Registration No. 333-
As filed with the Securities and Exchange Commission on May 17, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
QUALITY MORTGAGE ACCEPTANCE CORP.
(Exact name of registrant as specified in its charter)
California 330707696
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
(714) 440-1000
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
Frank Waters
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
(714) 440-1000
(Name, address, including zip code, and telephone number
including area code, of agent for service)
Copies to:
Kenneth E. Kohler
Mayer, Brown & Platt
350 South Grand Avenue, 25th Floor
Los Angeles, California 90071
(213) 229-9500
Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
Registration Statement as determined by market conditions.
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, as amended, other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
CALCULATION OF REGISTRATION FEE
Title of
each Class Proposed Proposed
of Securities Amount Maximum Maximum Amount of
to be to be Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee
Mortgage Loan
Asset-Backed
Certificates $1,000,000 (1) $1,000,000(1) $345(2)
(1) The proposed maximum offering price per unit will be
determined, from time to time, by the Registrant in
connection with the issuance by the Registrant of the
securities registered hereunder.
(2) Calculated pursuant to Rule 457(o) of the rules and
regulations under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay the effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Registration Statement includes (i) a base prospectus
and an illustrative form of prospectus supplement for use in an
offering of mortgage loan asset-backed certificates that
represent interests in a trust fund consisting of a pool of one-
to four-unit residential mortgage loans, and (ii) a base
prospectus and an illustrative form of prospectus supplement for
use in an offering of mortgage loan asset-backed certificates
that represent interests in a trust fund consisting of a pool of
multifamily (five or more units) mortgage loans. Also included
is an illustrative form of Pooling and Servicing Agreement for
use in an offering of mortgage loan asset-backed certificates
that represent interests in a trust fund consisting of a pool of
either one- to four-unit or five or more units residential
mortgage loans. Appropriate modifications will be made to the
forms of prospectus supplements to disclose the specific terms of
any particular series of certificates, the specific classes of
certificates to be offered thereby and the terms of the related
offering. Each base prospectus used (in either preliminary or
final form) will be accompanied by a prospectus supplement.
[SINGLE FAMILY]
SUBJECT TO COMPLETION - DATED MAY 17, 1996
PROSPECTUS
May __, 1996
Quality Mortgage Acceptance Corp.
Depositor
Mortgage Loan Asset-Backed Certificates
(Issuable in Series)
This Prospectus relates to Mortgage Loan Asset-Backed
Certificates (the "Certificates") which may be sold from time to
time under this Prospectus and related Prospectus Supplements in
one or more series (each a "Series") by Quality Mortgage
Acceptance Corp. (the "Depositor"). Capitalized terms not
otherwise defined herein have the meanings specified in the
Glossary attached hereto.
Each Certificate of a Series will evidence a beneficial
ownership interest in assets deposited into a trust (a "Trust
Fund") by the Depositor pursuant to a Pooling and Servicing
Agreement executed by the Depositor, the Trustee and the Master
Servicer for such Series specified in the related Prospectus
Supplement. The Trust Fund will consist of Mortgage Assets,
which may include Mortgage Loans or Manufactured Home Loans, or
participation interests therein, Private Mortgage-Backed
Securities or any combination of the foregoing and other assets,
including any insurance policies, reserve funds, accounts or
other credit supports specified in the related Prospectus
Supplement. The Mortgage Loans and Manufactured Home Loans in
the Trust Fund for a Series will have been originated by Quality
Mortgage USA, Inc., or other affiliates of the Depositor, and
other various financial institutions and entities engaged
generally in the business of originating and/or servicing housing
loans. The Mortgage Loans and the Manufactured Home Loans may
include, without limitation, fixed rate or adjustable rate
Conventional Loans, FHA Loans or VA Loans and may provide for
graduated equity, graduated payment, "buy-down" or other payment
features, and may call for payments from the obligors other than
monthly payments, as specified in the related Prospectus
Supplement. Mortgage Loans underlying or comprising the Mortgage
Assets will be secured by property consisting of single family
(one- to four-family) attached or detached residential housing
units. Some Mortgage Loans underlying the Mortgage Assets may be
delinquent or non-performing as specified in the related
Prospectus Supplement. Manufactured Home Loans underlying or
comprising the Mortgage Assets will be secured by property
consisting of Manufactured Homes. See "THE TRUST FUNDS."
Manufactured Home Loans and the Mortgage Loans, or participation
interests therein, will be serviced by various servicers under
the supervision of the Master Servicer or by the Master Servicer
directly as specified in the related Prospectus Supplement. The
Master Servicer's and any Servicer's obligations will each be
limited to its contractual, supervisory and/or servicing
obligations and such other obligations as are specified in the
related Prospectus Supplement. See "SERVICING OF LOANS."
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These Securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Each Series of Certificates will consist of one or more
Classes. If a Series includes multiple Classes, such Classes may
vary with respect to the amount, percentage and timing of
distributions of principal, interest or both and one or more
Classes may be subordinated to other Classes with respect to
distributions of principal, interest or both as described herein
and in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the Mortgage Assets held under the
Pooling and Servicing Agreement may be divided into one or more
Asset Groups and the Certificates of each separate Class will
evidence beneficial ownership of each corresponding Asset Group.
See "DESCRIPTION OF THE CERTIFICATES."
Distribution of principal of and interest on the
Certificates of each Series will be made on each Distribution
Date for a Series. The rate of reduction of the aggregate
principal balance of each Class of a Series will depend
principally upon the rate of payment (including prepayments) with
respect to the Loans comprising or underlying the Mortgage
Assets. A rate of prepayment lower or higher than anticipated
may affect yield on Certificates of a Series in the manner
described herein and in the related Prospectus Supplement. Under
certain limited circumstances described herein and in the related
Prospectus Supplement, the Mortgage Assets may be purchased by
the entity specified in the related Prospectus Supplement and the
related Trust Fund may be terminated prior to the maturity of the
Mortgage Assets or the Final Scheduled Distribution Date of the
Certificates of the related Series. If so specified in the
related Prospectus Supplement, Certificates of a Series may be
subject to special distributions in reduction of principal
balance under certain circumstances. See "DESCRIPTION OF THE
CERTIFICATES" and "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS."
The Certificates evidence an interest in the related Trust
Fund only, and are not guaranteed by any governmental agency, or
by the Depositor, the Trustee, the Master Servicer, or by any of
their respective affiliates or, unless otherwise specified in the
related Prospectus Supplement, by any other person or entity.
The Depositor's only obligations with respect to any Series will
be pursuant to certain representations and warranties set forth
in the related Pooling and Servicing Agreement as described
herein or in the related Prospectus Supplement. See "THE POOLING
AND SERVICING AGREEMENTS."
If specified in the related Prospectus Supplement, one or
more elections may be made to treat the Trust Fund for a Series
as a "real estate mortgage investment conduit" (a "REMIC") for
federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."
