Custodian promptly following
its recordation. Saxon also shall cause to be delivered to the Custodian any
other original Mortgage Loan Documents to be included in the Trustee Mortgage
Loan File if a copy thereof initially was delivered.
Saxon will deliver or cause to be delivered to each Servicer, on or
before the applicable Subsequent Sales 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, each of the Trustee and the
Custodian 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 Initial Mortgage Loans,
and will acquire Subsequent Mortgage Loans, on behalf of the Trust from Saxon 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, and will not undertake, 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 Custodian shall deliver to Saxon, the Trustee and the Master
Servicer, on the Closing Date with respect to the Initial Mortgage Loans and on
each Subsequent Sale Date with respect to the related Subsequent Mortgage Loans,
an Initial Certification certifying that, except as specifically noted on a
schedule of exceptions thereto and subject to its review as herein provided, it
is in possession of a Trustee Mortgage Loan File for each such Mortgage Loan
that includes each of the documents required to be included therein. Before
delivering the Initial Certification, the Custodian 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 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
Custodian shall examine the Mortgage Loan Documents to confirm that:
(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 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 Certificate of Title
Insurance 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 Custodian
shall deliver to Saxon 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
Custodian 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 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
Custodian 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) 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. Saxon
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
will deliver, within the specified times, the Initial Certifications, Final
Certifications, and Recordation Reports with respect to the Mortgage Loans held
and reviewed by such Custodian to Saxon 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 a Seller, a
Servicer or Saxon
(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 Custodian or 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.
(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.
If 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 Agreement 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) Saxon Breach. Within 90 days of the earlier of discovery or receipt
of notice by Saxon 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), Saxon 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 Paying Agent (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 if 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
Servicer of the conversion of any ARM Loan to a Converted Mortgage Loan, the
Master Servicer shall 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 or the Trustee) 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. Saxon 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 use its best efforts to 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 Saxon or a Seller substitutes
one or more Qualified Substitute Mortgage Loans, Saxon or the Seller, as the
case may be, shall effect such substitution by delivering to the Custodian 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 Saxon to the effect that
each such Qualified Substitute Mortgage Loan complies with the terms of the
Trust Agreement and notify the Master Servicer and the Trustee in writing of
such substitution. Monthly Payments due with respect to Qualified Substitute
Mortgage Loans in the month of substitution are not part of the Trust and will
be retained by Saxon 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 Saxon 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 Saxon 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 Saxon
or the Seller, as the case may be, in accordance with the procedures specified
above.
For any month in which Saxon 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 in writing 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, Saxon or the
Seller, as the case may be, shall deliver or cause to be delivered to the Paying
Agent, 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 in writing
that there is a miscalculation of the amount to be paid to the Trust, the
Trustee shall, from moneys 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 in writing
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 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 Saxon
Saxon hereby represents and warrants to the Trustee and the Certificate
Insurer that as of the Closing Date or as of such other date specifically
provided herein:
(a) Saxon 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 Saxon;
(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 Saxon, enforceable against Saxon
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 Saxon of the Trust
Agreement, nor the consummation by Saxon of the transactions therein
contemplated, nor compliance by Saxon 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 Saxon or any law, governmental rule or regulation or any judgment,
decree or order binding on Saxon or any of its properties, or any of the
provisions of any indenture, mortgage, deed of trust, contract or other
instrument to which Saxon 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, Saxon pending, or, to the knowledge of Saxon,
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) As of the Closing Date with respect to each Initial Mortgage
Loan and as of each Subsequent Sale Date with respect to each related
Subsequent Mortgage Loan:
(i) The information set forth in the related Mortgage
Loan Schedule with respect to such Mortgage Loan is true and
correct in all material respects at the date or dates with
respect to which such information is furnished;
(ii) Saxon 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
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;
(iii) Saxon has acquired its ownership of, or security
interest in, such Mortgage Loan in good faith without notice of
any adverse claim;
(iv) Saxon has not assigned any interest or participation
in such Mortgage Loan (or, if any such interest or participation
has been assigned, it has been released); and
(e) Saxon 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 Saxon, 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 Saxon 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 Saxon 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 and
the Certificate Insurer 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 bank or 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 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 Saxon 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, conservatorship, receivership, 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 association or incorporation (or corresponding charter
document) or by-laws of the Master Servicer or any law, governmental
rule or 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) If the Master Servicer is not a national banking association,
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 Saxon, 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 Certificates (and for more than one group of Mortgage Loans
if the Mortgage Loans for a Series of Certificates are to be held in separate
groups), but shall maintain separate accounting records for each Series of
Certificates (and for each group of Mortgage Loans with respect to a Series of
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 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 the sum of the following:
(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 after the payment of Month-End Interest;
(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;
(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 Non-Recoverable 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 (but only to the extent of
such late payment, Liquidation Proceeds or Insurance Proceeds).
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 with respect to each Mortgage Loan
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 (net of any payments on account of Month End Interest required
pursuant to Section 3.05 hereof or the Servicing Agreement) and (B) the
Master Servicing Fee to the extent paid by the Borrower or advanced by
the Servicer or the Master 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;
(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);
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. If so specified in a
Servicing Agreement, net investment income on the funds in the Master Servicer
Custodial Account shall be released to the related Servicer as a part of the
Servicer Compensation on or before the fifth Business Day of the month following
the month in which the related Distribution Date; except to the extent that the
Trust Agreement provides that such net investment income is to be applied to
Month End Interest Shortfall provided, however, that, if there is a loss on the
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 (and shall
subsequently retain net investment income to recover such loss).