Certificates of a Series offered hereby and by the related
Prospectus Supplement may be made through one or more different
methods, including offerings through one or more underwriters, as
more fully described herein and in the related Prospectus
Supplement. See "PLAN OF DISTRIBUTION." Retain this Prospectus
for future reference. This Prospectus may not be used to
consummate sales of the securities offered hereby unless
accompanied by a Prospectus Supplement.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of
Certificates will, among other things, set forth with respect to
such Series: (a) the aggregate initial principal balances, the
Certificate Rate (or method for determining it in the case of
Floating Interest Certificates) and authorized denominations of
each Class of such Series; (b) certain information concerning the
Trust Fund for such Series, including the principal amount, type
and characteristics of Mortgage Assets included in the Trust Fund
on the date of issue, and, if applicable, the amount of Reserve
Funds, if any, for such Series; (c) where Private Mortgage-Backed
Securities are included in the Trust Fund, information concerning
the PMBS Issuer, the PMBS Trustee, the PMBS Servicer, if any, and
the underlying collateral; (d) the circumstances, if any, under
which Special Distributions of principal may be made or a Trust
Fund terminated prior to the Final Scheduled Distribution Date;
(e) the Final Scheduled Distribution Date of each Class of such
Series; (f) the method used to calculate the aggregate amount of
principal to be distributed with respect to the Certificates of
such Series on each Distribution Date; (g) the order of the
application of principal distributions to the respective Classes
and the allocation of principal to be so applied; (h) the extent
of subordination of each Class of Subordinate Certificates, if
any; (i) the identity of each Class of Compound Interest
Certificates, Floating Interest Certificates, Principal Weighted
Certificates, Interest Weighted Certificates, Subordinate
Certificates and Reduced Volatility Certificates included in such
Series, if any; (j) the Distribution Dates for the respective
Classes; (k) the Assumed Reinvestment Rate (if applicable); (l)
if applicable, the percentage of Excess Cash Flow to be applied
to distributions in reduction of principal balance of
Certificates of a Series; (m) additional information with respect
to any primary mortgage insurance policy, pool insurance policy,
special hazard insurance policy, bankruptcy bond or repurchase
bond or other credit support, if any, relating to the Series or
the Mortgage Assets; (n) relevant financial information with
respect to the Mortgagor(s) and the Mortgaged Property underlying
the Mortgage Assets, if applicable; (o) the plan of distribution
for such Series; and (p) whether the Certificates are to be
issuable in book-entry or definitive form.
ADDITIONAL INFORMATION
The Depositor has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement under the
Securities Act of 1933, as amended, with respect to the
Certificates. This Prospectus, which forms a part of the
Registration Statement, omits certain information contained in
such Registration Statement pursuant to the Rules and Regulations
of the Commission. The Registration Statement and the exhibits
thereto can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W,
Washington, D.C. 20549, and at certain of its Regional Offices
located as follows: Chicago Regional Office, Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661; and New York Regional Office, 75 Park Place, New
York, New York 10007. Copies of such material can also be
obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the related Trust
Fund are required under the Pooling and Servicing Agreement to be
forwarded to Certificateholders. If the Certificates are issued
in book-entry form, such reports would instead be forwarded to
Participants (as defined herein) as registered holders of the
Certificates. See "DESCRIPTION OF CERTIFICATES-Book-Entry
Registration." In such case, Certificateowners (as defined
herein) may obtain such reports upon request to their
Participants. Such reports will not be examined and reported on
by an independent public accountant. See "THE POOLING AND
SERVICING AGREEMENTS-Reports to Certificateholders."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Depositor on behalf
of the Trust Fund referred to in the accompanying Prospectus
Supplement with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), after the date of such Prospectus
Supplement and prior to the termination of any offering of the
Certificates issued by such Trust Fund shall be deemed to be
incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the 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 the accompanying
Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except
as modified or superseded, to constitute a part of this
Prospectus.
The Depositor on behalf of any Trust Fund will provide
without charge to each person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been
or may be incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by
reference into the information that this Prospectus
incorporates). Such requests should be directed to: Quality
Mortgage Acceptance Corp., 16800 Aston Street, Irvine, California
92714, Attention: Frank Waters.
SUMMARY OF TERMS OF THE CERTIFICATES
The following is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus
and in the Prospectus Supplement with respect to the Series
offered thereby and to the terms and provisions of the related
Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") executed by the Depositor, the master servicer (the
"Master Servicer") and the trustee (the "Trustee") as specified
in the related Prospectus Supplement. All capitalized terms not
otherwise defined in this Prospectus or the related Prospectus
Supplement for a Series have the respective meanings assigned to
them in the Glossary attached hereto.
Securities Offered
The Mortgage Loan Asset-Backed Certificates (the
"Certificates") are issuable from time to time in separate Series
pursuant to separate Pooling and Servicing Agreements. Each
Certificate of a Series will evidence a beneficial ownership
interest in the Trust Fund for such Series, or in an Asset Group
specified in the related Prospectus Supplement. The Certificates
will be issuable in fully registered form in the authorized
minimum denominations and multiples thereof specified in the
related Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Certificates or certain classes of
such Certificates offered thereby may be available in book-entry
form only.
The Certificates of a Series will evidence interests in the
related Trust Fund only and will not be guaranteed by any
governmental agency, by the Depositor, the Trustee, the Master
Servicer or by any of their respective affiliates, or unless
otherwise specified in the related Prospectus Supplement, by any
other person or entity. See "RISK FACTORS" and "CREDIT SUPPORT."
Each series of Certificates will consist of one or more
Classes. If a Series consists of multiple Classes, the
respective Classes may differ with respect to the amount,
percentage and timing of distributions of principal, interest or
both. Additionally, one or more Classes may consist of
Subordinate Certificates which are subordinated to other Classes
of Certificates with respect to the right to receive
distributions of principal, interest, or both under the
circumstances and in such amounts as described herein and in the
related Prospectus Supplement. Any Class of Certificates of a
Series will be offered hereby and by such Prospectus Supplement
only if rated by at least one Rating Agency in one of its four
highest rating categories. See "DESCRIPTION OF THE CERTIFICATES-
General," "CREDIT SUPPORT-Subordinated Certificates" and "RISK
FACTORS."
Depositor
Quality Mortgage Acceptance Corp., a California corporation
(the "Depositor"), was incorporated in May 1996. The principal
executive offices of the Depositor are located at 16800 Aston
Street, Irvine, California 92714 and its telephone number is
(714) 440-1000. The Depositor's only obligations with respect to
the Certificates will be pursuant to certain representations and
warranties described herein under "THE POOLING AND SERVICING
AGREEMENTS." Neither the Depositor nor any affiliate of the
Depositor will guarantee the Certificates or the assets included
in the Trust Fund for a Series. See "RISK FACTORS" and "THE
DEPOSITOR."
Trustee
The Trustee with respect to a Series will be specified in
the related Prospectus Supplement. See "THE POOLING AND
SERVICING AGREEMENTS" herein for a description of the Trustee's
rights and obligations.