Section 3.02. Asset Proceeds Account
(a) Deposits. The Trustee shall establish and maintain with the Paying
Agent 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 Paying Agent 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) Withdrawals. Unless otherwise provided in the Trust Agreement, on
each Distribution Date, the Paying Agent shall withdraw all moneys 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 (unless the Trustee Fee is to be paid by the Master
Servicer out of its Master Servicing Fee);
(ii) to pay each Servicer its Servicing Fee with respect to such
Distribution Date, to the extent not retained by such Servicer;
(iii) 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;
(iv) to pay each Credit Enhancement provider its Credit
Enhancement Fee with respect to such Distribution Date unless provision
therefore is otherwise made in the Trust Agreement;
(v) 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 Non-Recoverable Advance;
(vi) to reimburse Saxon or the Master Servicer for expenses
incurred by or reimbursable to it pursuant to Section 6.03;
(vii) to refund any overpayment of the Purchase Price of a
Mortgage Loan; and
(viii) to make the payments provided for in the Trust Agreement.
(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 Paying
Agent in writing (which may be in the form of standing instructions) as to the
investment of funds (which funds, if received by noon, Houston 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 other amounts due from the
Master Servicer.
Section 3.03. Issuing REMIC Accounts
(a) With respect to any Double REMIC Series, the Paying Agent 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 Paying Agent shall deposit all payments with respect
to such Regular Interests into such Subaccounts.
(b) With respect to any Double REMIC Series, the Paying Agent may
establish one or more accounts into which the Paying Agent 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 Paying Agent may withdraw funds to pay the
Certificates that do not evidence interests in the Issuing REMIC. In lieu of
establishing such accounts, the Paying Agent 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. If 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 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) If 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) If 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 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 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 Non-Recoverable 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. If the Trustee determines that it is prevented by law from making
an Advance, the Trustee will notify the Master Servicer within one 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 Servicing Agreement, the Servicer shall
pay and deposit into the Servicer Custodial Account, on or before each Servicer
Remittance Date, an amount equal to Month End Interest with respect to the
preceding month, but only to the extent of the Servicer Fee payable with respect
to the preceding month. Such payment will not be considered a Non-Recoverable
Advance. The Servicer shall not be entitled to any recovery or reimbursement of
such payment from the Master Servicer, the Trustee or the Certificateholders.
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 or Credit Enhancement with respect thereto 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 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 March 31
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 (based solely
on information and written reports furnished by each Servicer to the Master
Servicer) 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) If any Mortgaged Premises becomes an REO Property, the Master
Servicer shall use its best efforts to cause the Servicer of the related
Mortgage Loan to manage, conserve, protect and operate such REO Property for the
benefit of 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 Master Servicer shall use its best efforts to cause
the Servicer to 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 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 Master
Servicer shall continue to use its best efforts to have the Servicer 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"). If 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 use its best
efforts to 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) If 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 Federal Deposit Insurance Corporation 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 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 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 Saxon may, to the extent permitted by the applicable
Servicing Agreement, make such modifications and amendments to the Guide as
Saxon 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 Saxon 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, Saxon 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 Saxon 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, acting with the consent of Saxon and the
Certificate Insurer (unless a Certificate Insurer default exists) 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. Saxon 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 or partner.
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 Certificates.
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
Saxon and the Paying Agent a Monthly Statement and (ii) on the Distribution Date
following each Master Servicer Reporting Date, the Master Servicer shall prepare
and mail a copy of such Monthly Statement to the Trustee, the Certificate
Insurer, the Rating Agencies, the Underwriters and each Certificateholder.
In addition to the Monthly Statement, the Master Servicer shall prepare
and deliver to the Paying Agent prior to each Distribution Date, and the Paying
Agent 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 Master Servicer shall prepare, based on information provided by the Master
Servicer, and deliver a statement setting forth the distributions (based on a
Certificates in the original principal amount of $1,000) allocable to interest
and principal (separately identifying prepayments) 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 Master Servicer shall be deemed
to have been satisfied to the extent that substantially comparable information
shall be provided by the Master Servicer 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 Master Servicer 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.
Access to the Monthly Statements and other statements described in this
Section 4.01 may be provided 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 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.
If 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 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 and shall have no obligation 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, each of the
Trustee and the Paying Agent shall comply with all federal withholding
requirements respecting payments to Certificateholders of interest or original
issue discount on the Certificates that the Trustee or the Paying Agent
reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for such withholding. If either the
Trustee or the Paying Agent does withhold any amount from interest or original
issue discount payments or Advances thereof to any Certificateholder pursuant to
federal withholding requirements, the Paying Agent shall indicate with any
payment to such Certificateholder the amount withheld.
Section 4.04. Reports to the Clearing Agency
If and for so long as any Certificate is held by a Clearing Agency, on
each Master Servicer Remittance Date, the Paying Agent shall telecopy a copy of
the Monthly Statement to the Clearing Agency together with a statement as to (i)
the Distribution Date and (ii) the Record Date for such Distribution Date.
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 file or cause to be filed in a timely manner 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. If any Periodic Report is required to be
signed by Saxon or the Trustee rather than by the Master Servicer, the Master
Servicer shall be deemed to certify as to each Periodic Report delivered to
Saxon or 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. Saxon or 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 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 Certificate Registrar 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, none of the
Master Servicer, the Certificate Registrar, the Paying Agent, or the Trustee has
assumed, and shall not by its performance hereunder be deemed to have assumed,
any of the duties or obligations of Saxon 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 Certificate Registrar 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 Certificate Registrar 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 sum of
(i) the aggregate Scheduled Principal Balance of the Initial Mortgage Loans as
of the Cut-Off Date and (ii) the amount in the Pre-Funded Account. 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 Saxon 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 execution and delivery of
such Certificates or did not hold such offices at the date of such Certificates.
The Certificate shall be authenticated by a manual signature of a duly
authorized signatory of the Certificate Registrar. 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.
Saxon, the Master Servicer the Certificate Registrar, the Paying Agent 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 Saxon, 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 Saxon, the Master Servicer, the Certificate Registrar, the
Paying Agent 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) Saxon
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 Saxon is unable to locate a qualified successor
within 30 days, or (ii) Saxon, 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 and the Certificate
Registrar, 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 Certificate Registrar 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
Saxon.
Section 5.04. Registration of Transfer and Exchange of Certificates
The Certificate Registrar 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 Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
provided in the Trust Agreement. The Certificate Registrar designated in the
related Trust Agreement shall initially serve as Certificate Registrar for the
purpose of registering Certificates and transfers and exchanges of Certificates
as provided in the Trust Agreement. Upon any resignation of any Certificate
Registrar, the Trustee shall promptly appoint, with the consent of the
Certificate Insurer (unless a Certificate Insurer Default exists) a successor
or, in the absence of such appointment, shall assume the duties of Certificate
Registrar. The Trustee shall have no liability or responsibility for any act or
omission to act of any Certificate Registrar (unless the Trustee is then serving
as such Certificate Registrar) appointed pursuant to the terms of the related
Trust Agreement. The Certificate Registrar shall be entitled to the same rights,
privileges and immunities accorded the Trustee pursuant to Article VIII hereof.
Subject to Section 5.05 hereof, upon surrender for registration of
transfer of any Certificate at the Corporate Trust Office of the Certificate
Registrar or at any other office or agency of the Certificate Registrar
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 Certificate Registrar) be duly endorsed by, or be accompanied by
a written instrument of transfer in a form satisfactory to the Certificate
Registrar 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 Certificate Registrar 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 Certificate Registrar shall provide notice to the Trustee of each
transfer of a Certificate and shall provide the Trustee and the Master Servicer
with an updated copy of the Certificate Register on January 1 and July 1 of each
year. If the Trustee shall not at any time be acting as the Certificate
Registrar, the Trustee shall have the right to inspect such Certificate Register
at all reasonable times and to rely conclusively upon a certificate of the
Certificate Registrar as to the names and addresses of the Certificateholders
and the Percentage Interests held by each.
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 Saxon, the Trustee, the Certificate Registrar, the Master Servicer and
the Certificate Insurer 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. None of Saxon, the Trustee, the
Certificate Registrar, the Master Servicer or the Certificate Insurer 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 Certificate Registrar shall not register
any transfer of a Private Certificate (other than a Residual Certificate) unless
and until the prospective transferee provides the Certificate Registrar with a
Transferee Agreement or 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 the proposed transferee of a Private Certificate does
not certify to facts which, if true, would mean that such proposed transferee is
a Qualified Institutional Buyer, the Certificate Registrar shall require that
the transferor and such 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 Saxon
from Saxon or an Affiliate of Saxon, the Master Servicer or the Certificate
Registrar 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 Saxon, the Certificate Registrar 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 issuance of
the Private Certificates to Saxon, SMI, the Master Servicer, the Trustee or any
of their Affiliates.
Saxon shall provide to any Holder of a Private Certificate and any
prospective transferee that is a Qualified Institutional Buyer 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 Certificate Registrar and the Master Servicer
with a Benefit Plan Opinion. The transferee of a Public Subordinated
Certificate that does not provide the Certificate Registrar 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 Certificate Registrar 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 Certificate
Registrar 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 Certificate Registrar with an Opinion of Counsel
(which shall not be an expense of the Master Servicer or the Certificate
Registrar) that the transfer will not jeopardize the REMIC status of any related
REMIC). Notwithstanding the foregoing, the Residual Transferee Agreement,
Benefit Plan Affidavit, Disqualified Organization Affidavit or TAPRI Certificate
shall not be required to be provided upon original issuance of a Residual
Certificate to Saxon or SMI or any of their Affiliates or to the Master
Servicer, the Trustee or any of their Affiliates for the purpose of acting as
the Tax Matters Persons. Furthermore, if a proposed transfer involves a Private
Certificate, (i) the Certificate Registrar 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 Saxon from Saxon or an
Affiliate of Saxon, the Certificate Registrar 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 Certificate Registrar or the
Master Servicer. In any event, the Certificate Registrar 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 issuance 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 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 Paying
Agent, 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 Saxon, the Trustee, any REMIC, the Master Servicer, the
Certificate Registrar, the Paying Agent 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 its respective satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee or the Certificate
Registrar such security or indemnity as may be required by them to save each of
them and the Certificate Insurer 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 Certificate Registrar 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 Master Servicer, the Trustee, the Paying Agent, 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
Master Servicer, the Trustee, the Certificate Registrar, the Paying Agent nor
any agent of either of them shall be affected by notice to the contrary.
Section 5.08. Paying Agent
Any Paying Agent designated in the related Trust Agreement shall make
distributions to Certificateholders. Upon any resignation of any Paying Agent,
the Trustee shall promptly appoint, with the consent of the Certificate Insurer
(unless a Certificate Insurer Default exists), a successor or, in the absence of
such appointment, shall assume the duties of Paying Agent. No such resignation
shall be effective until the acceptance of appointment by the successor Paying
Agent. The Trustee shall have no liability or responsibility for any act or
omission to act of any Paying Agent appointed (unless the Trustee is then
servicing as such Paying Agent) pursuant to the terms of the related Trust
Agreement. Any 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. Any Paying Agent shall be entitled to the same rights,
privileges and immunities accorded the Trustee pursuant to Article VIII hereof.
ARTICLE VI
SAXON AND THE MASTER SERVICER
Section 6.01. Liability of, and Indemnification by, Saxon and the
Master Servicer
Saxon 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 Saxon and the Master Servicer under the
Trust Agreement.
The Master Servicer shall indemnify and hold harmless the Trustee, Saxon
and the Certificate Insurer 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 Saxon, the Trustee or the
Certificate Insurer 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.