Interest Distributions
Interest Distributions on the Certificates of a Series will
be made from amounts available therefor in the related
Certificate Account on each Distribution Date at the applicable
Certificate Rate specified in (or, with respect to Floating
Interest Certificates, determined in the manner set forth in) the
related Prospectus Supplement. The Certificate Rate on
Certificates of a Series may be variable and change with changes
in the mortgage rate or pass-through rates of the Mortgage Assets
included in the related Trust Fund and/or as prepayments occur
with respect to such Mortgage Assets.
Principal Weighted Certificates may not be entitled to
receive any interest distributions or may be entitled to receive
only nominal interest distributions as specified in the related
Prospectus Supplement.
Compound Interest Certificates will not receive
distributions of interest but interest accruing with respect to
the principal balance of such Compound Interest Certificates will
be added to such principal balance on each Distribution Date
until the Accrual Termination Date. Following the Accrual
Termination Date, interest distributions with respect to such
Compound Interest Certificates will be made on the basis of their
Compound Value.
A Series may include one or more Classes of Floating
Interest Certificates. With respect to any such Class of
Floating Interest Certificates, the related Prospectus Supplement
will set forth: (a) the initial Floating Rate (or manner of
determining the initial Floating Rate); (b) the method by which
the Floating Rate will be determined from time to time; (c) the
periodic intervals at which such determination will be made; and
(d) the Maximum Floating Rate and the Minimum Floating Rate, if
any. See "DESCRIPTION OF THE CERTIFICATES" and "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS."
Principal Distributions (Including Prepayments)
Principal distributions on the Certificates of a Series will
be made from amounts available therefor in the related
Certificate Account on each Distribution Date in an aggregate
amount determined as specified in the related Prospectus
Supplement. Principal distributions will be allocated among the
respective Classes of a Series in the manner and in the priority
set forth in the related Prospectus Supplement.
Interest Weighted Certificates may not be entitled to any
principal distributions or may be entitled to receive only
nominal principal distributions as specified in the related
Prospectus Supplement.
If and to the extent specified in the related Prospectus
Supplement, Certificates of a Series having other than monthly
Distribution Dates may be subject to Special Distributions of
principal if, as a result of principal prepayments with respect
to the housing loans comprising or underlying the Mortgage Assets
in the related Trust Fund, low reinvestment yields or both, it is
determined (based on assumptions specified in the related Pooling
and Servicing Agreement) that the amount of cash anticipated to
be available in the Certificate Account for such Series on the
next Distribution Date may be less than the scheduled
distributions to be made on such Distribution Date. See
"DESCRIPTION OF THE CERTIFICATES" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS."
Final Scheduled Distribution Date
The Final Scheduled Distribution Date for each Class of a
Series is the date after which no Certificates of such Class will
remain outstanding, assuming timely payments or distributions are
made on the Mortgage Assets in the related Trust Fund in
accordance with their terms. The Final Scheduled Distribution
Date of a Class may be the same date as the maturity date of the
Mortgage Asset in the related Trust Fund which has the latest
stated maturity or will be determined as described herein and in
the related Prospectus Supplement.
The actual maturity date of the Certificates of a Series
will depend primarily upon the level of prepayments with respect
to the housing loans comprising or underlying the Mortgage Assets
in the related Trust Fund. The actual maturity of any
Certificate is likely to occur earlier and may occur
substantially earlier than its Final Scheduled Distribution Date
as a result of the application of prepayments to the reduction of
the principal balances of the Certificates. The rate of
prepayments on the housing loans comprising or underlying
Mortgage Assets in the Trust Fund for a Series will depend on a
variety of factors, including certain characteristics of such
housing loans and the prevailing level of interest rates from
time to time, as well as on a variety of economic, demographic,
tax, legal, social and other factors. No assurance can be given
as to the actual prepayment experience with respect to a Series.
See "RISK FACTORS" and "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS."
Optional Termination
If so specified in the related Prospectus Supplement, the
Depositor, the Master Servicer, or such other entity that is
specified in the related Prospectus Supplement, may, at its
option, cause an early termination of the related Trust Fund by
repurchasing all of the Mortgage Assets remaining in the Trust
Fund on or after a specified date, or on or after such time as
the aggregate unpaid principal balance of the Mortgage Assets is
less than the percentage specified in the related Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES-Optional
Termination."
The Trust Fund
The Trust Fund for a Series will consist of Private
Mortgage-Backed Securities, Mortgage Loans or Manufactured Home
Loans, or participation interests therein, or any combination of
the foregoing (the "Mortgage Assets"), together with certain
accounts, reserve funds, insurance policies and related
agreements specified in the related Prospectus Supplement
(Mortgage Loans and Manufactured Home Loans are referred to
herein as "Loans"). If so specified in the related Prospectus
Supplement, the Mortgage Assets may be divided into Asset Groups
and the Certificates of separate Classes will evidence beneficial
interests of a corresponding Asset Group. The Trust Fund for a
Series will also include the Collection Account, the Certificate
Account, and may include certain policies of insurance relating
to the Mortgage Assets, and various credit supports, all as
specified in the related Prospectus Supplement. See "THE TRUST
FUNDS-Collection Account and Certificate Account," "CREDIT
SUPPORT" and "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE."
Mortgage Assets
The Mortgage Assets for a Series of Certificates may consist
of any combination of the following to the extent and as
specified in the related Prospectus Supplement:
Mortgage Loans
Mortgage Assets for a Series may consist, in whole or in
part, of Mortgage Loans or participation interests therein.
Participation interests in Mortgage Loans will be purchased
pursuant to participation agreements. See "THE TRUST FUNDS-
General." Payments on Mortgage Loans will be collected by the
Master Servicer (or by a Servicer), as specified in the related
Prospectus Supplement, and such payments (net of servicing fees
and certain other amounts) will be available to make
distributions on the Certificates of such Series. See "SERVICING
OF LOANS." Mortgage Loans may, as specified in the related
Prospectus Supplement, include Conventional Loans, FHA Loans or
VA Loans and may have various payment characteristics and may
include growing equity mortgage loans ("GEM Loans"), graduated
payment mortgage loans ("GPM Loans"), buy-down mortgage loans
("Buy-Down Loans"), bi-weekly payment loans ("Bi-Weekly Loans")
or Loans having balloon or other special payment features. The
Mortgage Loans may have fixed or adjustable interest rates
(Mortgage Loans having adjustable rates are sometimes referred to
herein as "Adjustable Rate Mortgages," or "ARMs"). ARMs will, as
described in the related Prospectus Supplement, permit or require
periodic changes in the mortgage rate, and in the scheduled
payments of principal and interest due from the obligor on the
related mortgage note. The Mortgage Loans may include Mortgage
Loans secured by mortgages, deeds of trust or other security
instruments creating either a first or second lien on related
Mortgaged Properties. The Mortgage Loans may also include
Condominium Loans secured by a Mortgage on the Condominium Unit,
together with such Condominium Unit's appurtenant interest in the
common elements. The Mortgaged Properties will consist of one-
to four-family attached or detached residential housing ("Single
Family Property"). Single Family Property may be owner occupied
and may include vacation or second homes or may consist in whole
or in part of non-owner occupied investment properties, as
specified in the related Prospectus Supplement.