Saxon shall indemnify and hold harmless the Master Servicer and the
Certificate Insurer 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 the Certificate Insurer 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 Saxon or the Master Servicer
Subject to the following paragraph, Saxon and the Master Servicer each
will keep in full effect its existence, rights and franchises under the laws of
the jurisdiction of its organization, and will obtain and preserve its
qualification to do business 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.
Saxon or the Master Servicer may be merged or consolidated with or into
any Person, or transfer all or substantially all their respective assets to any
Person, in which case any Person resulting from any merger or consolidation to
which Saxon or the Master Servicer shall be a party, or any Person succeeding to
the business of Saxon or the Master Servicer, shall be the successor of Saxon 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 Saxon, the Master Servicer and
Others
Neither Saxon, the Master Servicer nor any of the directors, officers,
employees or agents of Saxon 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
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties under the Trust Agreement. Saxon, the Master Servicer and
any of the directors, officers, employees or agents of Saxon or the Master
Servicer may rely in good faith on any document of any kind which, prima facie,
is properly executed and submitted by any Person respecting any matters arising
hereunder. Neither Saxon 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 Saxon or the Master Servicer may in its
discretion with the consent of the Certificate Insurer (unless a Certificate
Insurer Default exists) 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
Certificate Insurer or the Certificateholders offer to Saxon 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 (without regard to any Credit Enhancement) 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 any late reporting fees paid by a Servicer pursuant
to Section 450 of the Guide.
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 the Certificate Insurer,
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, the
Certificate Insurer or Saxon under the Trust Agreement.
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 its Servicing Agreement, the Master Servicer shall promptly deliver
to the Certificate Insurer, with copies to Saxon, the Master Servicer 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. Subject to Section 1.03 hereof, the Master Servicer may
or shall terminate such Servicing Agreement.
If a Servicing Agreement is terminated, the Master Servicer shall enter
into a substitute Servicing Agreement with another mortgage loan servicing
company acceptable to the Master Servicer and Rating Agency under which such
mortgage loan servicing 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
terminated 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 Master Servicer 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 terminated 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 of the Standard Terms. 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 terminated Servicer would have been entitled if the Servicing
Agreement with such 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 the
Certificate Insurer, or to the Master Servicer and the Trustee by (i) the
Certificate Insurer (unless a Certificate Insurer Default exists) or (ii) if
there is not a Certificate Insurer (or a Certificate Insurer Default exists),
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, marshaling 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
(c) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceeding of or relating to the
Master Servicer or relating to all or substantially all 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 and
subject to Section 1.03 hereof. Subject to Section 1.03 hereof, 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 the rights and
obligations of the Master Servicer under the Trust Agreement, other than its
rights as a Certificateholder. Subject to Section 1.03 hereof if an Event of
Default described in clauses (e) and (f) of this Section 7.02 shall occur, the
Trustee may terminate, by notice in writing to the Master Servicer, all 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 the protections and indemnification afforded to the Master
Servicer pursuant to Section 6.03 hereof.
Notwithstanding the above but subject to Section 1.03 hereof, , upon the
occurrence of an Event of Default, if the Trustee shall be unwilling so to act,
or shall, if it is unable so to act or, if (i) the Certificate Insurer or (ii)
if there is not a Certificate Insurer (or a Certificate Insurer Default exists)
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 its 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.
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
Saxon 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 Saxon, 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. 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).
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 chosen with due care
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;
(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 its 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 Saxon, 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 Saxon of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to Saxon 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, the Paying Agent, the Certificate Registrar or the
Custodian in its respective 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, the Paying Agent, the Certificate Registrar or the Custodian.
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. Saxon shall indemnify
and hold harmless the Trustee, the Paying Agent, the Certificate Registrar or
the Custodian 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,
the Paying Agent, the Certificate Registrar or the Custodian or any director,
officer, employee or agent thereof, or the performance of any of the duties of
the Trustee, the Paying Agent or the Certificate Registrar under the Trust
Agreement or the duties of the Custodian under any custodial agreement other
than any loss, liability or expense incurred by reason of the willful
misfeasance, bad faith or negligence in the performance of the duties under the
Trust Agreement or by reason of the willful misfeasance, bad faith or gross
negligence of the Custodian under any custodial agreement (including
specifically any loss, liability or expense incurred by the Custodian by reason
of simple negligence under any custodial agreement). The provisions of this
Section 8.05 shall survive the resignation or removal of the Trustee, the Paying
Agent or the Certificate Registrar and the termination of the Trust Agreement
and the resignation or removal of the Custodian under any custodial 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 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
Saxon, the Master Servicer, the Certificate Insurer and all Certificateholders.
Upon receiving such notice of resignation, Saxon shall promptly, subject to
Section 1.03 hereof, appoint a successor trustee by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee and to
the successor trustee. Saxon 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 Saxon, 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 Saxon, subject to Section
1.03 hereof, 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. Saxon shall also deliver a copy of such
instrument to the Certificateholders, the Master Servicer and each Servicer.
Subject to Section 1.03 hereof, 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 Saxon, the Trustee so removed
and the successor so appointed. Saxon 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 Saxon, 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 Saxon, 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.
Upon acceptance of appointment by a successor trustee as provided in
this Section, Saxon 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 Saxon 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 Saxon.
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, Saxon, the Master Servicer and the Trustee acting jointly, subject to
Section 1.03 hereof, 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 Saxon, the Master Servicer or the Trustee may
consider necessary or desirable. If Saxon 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 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.
Section 8.11. Appointment of Custodians
The appointment of the Custodian may at any time be terminated and a
substitute Custodian appointed therefor by the Trustee, subject to Section 1.03
hereof, pursuant to a Custody Agreement satisfactory in form and substance to
the Trustee. Subject to Section 1.03 hereof, 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 Saxon
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
TERMINATION OF THE TRUST; PURCHASE OF CERTIFICATES
Section 9.01. Termination of Trust
The Trust created under a Trust Agreement and all obligations created
thereby will terminate upon the payment to the Holders of all Certificates
(including the Certificate Insurer, pursuant to its subrogation and
reimbursement rights), from amounts other than those available under the
Certificate Insurance Policies, of all amounts held by the Trustee and required
to be paid to such Holders pursuant to this Agreement upon the later to occur of
(a) the final payment or other liquidation (or any advance made with respect
thereto) of the last Mortgage Loan in the Trust Estate, (b) the disposition of
all property acquired in respect of any Mortgage Loan remaining in the Trust
Estate and (c) if an election has been made to treat certain assets of the Trust
as a REMIC, at any time when a Qualified Liquidation of the REMIC is effected as
described below. To effect a termination of this Agreement pursuant to clause
(c) above, the Holders of all Certificates then Outstanding shall (i)
unanimously direct the Trustee on behalf of the REMIC to adopt a plan of
complete liquidation , as contemplated by Section 860F(a)(4) of the Code and as
prepared by the Master Servicer and (ii) provide to the Trustee and the
Certificate Insurer an opinion of counsel experienced in federal income tax
matters acceptable to the Certificate Insurer and the Trustee to the effect that
such liquidation constitutes, as to the REMIC, a Qualified Liquidation, and the
Trustee either shall sell the assets constituting the REMIC and distribute the
proceeds of the liquidation of the Trust Estate, or shall distribute equitably
in kind all the assets of the Trust Estate to the remaining Holders of the
Certificates each in accordance with such plan, so that the liquidation or
distribution of the Trust Estate, the distribution of any proceeds of the
liquidation and the termination of this Agreement occur no later than the close
of the 90th day after the date of adoption of the plan of liquidation and such
liquidation qualifies as a Qualified Liquidation. The Holders of the
Certificates agree, by acceptance of the Certificates, that there may be no
claim under any Certificate Insurance Policy following termination of the Trust
pursuant to clause (c) of the first sentence of this Section 9.01 without the
consent of the Certificate Insurer. In no event, however, will the Trust created
by this Agreement continue beyond the expiration of twenty-one (21) years from
the death of the last survivor of the descendants of George Herbert Walker Bush,
former President of the United States, living on the date hereof. The Trustee
shall give written notice of termination of the Agreement to each Holder and the
Certificate Insurer in the manner set forth in Section 11.05 hereof.
Section 9.02. Optional Termination
(a) On any Master Servicer Remittance Date on or after the Initial
Optional Termination Date, the Depositor or the Holders of a majority in
Percentage Interests of the Class of Certificates designated in the Trust
Agreement (the "Designated Class") may determine to purchase and may cause the
purchase from the Trust of all (but not fewer than all) Mortgage Loans and all
property theretofore acquired in respect of any Mortgage Loan by foreclosure,
deed in lieu of foreclosure, or otherwise then remaining in the Trust Estate at
a price equal to 100% of the aggregate Scheduled Principal Balances of the
Mortgage Loans (including any REO Property) as of the day of purchase minus
amounts remitted from the Master Servicer Custodial Account to the Asset
Proceeds Account representing collections of principal on the Mortgage Loans
during the current Remittance Period, plus one month's interest on such amount
computed at the Adjusted Pass-Through Rate, plus in all cases all accrued and
unpaid Servicing Fees and Master Servicing Fees plus any unpaid Reimbursement
Amounts plus the aggregate amount of any unreimbursed Advances and any Advances
which a Servicer or the Master Servicer has theretofore failed to remit; but in
any event such purchase amount shall be sufficient to retire all other
Certificates in full. In connection with such purchase, the Master Servicer
shall remit to the Trustee (or the Paying Agent on behalf of the Trustee) all
amounts then on deposit in the Master Servicer Custodial Account for deposit to
the Asset Proceeds Account, which deposit shall be deemed to have occurred
immediately preceding such purchase.
(b) If an election has been made to treat certain assets of the Trust as
a REMIC, in connection with any such purchase, the Depositor or such Holders
shall direct the Trustee to adopt and the Trustee shall adopt, as to the REMIC,
a plan of complete liquidation acceptable to the Certificate Insurer, as
contemplated by Section 860F(a)(4) of the Code and as prepared by the Master
Servicer, and shall provide to the Trustee and the Certificate Insurer an
Opinion of Counsel experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee to the effect that such purchase and
liquidation constitutes, as to the REMIC, a Qualified Liquidation. In addition,
the Depositor or such Holders shall provide to the Trustee and the Certificate
Insurer an Opinion of Counsel acceptable to the Trustee and the Certificate
Insurer to the effect that such purchase and liquidation does not constitute a
preference payment pursuant to the United States Bankruptcy Code.
(c) Promptly following any purchase described in this Section 9.02, the
Trustee will release the Trustee Mortgage Loan File to the Holders of the
Designated Certificates or otherwise upon their order.
Section 9.03 Optional Purchase
On any Distribution Date on or after the Initial Optional Termination
Date, the Holders of a majority in Percentage Interests of the Designated Class
may purchase the Certificates of all other Classes by depositing with the Paying
Agent on the preceding Master Servicer Remittance Date an amount equal to the
Certificate Principal Balance of such Certificates on such Distribution Date
plus interest thereon to such Distribution Date.