To the extent described herein or in the related Prospectus
Supplement, all Mortgaged Property will be covered by standard
hazard insurance policies (which may be a blanket policy)
insuring against losses due to various causes, including fire,
lightning and windstorm. Mortgaged Property located in a
federally designated special hazard flood zone will be required
to be covered by flood insurance. With respect to a Condominium
Unit, the Condominium Association is responsible for maintaining
standard hazard insurance insuring the entire Condominium
Building (including each individual Condominium Unit) and
separate hazard insurance on the Condominium Unit securing a
Mortgage Loan will not generally be required. Unless otherwise
specified in the related Prospectus Supplement, Mortgage Loans
will not be covered by primary mortgage insurance policies. See
"DESCRIPTION OF MORTGAGE AND OTHER INSURANCE."
The related Prospectus Supplement will describe the
principal characteristics of the Mortgage Loans included in the
Trust Fund, including, without limitation, (a) the aggregate
principal balance of the Mortgage Loans as of the related Cut-off
Date, (b) the geographical distribution of the Mortgaged
Properties by state or other specified geographical area, (c) the
weighted average original and remaining scheduled term-to-stated
maturity of the Mortgage Loans, (d) the relative percentages (by
aggregate principal balance) of Mortgage Loans that have fixed
interest rates or are ARMs, Buy-Down Loans, GEM Loans, Bi-Weekly
Loans, GPM Loans or Mortgage Loans having other special payment
characteristics, (e) the relative percentages of Mortgage Loans
that are secured by Mortgaged Properties which are owner occupied
or are investment properties or vacation and second homes, (f)
the range of Loan-to-Value Ratios for the Mortgage Loans, (g) the
weighted average principal balance of the Mortgage Loans as of
the Cut-off Date, (h) the lien priority of the Mortgage Loans,
and (i) any primary or pool insurance policies, guarantees or
other credit support for such Mortgage Loans. Unless otherwise
specified in the related Prospectus Supplement, each Mortgage
Loan will have a 10-to-40 year term at origination and a Loan-to-
Value Ratio at origination not exceeding 100%.
All distributions on any Mortgage Certificates, and all
payments (including prepayments, liquidation proceeds and
insurance proceeds) received from the Servicer on any Mortgage
Loans, included in the Pool for a Series will be remitted to an
account (the "Certificate Account"), and, together with any
amounts available pursuant to the terms of any applicable credit
support and any other amounts described in the related Prospectus
Supplement, will be available for distribution on the
Certificates of such Series as described in the related
Prospectus Supplement. Such Certificate Account shall be an
Eligible Account or Accounts established and maintained by the
Servicer for the benefit of the holders of a Series of
Certificates.
The Servicer or, for a Series of REMIC Certificates, the
holders of the Residual Certificates of such Series or the REMIC
Administrator may have the option to repurchase the Mortgage
Loans and/or Mortgage Certificates included in the related Pool
and thereby terminate the related Pooling and Servicing
Agreement. Any such option will be exercisable at the times and
upon satisfaction of the conditions specified in the related
Prospectus Supplement.
Substitution of Mortgage Loans and/or Mortgage Certificates
will be permitted for a period specified in the related
Prospectus Supplement following notice of breaches of
representations and warranties with respect to any original
Mortgage Loan or notice that the documentation with respect to
any Mortgage Loan is determined by the Trustee to be incomplete.
Other circumstances under which substitutions may be permitted
will be described in the related Prospectus Supplement.
Mortgage Loans that constitute Mortgage Assets will be
purchased by the Depositor in the open market or in privately
negotiated transactions, including transactions with entities
affiliated with the Depositor.
Manufactured Home Loans
Mortgage Assets may consist, in whole or in part, of
manufactured housing conditional sales contracts and installment
loan agreements with respect to Manufactured Homes (the
"Manufactured Home Loans") or participation interests therein.
See "THE TRUST FUNDS-General."
Each Manufactured Home Loan will be secured by a new or used
Manufactured Home. Manufactured Home Loans may be Conventional
Loans, FHA Loans or VA Loans. Each Manufactured Home which
secures a Manufactured Home Loan will be covered by a standard
hazard insurance policy (which may be a blanket policy) to the
extent described therein or in the related Prospectus Supplement
insuring against hazard losses due to various causes, including
fire, lightning and windstorm. A Manufactured Home located in a
federally designated special hazard flood zone will be required
to be covered by flood insurance. See "DESCRIPTION OF MORTGAGE
AND OTHER INSURANCE."
Unless otherwise specified in a related Prospectus
Supplement, each Manufactured Home Loan will have a 3-to-25 year
term at origination and a Loan-to-Value Ratio at origination not
in excess of 95%.
The Prospectus Supplement for each Series will describe the
principal characteristics of the Manufactured Home Loans included
in the Trust Fund for the related Series, including, without
limitation, the (a) aggregate principal balance of the
Manufactured Home Loans, as of the related Cut-off Date; (b)
weighted average interest rate on the Manufactured Home Loans;
(c) weighted average term-to-maturity at origination; (d)
weighted average remaining scheduled term-to-maturity as of the
Cut-off Date and the range of terms-to-maturity; (e) respective
percentages of Manufactured Home Loans relating to new versus
used Manufactured Homes; (f) average principal balance of the
Manufactured Home Loans as of the Cut-off Date; (g) range of
Loan-to-Value Ratios of the Manufactured Home Loans; (h) hazard
insurance required to be maintained with respect to each
Manufactured Home; (i) amounts, if any, and terms of any form of
credit support to be provided with respect to all or any
Manufactured Home Loan; and (j) geographical distribution of the
Manufactured Homes by state or other specified geographic region.
The Manufactured Home Loans which constitute Mortgage Assets
will be purchased by the Depositor in the open market or in
privately negotiated transactions, including transactions with
entities affiliated with the Depositor.
Private Mortgage-Backed Securities
Private Mortgage-Backed Securities may include (a) mortgage
participations or pass-through certificates representing
beneficial interests in certain Loans, (b) collateralized
mortgage obligations secured by such Loans or (c) pass-through
certificates representing beneficial interests in Agency
Securities. All Private Mortgage-Backed Securities will be
publicly registered or otherwise exempt from applicable private
placement restrictions. Although individual Loans underlying a
Private Mortgage-Backed Security may be insured or guaranteed by
the United States or an agency or instrumentality thereof, they
need not be, and the Private Mortgage-Backed Securities
themselves will not be so insured or guaranteed. See "THE TRUST
FUNDS-Private Mortgage Backed Securities." Payments on the
Private Mortgage-Backed Securities will be distributed directly
to the Trustee as registered owner of such Private Mortgage-
Backed Securities. See "THE TRUST FUNDS-Private Mortgage-Backed
Securities." Any Private Mortgage-Backed Security will have been
acquired in a secondary transaction and not from the issuer or an
affiliate of the issuer of such Private Mortgage-Backed Security
and each Private Mortgage-Backed Security will evidence an
interest in, or will be secured by a pledge of, Loans that
conform to the descriptions of Loans contained herein.
The related Prospectus Supplement for a Series will specify
(i) the aggregate approximate principal amount and type of any
Private Mortgage-Backed Securities to be included in the Trust
Fund for such Series; (ii) certain characteristics of the Loans
which comprise the underlying assets for the Private Mortgage-
Backed Securities including (A) the payment features of such
Loans (i.e., whether they are fixed rate or adjustable rate and
whether they provide for fixed level payments, negative
amortization, or other payment features), (B) the approximate
aggregate principal amount, if known, of the underlying Loans
which are insured or guaranteed by a governmental entity, (C) the
servicing fee or range of servicing fees with respect to the
Loans, and (D) the minimum and maximum stated maturities of the
Loans at origination; (iii) the maximum original term-to-stated
maturity of the Private Mortgage-Backed Securities; (iv) the
weighted average term-to-stated maturity of the Private Mortgage-
Backed Securities; (v) the pass-through or certificate rate or
ranges thereof for the Private Mortgage-Backed Securities; (vi)
the weighted average pass-through or certificate rate of the
Private Mortgage-Backed Securities; (vii) the Issuer of the
Private Mortgage-Backed Securities (the "PMBS Issuer"), the
Servicer of the Private Mortgage-Backed Securities (the "PMBS
Servicer") and the trustee of the Private Mortgage-Backed
Securities (the "PMBS Trustee"); (viii) certain characteristics
of credit support, if any, such as reserve funds, insurance
policies, letters of credit or guarantees, relating to the Loans
underlying the Private Mortgage-Backed Securities, or to such
Private Mortgage-Backed Securities themselves; (ix) the terms on
which underlying Loans for such Private Mortgage-Backed
Securities may, or are required to, be repurchased prior to
stated maturity; and (x) the terms on which substitute Loans may
be delivered to replace those initially deposited with the PMBS
Trustee. See "THE TRUST FUNDS."
Collection Account and Certificate Account
Payments or distributions with respect to the Mortgage
Assets for a Series will initially be remitted for deposit in a
Collection Account maintained by the Master Servicer and then
transferred to a Certificate Account to be established with or in
the name of the Trustee for such Series. The amounts remitted
may be net of servicing fees, Retained Interests and other
amounts specified in the related Prospectus Supplement. Amounts
so deposited will be used to make distributions on the
Certificates of such Series on the applicable Distribution Date.
See "THE TRUST FUNDS-Collection Account and Certificate Account."
Determination of Asset Value
With respect to a Series of Certificates as to which the
Distribution Dates are less frequent than monthly, each Mortgage
Asset will be assigned an Asset Value. The aggregate of the
Asset Values of the Mortgage Assets included in the Trust Fund
for such a Series will equal not less than the initial aggregate
principal balances of the Certificates of such Series. The
related Prospectus Supplement for such a Series will summarize
the method or methods and related assumptions used to determine
Asset Value for the Mortgage Assets for such Series. See
"DESCRIPTION OF THE CERTIFICATES-Valuation of Trust Assets."
Forward Funding Commitments; Pre-Funding Account
If specified in the related Prospectus Supplement relating
to any Series, the Trustee or the Master Servicer may, on behalf
of the related Trust Fund, enter into an agreement (each, a
"Forward Purchase Agreement") with the Depositor whereby the
Depositor will agree to transfer additional Loans to such Trust
Fund following the date on which such Trust Fund is established
and the related Certificates are issued. Any Forward Purchase
Agreement will require that any Loans so transferred to a Trust
Fund conform to the requirements specified in such Forward
Purchase Agreement. If a Forward Purchase Agreement is to be
utilized, the Trustee will be required to deposit in a segregated
account (each, a "Pre-Funding Account") all or a portion of the
proceeds received by the Trustee in connection with the sale of
one or more classes of Certificates of the related Series;
subsequently, the additional Loans will be transferred to the
related Trust Fund in exchange for money released to the
Depositor from the related Pre-Funding Account in one or more
transfers. Each Forward Purchase Agreement will set a specified
period during which any such transfers must occur. The Forward
Purchase Agreement or the related Agreement will require that, if
all moneys originally deposited to such Pre-Funding Account are
not so used by the end of such specified period, then any
remaining moneys will be applied as a mandatory prepayment of the
related class or classes of Certificates as specified in the
related Prospectus Supplement. The specified period for the
acquisition by a Trust Fund of additional Loans will not exceed
three months from the date such Trust Fund is established.
Credit Support
Credit support in the form of reserve funds, subordination,
insurance policies, letters of credit or other types of credit
support may be provided with respect to the Mortgage Assets or
with respect to one or more Classes of Certificates of a Series.
If the Mortgage Assets are divided into separate Asset Groups,
the beneficial ownership of which is evidenced by a separate
Class or Classes of a Series, credit support may be provided by a
cross-support feature which requires that distributions be made
with respect to Certificates evidencing beneficial ownership of
one Asset Group prior to distributions to Subordinate
Certificates evidencing a beneficial ownership interest in
another Asset Group within the Trust Fund.
The type, characteristics and amount of credit support will
be determined based on the characteristics of the Loans
underlying or comprising the Mortgage Assets and other factors
and will be established on the basis of requirements of each
Rating Agency rating the Certificates of such Series. The
protection against losses provided by such credit support will be
limited. See "CREDIT SUPPORT" and "RISK FACTORS."
Subordinate Certificates; Subordination Reserve Fund
A Series of Certificates may include one or more Classes of
Subordinate Certificates. The rights of Holders of such
Subordinate Certificates to receive distributions on any
Distribution Date will be subordinate in right and priority to
the rights of Holders of Senior Certificates of the Series, but
only to the extent described in the related Prospectus
Supplement. If so specified in the related Prospectus
Supplement, subordination may apply only in the event of certain
types of losses not covered by other credit support, such as
hazard losses not covered by the standard hazard insurance
policies, losses resulting from the bankruptcy of a borrower due
to application of provisions of the Bankruptcy Code, or losses
resulting from the denial of insurance coverage due to fraud or
misrepresentation in connection with the origination of a Loan.
A Subordination Reserve Fund may be established at the level
specified in the related Prospectus Supplement. The related
Prospectus Supplement will also set forth information concerning
the amount of subordination of a Class or Classes of Subordinate
Certificates in a series, the circumstances in which such
subordination will be applicable, the manner, if any, in which
the amount of subordination will decrease over time, the manner
of funding the related Subordination Reserve Fund, if any, and
the conditions under which amounts in any Subordination Reserve
Fund will be used to make distributions to Holders of Senior
Certificates or be released from the related Trust Fund. If cash
flows otherwise distributable to Holders of Subordinate
Certificates evidencing a beneficial ownership interest in an
Asset Group will be used as credit support for Senior
Certificates evidencing a beneficial ownership interest in
another Asset Group within the Trust Fund, the related Prospectus
Supplement will specify the manner and conditions for applying
such a cross-support feature. See "CREDIT SUPPORT-Subordinate
Certificates; Subordination Reserve Fund."