Section 9.04. Termination Upon Loss of REMIC Status
If a REMIC has been formed with respect to all or any portion of the
Trust Estate:
(a) Following a final determination by the Internal Revenue Service or
by a court of competent jurisdiction, in either case from which no appeal is
taken within the permitted time for such appeal, or if any appeal is taken,
following a final determination of such appeal from which no further appeal may
be taken, to the effect that the REMIC does not and will no longer qualify as a
REMIC pursuant to Section 860D of the Code (the "Final Determination"), at any
time on or after the date which is 30 calendar days following such Final
Determination (i) the Certificate Insurer or the Holders of a majority in
Percentage Interests of the Regular Certificates then outstanding with the
consent of the Certificate Insurer may direct the Trustee on behalf of the Trust
to adopt a plan of complete liquidation, as prepared by the Master Servicer and
(ii) the Certificate Insurer may notify the Trustee of the Certificate Insurer's
determination to purchase from the Trust all (but not fewer than all) Mortgage
Loans and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise in respect of any Mortgage Loan then remaining in the
Trust Estate at a price equal to the sum of (x) the greater of (i) 100% of the
aggregate Scheduled Principal Balances of the Mortgage Loans as of the day of
purchase minus amounts remitted from the Master Servicer Custodial Account
representing collections of principal on the Mortgage Loans during the current
Remittance Period and (ii) the fair market value of such Mortgage Loans
(disregarding accrued interest), (y) one month's interest on such amount
computed at the Adjusted Pass-Through Rate and (z) the aggregate amount of any
unreimbursed Advances and any Advances which a Servicer or Master Servicer has
theretofore failed to remit.
Upon receipt of such direction from the Certificate Insurer, the Trustee
shall notify the Servicers and the Holders of the Residual Certificates of such
election to liquidate or such determination to purchase, as the case may be (the
"Termination Notice"). The Holders of a majority of the Percentage Interest of
the Residual Certificates then Outstanding may, within 60 days from the date of
receipt of the Termination Notice (the "Purchase Option Period"), at their
option, purchase from the Trust all (but not fewer than all) Mortgage Loans and
all property theretofore acquired by foreclosure, deed in lieu of foreclosure,
or otherwise in respect of any Mortgage Loan then remaining in the Trust Estate
at a purchase price equal to the aggregate Scheduled Principal Balances of all
Mortgage Loans as of the date of such purchase, plus (a) one month's interest on
such amount at the Adjusted Pass-Through Rate, (b) the aggregate amount of any
unreimbursed Advances and unpaid Servicing Fees and Master Servicing Fees, (c)
any Advances which a Servicer or Master Servicer has theretofore failed to remit
and (d) any outstanding Reimbursement Amount.
If, during the Purchase Option Period, the Holders of the Residual
Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period (i)
if the Certificate Insurer or the Holders of a majority in Percentage Interests
of the Regular Certificates with the consent of the Certificate Insurer have
given the Trustee the direction described in clause (a)(i) above, the Trustee
shall sell the Mortgage Loans and reimburse the Servicers or Master Servicer for
unreimbursed Advances and Servicing Fees and distribute the remaining proceeds
of the liquidation of the Trust Estate, each in accordance with the plan of
complete liquidation, such that, if so directed, the liquidation of the Trust
Estate, the distribution of the proceeds of the liquidation and the termination
of this Agreement occur no later than the close of the 60th day, or such later
day as the Certificate Insurer or Holders with the consent of the Certificate
Insurer shall permit or direct in writing, after the expiration of the Purchase
Option Period and (ii) if the Certificate Insurer has given the Trustee notice
of the Certificate Insurer's determination to purchase the Trust Estate
described in clause (a)(ii) above, the Certificate Insurer shall, within 60
days, purchase all (but not fewer than all) Mortgage Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure or otherwise in
respect of any Mortgage Loan then remaining in the Trust Estate. In connection
with such purchase, the Master Servicer shall remit to the Trustee (or the
Paying Agent on behalf of the Trustee) all amounts then on deposit in the Master
Servicer Custodial Account for deposit to the Asset Proceeds Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
(b) Following a Final Determination, the Holders of a majority in
Percentage Interests of the Residual Certificates then Outstanding may, at their
option and upon delivery to the Certificate Insurer of an Opinion of Counsel
experienced in federal income tax matters acceptable to the Certificate Insurer
selected by such Holders which opinion shall be reasonably satisfactory in form
and substance to the Certificate Insurer to the effect that the effect of the
Final Determination is to increase substantially the probability that the gross
income of the Trust will be subject to federal taxation, purchase from the Trust
all (but not fewer than all) Mortgage Loans and all property theretofore
acquired by foreclosure, deed in lieu of foreclosure, or otherwise in respect of
any Mortgage Loan then remaining in the Trust Estate at a purchase price equal
to the aggregate Scheduled Principal Balances of all Mortgage Loans as of the
date of such purchase, plus (a) one month's interest on such amount computed at
the Adjusted Pass-Through Rate, (b) the aggregate amount of unreimbursed
Advances, Servicing Fees and Master Servicing Fees, (c) the interest portion of
any Advances which a Servicer or Master Servicer has theretofore failed to remit
and (d) any outstanding Reimbursement Amount. In connection with such purchase,
the Master Servicer shall remit to the Trustee (or the Paying Agent on behalf of
the Trustee) all amounts then on deposit in the Master Servicer Custodial
Account for deposit to the Asset Proceeds Account, which deposit shall be deemed
to have occurred immediately preceding such purchase. The foregoing opinion
shall be deemed satisfactory unless the Certificate Insurer gives such Holders
notice that such opinion is not satisfactory within thirty days after receipt of
such opinion. In connection with any such purchase, such Holders shall direct
the Trustee to adopt a plan of complete liquidation acceptable to the
Certificate Insurer, as prepared by the Master Servicer and shall provide to the
Trustee and the Certificate Insurer an Opinion of Counsel experienced in federal
income tax matters to the effect that such purchase constitutes, as to the
REMIC, a Qualified Liquidation.
Section 9.05. Disposition of Proceeds
The Trustee (or the Paying Agent on behalf of the Trustee) shall deposit
the proceeds of any liquidation of the Trust Estate pursuant to this Article IX
to the Asset Proceeds Account for application as provided in the Trust
Agreement; provided, however, that any amounts representing unrecovered Advances
which the Master Servicer determined to be non-recoverable and unreimbursed
Advances and Servicing Fees theretofore funded by a Servicer from such
Servicer's own funds shall be paid by the Trustee (or the Paying Agent on behalf
of the Trustee) to such Servicer from the proceeds of the Trust Estate.