Insurance
If and to the extent specified in the related Prospectus
Supplement, certain insurance policies in addition to any
standard hazard insurance policies described above under "Mort-
gage Assets" will be required to be maintained with respect to
the Loans included in the Trust Fund for a Series. Such
insurance policies may include, but are not limited to, (i) a
primary mortgage insurance policy or a pool insurance policy
insuring against losses due to defaults or delinquencies in
payment, (ii) a special hazard insurance policy insuring against
losses which are not covered by the standard hazard insurance
policies, (iii) bankruptcy bonds or insurance policies insuring
losses due to bankruptcy of a borrower and application of certain
provisions of the Bankruptcy Code and (iv) repurchase bonds
insuring the repurchase of Loans by the originator of such Loan
in the event of the loss of other insurance coverage due to
certain misrepresentations in the origination or sale of any such
Loans or in other circumstances specified in the related
Prospectus Supplement. See "CREDIT SUPPORT" and "DESCRIPTION OF
MORTGAGE AND OTHER INSURANCE." The Prospectus Supplement for a
Series will provide information concerning any such insurance
policies, including (a) the types of coverage provided by each,
(b) the amount of such coverage, (c) conditions to payment under
each and (d) certain information relating to the issuers of such
insurance policies. To the extent described in the related
Prospectus Supplement, certain insurance policies to be
maintained with respect to the Loans may be terminated, reduced
or replaced following the occurrence of certain events affecting
the authority of creditworthiness of the insurer. Additionally,
such insurance policies may be terminated, reduced or replaced by
the Master Servicer, provided that no rating assigned to
Certificates of the related Series offered hereby and by the
related Prospectus Supplement is adversely affected.
Certificate Guarantee Insurance
If so specified in the related Prospectus Supplement, credit
support for a Series may be provided by an insurance policy (the
"Certificate Guarantee Insurance") issued by one or more
insurance companies. Such Certificate Guarantee Insurance may
guarantee timely distributions of interest and full distributions
of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified
in the related Prospectus Supplement. See "CREDIT SUPPORT-
Certificate Guarantee Insurance."
Reserve Funds
The Depositor may deposit in one or more reserve funds
(collectively, the "Reserve Funds") for any Series cash, Eligible
Reserve Fund Investments, demand notes or a combination thereof
in the aggregate amount, if any, specified in the related
Prospectus Supplement. Any Reserve Funds for a Series may also
be funded over time through application of a specified amount of
cash flow, to the extent described in the related Prospectus
Supplement. Such a Reserve Fund may be established to increase
the likelihood of the timely distributions on the Certificates of
such Series or to reduce the likelihood of a Special Distribution
with respect to any Series. Reserve Funds may be established to
provide protection against certain losses in addition to or in
lieu of other credit support, including, without limitation, as
losses resulting from delinquent payments on Loans, losses from
risks not covered by standard hazard insurance policies, losses
due to bankruptcy of a borrower and application of certain
provisions of the Bankruptcy Code, and losses due to denial of
insurance coverage due to misrepresentations made in connection
with the origination of a Loan. Amounts on deposit in the
Reserve Funds for a Series, and the reinvestment income thereon,
will be applied for the purposes, in the manner and to the extent
provided by the related Prospectus Supplement.
On each Distribution Date for a Series, all amounts on
deposit in any Reserve Funds for the Series in excess of the
amounts required to be maintained therein by the related Pooling
and Servicing Agreement and specified in the related Prospectus
Supplement may be released from the Reserve Funds and will not be
available for future distributions on the Certificates of such
Series.
Additional information concerning any Reserve Funds,
including whether the Reserve Fund is a part of the Trust Fund,
the circumstances under which moneys therein will be applied to
make distributions to Certificateholders, the required balance to
be maintained in such Reserve Funds, the manner in which such
required balance will decrease over time and the manner of
funding the Reserve Fund will be set forth in the related
Prospectus Supplement. See "CREDIT SUPPORT-Reserve Funds."
Letter of Credit
If so specified in the related Prospectus Supplement, credit
support may be provided by one or more letters of credit. A
letter of credit may provide limited protection against certain
losses in addition to or in lieu of other credit support, such as
losses resulting from delinquent payments on the Loans in the
Trust Fund, losses from risks not covered by standard hazard
insurance policies, losses due to bankruptcy of a borrower and
application of certain provisions of the Bankruptcy Code, and
losses due to denial of insurance coverage due to
misrepresentations made in connection with the origination or
sale of a Loan. The issuer of the letter of credit (the "L/C
Bank") will be obligated to honor demands with respect to such
letter of credit, to the extent of the amount available
thereunder, to provide funds under the circumstances and subject
to such conditions as are specified in the related Prospectus
Supplement. The liability of the L/C Bank under its letter of
credit will be reduced by the amount of unreimbursed payments
thereunder.
The maximum liability of an L/C Bank under its letter of
credit will be an amount equal to a percentage specified in the
related Prospectus Supplement of the initial aggregate principal
balance of the Loans in the Trust Fund or one or more Classes of
Certificates of the related Series. The maximum amount available
at any time to be paid under a letter of credit will be
determined in the manner specified therein and in the related
Prospectus Supplement.
Servicing of Loans
The Master Servicer identified in the related Prospectus
Supplement will service the Loans directly or administer and
supervise the performance by Servicers of their duties and
responsibilities under separate servicing agreements (the
"Servicing Agreements") entered into between the Master Servicer
and such Servicers. Each Servicer will be obligated under its
Servicing Agreement to perform customary servicing functions.
Advances with respect to delinquent payments of principal or
interest on a Loan will be made by the Master Servicer or the
Servicers only to the extent described in the related Prospectus
Supplement. Such advances will be intended to provide liquidity
only and will be reimbursable to the Master Servicer or the
Servicer, as the case may be, from scheduled payments of
principal and interest, late collections, or from the proceeds of
liquidation of the related Loans, from other recoveries relating
to such Loans (including any insurance proceeds or payments from
other credit supports). The Master Servicer or the Servicers
will be obligated to repurchase Mortgage Loans for which
insurance coverage has been denied on the grounds of fraud or
misrepresentation only to the extent specified in the related
Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Depositor may (i) obtain and assign to the
Trustee an agreement with an independent standby servicer
acceptable to each Rating Agency rating such Certificates, which
will provide that such standby servicer will assume a Servicer's
or the Master Servicer's obligations in the event of a default by
the Servicer or Master Servicer or (ii) obtain a performance bond
acceptable to each Rating Agency rating such Certificates that
will guarantee certain of the Servicer's or Master Servicer's
obligations. See "SERVICING OF LOANS."
Federal Income Tax Considerations
If an election is made for treatment as a REMIC under the
Internal Revenue Code of 1986, as amended (the "Code"), one or
more Classes of Certificates will be treated as REMIC "Regular
Interests." The Holder of such a Regular Interest will be
treated as holding a debt obligation for federal income tax
purposes and will be required to report stated interest income on
the accrual method.
Compound Interest Certificates will be, and certain other
Classes of Certificates constituting Regular Interests may be,
issued with original issue discount that is not de minimis. In
such cases, the Certificateholder will be required to include the
original issue discount in gross income as it accrues, which
inclusion may occur prior to the receipt of cash attributable to
such income. If a Regular Interest Certificate is issued at a
premium, the holder thereof will be entitled to make an election
to amortize such premium on a constant yield method as an offset
to interest income on such Certificate (and not as a separate
deduction item). Certificates constituting Regular Interests
will represent "qualifying real property loans" for mutual
savings banks and domestic building and loan associations, "loans
secured by an interest in real property" for domestic building
and loan associations and "real estate assets" for real estate
investment trusts to the extent that the underlying Loans qualify
for such treatment.
In the case of a REMIC election, a Class of Certificates may
be treated as REMIC "Residual Interests." Certificates
classified as REMIC Residual Interests will generally be treated
as representing "qualifying real property loans" for mutual
savings banks and domestic building and loan associations, "loans
secured by an interest in real property" for domestic building
and loan associations and "real estate assets" for real estate
investment trusts to the same extent as REMIC Regular Interests.
The holder of a REMIC Residual Interest Certificate must
include in income its pro rata share of the REMIC's taxable
income. Accordingly, in certain circumstances, the holder of a
REMIC Residual Interest might (i) have REMIC taxable income or
tax liability attributable to REMIC taxable income for a
particular period or periods in excess of cash distributions for
such period or periods or (ii) have an after-tax return on its
investment that is less than the after-tax return on comparable
debt instruments or stripped bonds. In addition, a portion (or,
in some cases, all) of the income from a REMIC Residual Interest:
(i) except, in certain circumstances, with respect to a holder
classified as a thrift institution under the Code, may not be
subject to offset by losses from other activities, (ii) for a
holder that is subject to tax under the Code on unrelated
business taxable income, may be treated as unrelated business
taxable income and (iii) for a foreign holder, may not qualify
for exemption from withholding under any treaty. Further,
individual trust or estate holders are subject to limitations on
the deductibility of expenses of the REMIC.
If no REMIC election is made, the Trust Fund will be treated
as a grantor trust and will not be classified as an association
taxable as a corporation for federal income tax purposes. The
treatment of a particular Series of Certificates will depend on
the characteristics of such Series of Certificates. The holders
of Certificates will either be treated as owners of undivided pro
rata interests in the underlying Loans ("Pass-Through
Certificates"), or as owners of stripped bonds or stripped
coupons ("Stripped Certificates") under the Code. All income
with respect to a Stripped Certificate will be accounted for as
original issue discount and, unless otherwise specified in the
related Prospectus Supplement, will be reported by the Trustee on
an accrual basis, which may be prior to the receipt of cash
associated with such income.
The holder of a Pass-Through Certificate must include in
income its allocable share of all interest and other income of
the Trust and may, subject to certain limitations for individual
trust or estate Certificateholders, deduct its allocable share of
all expenses of the Trust. Pass-Through Certificates will be
considered to represent "qualifying real property loans" for
mutual savings banks and domestic building and loan associations,
"loans secured by an interest in real property" for domestic
building and loan associations and "real estate assets" for real
estate investment trusts to the extent that the Loans qualify for
such treatment. Although there is no direct authority and the
matter is not free from doubt, Stripped Certificates should also
qualify for such treatment to the extent that the underlying
loans qualify for such treatment. See "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS."
ERISA Considerations
A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully review with its own legal
advisors whether the purchase or holding of Certificates could
give rise to a transaction prohibited or otherwise impermissible
under ERISA or the Code. See "ERISA CONSIDERATIONS."
Legal Investment
The related Prospectus Supplement will specify the Classes
of Certificates, if any, offered by this Prospectus and such
Prospectus Supplement that will constitute "mortgage related
securities" under the Secondary Mortgage Market Enhancement Act
of 1984, as amended ("SMMEA"). Such "mortgage related
securities" will be legal investments for certain types of
institutional investors to the extent provided in SMMEA, subject,
in any case, to any other regulations which may govern
investments by such institutional investors. See "LEGAL
INVESTMENT."
Use of Proceeds
It is expected that the Depositor will use the net proceeds
from the sale of each Series for one or more of the following
purposes: (i) to purchase the related Mortgage Assets, (ii) to
repay indebtedness which has been incurred to obtain funds to
acquire such Mortgage Assets, (iii) to establish any reserve
funds described in the related Prospectus Supplement and (iv) to
pay costs of structuring, guaranteeing and issuing such
Certificates. Any other material use of proceeds will be
specified in the related Prospectus Supplement. The purchase of
the Mortgage Assets for a Series may be effected by an exchange
of Certificates with the Depositor of such Mortgage Assets. See
"USE OF PROCEEDS."
Ratings
It will be a requirement for issuance of any Series that the
Certificates offered by this Prospectus and such Prospectus
Supplement be rated by at least one Rating Agency in one of its
four highest applicable rating categories. The rating or ratings
applicable to Certificates of each Series offered hereby and by
the related Prospectus Supplement will be as set forth in the
related Prospectus Supplement. A securities rating should be
evaluated independently of similar ratings on different types of
securities. A security rating does not address the effect that
the rate of prepayments on Loans comprising or underlying the
Mortgage Assets may have on the yield to investors in the
Certificates. See "RISK FACTORS." A rating is not a
recommendation to buy, sell or hold securities and may be subject
to revision or withdrawal at any time by the assigning Rating
Agency.
RISK FACTORS
Investors should consider, among other things, the following
risk factors in connection with an investment in the
Certificates.
Limited Liquidity
There can be no assurance that a secondary market for the
Certificates of any Series will develop or, if it does develop,
that it will provide Certificateholders with liquidity of
investment or will continue for the life of the Certificates.
The underwriter or the underwriters with respect to any series
may make a secondary market in the Certificates, but will have no
obligation to do so. In addition, the market value of
Certificates of each Series will fluctuate with changes in
prevailing rates of interest. Consequently, sale of the
Certificates by a Holder in any secondary market which may
develop may be at a discount from par value or from their
purchase price. Certificateholders have no optional redemption
rights. If so specified in the related Prospectus Supplement for
a Series, the Depositor, the Master Servicer, or another entity
designated in the related Prospectus Supplement may, at its
option, cause an early termination of a Trust Fund by
repurchasing all of the Mortgage Assets from such Trust Fund on
or after a date specified in the related Prospectus Supplement,
or on or after such time as the aggregate principal amount of the
Mortgage Assets is less than a specified percentage of their
initial aggregate principal amount. See "DESCRIPTION OF
CERTIFICATES-Optional Termination." In addition, the issuance of
the Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary trading market since investors
may be unwilling to purchase Certificates for which they cannot
obtain physical certificates. See "DESCRIPTION OF THE
CERTIFICATES-Book-Entry Registration."