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 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) Saxon, the Master Servicer, the Trustee (to the extent it has been
instructed by Saxon 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) Saxon, the Master Servicer, the Trustee (to the extent it has been
instructed by Saxon 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 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 Saxon, 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
(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
Saxon, the Master Servicer and the Trustee with the consent of the Certificate
Insurer if there is a Certificate Insurer (unless a Certificate Insurer Default
exists) but 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 Saxon, the
Master Servicer and the Trustee with the consent of the Certificate Insurer if
there is a Certificate Insurer (unless a Certificate Insurer Default exists) and
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 Saxon 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 of or
all 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 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
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 the
party concerned 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 any such party. Any notice required or permitted
to be mailed to a Certificateholder shall be given by first-class mail, postage
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 Saxon and the Trustee that the conveyance of
the Mortgage Loans by Saxon to the Trustee pursuant to the Trust Agreement be
construed as a sale of the Mortgage Loans by Saxon to the Trustee for the
benefit of the Certificateholders. It is, further, not the intention of Saxon
and the Trustee that such conveyance be deemed a pledge of the Mortgage Loans by
Saxon to the Trustee for the benefit of the Certificateholders to secure a debt
or other obligation of Saxon. Nevertheless, if, notwithstanding the intent of
the parties, the Mortgage Loans are held to continue to be property of Saxon
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 Saxon provided for
in the Trust Agreement shall be deemed to be a grant by Saxon to the Trustee for
the benefit of the Certificateholders of a security interest in all Saxon'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 the Custodian 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. Saxon
and the Trustee (to the extent it has been instructed by Saxon 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 Saxon, the
Master Servicer, the Trustee or any Servicer;
(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
if 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.
<PAGE>
A-1-1
Exhibit A-1
FORM OF INITIAL CERTIFICATION
[____________], 199[_]
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Attention: [____________________]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Trust Agreement, dated as of [____________], 199[_]
among Saxon Asset Securities Company,
[____________________], as Master Servicer,
and [____________________]_, as Trustee,
Mortgage Loan 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 Custodian hereby certifies that, as to each
mortgage loan listed in the Mortgage Loan Schedule [to the Trust Agreement
referred to above] [to the Subsequent Sales Agreement dated [ ], 199[ ], 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; (ii) such documents have been reviewed by
it and appear regular on their face and relate to such Mortgage Loan; and (iii)
based on its examination, or the examination by a Custodian on its behalf, and
only as to such documents, the information set forth on such Mortgage Loan
Schedule accurately reflects the information set forth in the Trustee Mortgage
Loan File. The Custodian further certifies that its review of each Trustee
Mortgage Loan File included each of the procedures listed in clause (b) of
Section 2.02 of the Standard Terms.
The Custodian 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. Neither the Trustee nor the Custodian makes any
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.
[CUSTODIAN],
as custodian
By:____________________________
Title:_________________________
<PAGE>
A-2-1
Exhibit A-2
FORM OF FINAL CERTIFICATION
[____________], 199[_]
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Attention: [____________________]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
Trust Agreement, dated as of [____________], 199[_]
among Saxon Asset Securities Company,
[____________________], as Master Servicer,
and [____________________]_, as Trustee,
Mortgage Loan 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 Custodian hereby certifies that, except as
noted on the Schedule of Exceptions attached hereto, for each Mortgage Loan
listed in the Mortgage Loan Schedules (other than any Mortgage Loan paid in full
or listed on the attachment hereto) it 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.
Neither the Trustee nor the Custodian makes any 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.
[CUSTODIAN],
as custodian
By:____________________________
Title:_________________________
<PAGE>
B-1
Exhibit B
FORM OF RECORDATION REPORT
[____________], 199[_]
[MASTER SERVICER]
[-------------------------]
[-------------------------]
Attention: [____________________]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
Trust Agreement, dated as of [____________], 199[_]
among Saxon Asset Securities Company,
[____________________], as Master Servicer,
and [____________________]_, as Trustee,
Mortgage Loan Asset Backed Certificates, Series 199[_]-[_]
Ladies and Gentlemen:
In accordance with Section 2.02(e) of the Standard Terms, the Custodian
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.]
{PRIVATE} Documents Not Received
------------------------------------------------------
Original Recorded
Original Recorded Assignment of
Security Instrument Security Instrument
Saxon Loan Number or certified copy thereof or certified copy thereof
- ------------------- ------------------------- -------------------------
*Also required with regard to any intervening Assignments.
[TRUSTEE],
as Trustee
By:____________________________
Title:_________________________
<PAGE>
C-1
Exhibit C
FORM OF REMITTANCE REPORT
Saxon Asset Securities Company
Trust: Mortgage Loan 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>
{PRIVATE}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>
<PAGE>
D-1
Exhibit D
FORM OF RULE 144A AGREEMENT-QIB CERTIFICATION
SAXON ASSET SECURITIES COMPANY
MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 199[_]-[_], CLASS [___]
[____________], 199[_]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER] [CERTIFICATE REGISTRAR]
[-------------------------]
[-------------------------]
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, Saxon, 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 Saxon, the Master Servicer, the Certificate
Registrar, the Paying Agent, 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.
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:_________________________
<PAGE>
D-1-1
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.
_____ 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.
<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,
Mortgage Loan Asset Backed Certificates, Series 199[_]-[_], Class [___]
<PAGE>
D-2-1
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.
<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,
Mortgage Loan Asset Backed Certificates, Series 199[_]-[_], Class [___]
IF AN ADVISER:
Print Name of Transferee
Date:__________________________
<PAGE>
E-3
Exhibit E
FORM OF TRANSFEREE AGREEMENT
SAXON ASSET SECURITIES COMPANY
MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 199[_]-[_], CLASS [___]
[____________], 199[_]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER] [CERTIFICATE REGISTRAR]
[-------------------------]
[-------------------------]
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, Saxon, 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) The Transferee confirms that Saxon has made available to
the Transferee the opportunity to ask questions of, and receive answers
from, Saxon concerning Saxon, the Trust, the purchase by the Transferee
of the Purchased Certificates and all matters relating thereto, and to
obtain additional information relating thereto that Saxon 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 Saxon, 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 Saxon, 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 Saxon from Saxon or an Affiliate of Saxon, the Master
Servicer or the Trustee may require an Opinion of Counsel (which shall
not be an expense of Saxon, 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 Saxon, 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.
<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:_________________________
<PAGE>
F-2
Exhibit F
FORM OF BENEFIT PLAN AFFIDAVIT
Re: Saxon Asset Securities Company
Series 199[_]-[_] Trust (the "Trust")
Mortgage Loan 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.
<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[_].
<PAGE>
G-4
Exhibit G
FORM OF RESIDUAL TRANSFEREE AGREEMENT
SAXON ASSET SECURITIES COMPANY
MORTGAGE LOAN ASSET BACKED CERTIFICATES, SERIES 199[_]-[_], CLASS [R]
[____________], 199[_]
[TRUSTEE]
[-------------------------]
[-------------------------]
Attention: [____________________]
[MASTER SERVICER] [CERTIFICATE REGISTRAR]
[-------------------------]
[-------------------------]
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, Saxon, 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 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 Saxon has made available to
the Transferee the opportunity to ask questions of, and receive answers
from, Saxon concerning Saxon, the Trust, the purchase by the Transferee
of the Residual Certificates and all matters relating thereto, and to
obtain additional information relating thereto that Saxon 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 Saxon 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 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;
(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 Saxon, 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 Saxon, 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.
(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 #__________________
<PAGE>
H-1-3
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")
Mortgage Loan 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").
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 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 Saxon (upon the advice of counsel to
Saxon) 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.
<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[_].
<PAGE>
H-2-2
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")
Mortgage Loan 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 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 Saxon (upon the advice of counsel to
Saxon) 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.
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[_].
EXHIBIT 5.1
February 19, 1997
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Saxon Asset Securities Company
Asset Backed Certificates
Registration Statement on Form S-3 No. 333-20025
Dear Sirs:
We have acted as counsel to Saxon Asset Securities Company (the
"Depositor") in connection with the preparation of Registration Statement No.
333-20025 on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Act"), in respect of Asset Backed Certificates, issuable in series (the
"Certificates"). Each series will be issued under the terms of the Standard
Terms to Trust Agreement, in substantially the form filed as part of Exhibit 4.1
to the Registration Statement, as supplemented by Trust Agreements relating to
each series of Certificates (each, a "Trust Agreement"), by and between the
Seller and a trustee (the "Trustee") and master servicer (the "Master Servicer")
to be identified in the prospectus supplement for such series of Certificates.
We have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such documents and records of
the Seller and such other instruments and other certificates of public
officials, officers and representatives of the Seller and such other persons,
and we have made such investigations of law, as we deemed appropriate as a basis
for the opinions expressed below.
The opinions expressed below are subject to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
<PAGE>
Saxon Asset Securities Company
February 19, 1997
Page 2
This opinion is limited to matters involving the Federal laws of the
United States of America and the laws of the Commonwealth of Virginia. All
opinions expressed herein are based on laws, regulations and policy guidelines
currently in force and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
1. When, in respect of a series of Certificates, a Trust Agreement has
been duly authorized by all necessary action and duly executed and delivered by
the Depositor, the Master Servicer and the Trustee for such series, such Trust
Agreement, will be a valid and legally binding obligation of the Depositor.
2. When a Trust Agreement for a series of Certificates has been duly
authorized by all necessary action and duly executed and delivered by the
Depositor, the Master Servicer and the Trustee for such series, and when the
Certificates of such series have been duly executed and authenticated in
accordance with the provisions of the Trust Agreement, and issued and sold as
contemplated in the Registration Statement and the prospectus, as amended or
supplemented, delivered pursuant to Section 5 of the Act in connection
therewith, such Certificates will be legally and validly issued, fully paid and
nonassessable, and the holders of such Certificates will be entitled to the
benefits of such Trust Agreement.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters".
This opinion is furnished by us as counsel to the Depositor and is
solely for the benefit of the addressee thereof. It may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
/s/
Arter & Hadden
EXHIBIT 8.1
February 19, 1997
Saxon Asset Securities Company
4880 Cox Road
Glen Allen, Virginia 23060
Saxon Asset Securities Company
Asset Backed Certificates
Registration Statement on Form S-3 No. 333-20025
Dear Sirs:
We have acted as counsel to Saxon Asset Securities Company in
connection with certain matters relating to the preparation and filing of
Registration Statement No. 333-20025 on Form S-3 (the "Registration Statement")
which has been filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Act"), in respect of Asset Backed
Certificates, issuable in series (the "Certificates"). Our advice formed the
basis for the description of federal income tax consequences appearing under the
heading "Certain Federal Income Tax Consequences" in the Prospectus contained in
the Registration Statement. In our opinion, the discussion under "Certain
Federal Income Tax Consequences" accurately summarizes in all material respects
the federal income tax consequences of the purchase, ownership and disposition
of the Certificates and, assuming issuance of Certificates of a series and their
federal income tax characterization as REMIC Certificates or non-REMIC
Certificates at that time, the discussion sets forth our opinion as to the
material federal tax issues relating to an investment in the Certificates.
We hereby consent to the filing of this letter as Exhibit 8.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and related prospectus under the heading "Certain Federal Income Tax
Consequences."
Sincerely,
/s/
Arter & Hadden