Yield, Prepayment and Maturity
The rate at which prepayments (which include both voluntary
prepayments by the obligors on the Loans and liquidations due to
defaults and foreclosures) occur on the Loans underlying or
comprising the Mortgage Assets for a Series will be affected by a
variety of factors, including, without limitation, the level of
prevailing interest rates and economic, demographic, tax, social,
legal and other factors. There can be no assurance as to the
rate of prepayment on the Mortgaged Assets securing any
Certificate or deposited in the Trust Fund, as the case may be,
or that the rate of payments will conform to any model described
herein or in the Prospectus Supplement. If prevailing interest
rates fall significantly below the applicable mortgage rates,
principal prepayments are likely to be higher than if prevailing
rates remain at or above the rates borne by the Loans comprising
or underlying the Mortgaged Assets securing a series of
Certificates or deposited into a Trust Fund, as the case may be.
As a result, the actual maturity of or final distribution on any
Class could occur significantly earlier than its Stated Maturity
or Final Scheduled Distribution Date. The final distribution on
the Certificates will also be affected by the extent to which
Excess Cash Flow is applied to payments or distributions of
principal on the Certificates. Prepayments on the Loans
comprising or underlying the Mortgage Assets for a Series
generally will result in a faster rate of distributions of
principal on the Certificates than if payments on such Mortgaged
Assets were made as scheduled. Thus, the prepayment experience
on the Loans comprising or underlying the Mortgage Assets will
affect the average life and yield to investors of each Class and
the extent to which each such Class is paid prior to its Final
Scheduled Distribution Date. A Series may include a Class of
Interest Weighted Certificates offered at a significant premium
or a Class of Principal Weighted Certificates offered at a
substantial discount. Yields on such Classes of Certificates
will be extremely sensitive to prepayments on the Loans
comprising or underlying the Mortgage Assets for such Series. In
general, if a Certificate, including a Certificate of a Class of
Interest Weighted Certificates, is purchased at a premium and
principal distributions on the Loans occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield
to maturity could be significantly lower than that assumed at the
time of purchase. Where the amount of interest allocated with
respect to a Class of Interest Weighted Certificates is extremely
disproportionate to principal, a Certificateholder could, under
some such prepayment scenarios, fail to recoup its original
investment. Conversely, if a Certificate, including a
Certificate of a Class of Principal Weighted Certificates, is
purchased at a discount and principal distributions thereon occur
at a rate slower than assumed at the time of purchase, the
investor's actual yield to maturity could be significantly lower
than that originally anticipated. Any rating assigned to the
Certificates by a Rating Agency will reflect only such Rating
Agency's assessment of the likelihood that timely distributions
will be made with respect to such Certificates in accordance with
the related Pooling and Servicing Agreement. Such rating will
not constitute an assessment of the likelihood that principal
prepayments on the Loans underlying or comprising the Mortgage
Assets will be made by borrowers or of the degree to which the
rate of such prepayments might differ from that originally
anticipated. As a result, such rating will not address the
possibility that prepayment rates higher or lower than
anticipated by an investor may cause such investor to experience
a lower than anticipated yield, or that an investor purchasing an
Interest Weighted Certificate at a significant premium might fail
to recoup its initial investment. See "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS."
Delinquent and Non-Performing Loans
As set forth in the related Prospectus Supplement, the
Mortgage Pool for a particular Series may include, as of the Cut-
off Date, REO Properties or Loans that are past due or are non-
performing. Management of such REO Properties or servicing with
respect to such Loans will be transferred to the Master Servicer
as of the Closing Date. Credit Support provided with respect to
a particular Series may not cover all losses related to such
delinquent or non-performing Loans or to such REO Properties.
Investors should consider the risk that the inclusion of such
Loans or such REO Properties in the Mortgage Pool may affect the
rate of defaults and prepayments on such Mortgage Pool and the
yield on the Certificates of such Series. See "THE TRUST FUNDS-
The Mortgage Loans."
Remedies Following Default
The market value of the Mortgage Assets securing a Series
will fluctuate as general interest rates fluctuate. Following an
Event of Default with respect to a Series of Certificates, there
is no assurance that the market value of the Mortgage Assets
securing the Series, will be equal to or greater than the unpaid
principal and accrued interest due on the Certificates of such
Series, together with any other expenses or liabilities payable
thereon. If the Mortgage Assets securing a Series are sold by
the Trustee following an Event of Default, the proceeds of such
sale may be insufficient to pay in full the principal of and
interest on such Certificates. However, in the absence of a
direction by Certificateholders evidencing 25% or more of the
aggregate principal amount of the Certificates of a Series, the
Trustee may be restricted from selling the Mortgage Assets
securing such Series. See "THE POOLING AND SERVICING AGREEMENTS-
Rights Upon Event of Default."
In addition, upon an Event of Default with respect to a
Series and a resulting sale of the Mortgage Assets securing such
Certificates, distribution of the proceeds of such sale will be
made in the order of priority and in the manner specified in the
related Prospectus Supplement.
In the event the Certificate Principal Balance of a Series
is declared due and payable, the holders of any such Certificates
issued at a discount from par ("original issue discount") may be
entitled, under applicable provisions of the Bankruptcy Code, to
receive no more than an amount equal to the unpaid principal
amount thereof less unamortized original issue discount
("accreted value"). There is no assurance as to how such
accreted value would be determined if such event occurred.
Enforceability
As specified in the related Prospectus Supplement, the
Mortgages may contain due-on-sale clauses, which permit the
lender to accelerate the maturity of the Loan if the borrower
sells, transfers or conveys the related Mortgaged Property or its
interest in the Mortgaged Property. Such clauses are generally
enforceable subject to certain exceptions.
As specified in the related Prospectus Supplement, the Loans
may include a debt-acceleration clause, which permits the lender
to accelerate the debt upon a monetary or non-monetary default of
the borrower. The courts of all state will enforce clauses
providing for acceleration in the event of a material payment
default. The equity courts of any state, however, may refuse to
foreclose a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust or the circumstances
would render the acceleration unconscionable.
Certain Loans and Mortgaged Property
Loans such as GPM Loans, GEM Loans, ARMs, Bi-Weekly Loans
and Buy-Down Loans are of recent origin. As a result, reliable
prepayment, loss and foreclosure statistics relating to such
housing loans are not available. Such Loans may be underwritten
on the basis of an assessment that the borrower will have the
ability to make payments in higher amounts in later years and, in
the case of Loans with adjustable mortgage rates, after
relatively short periods of time. See "LOAN UNDERWRITING
PROCEDURES AND STANDARDS" and "CREDIT SUPPORT." Other loans may
be underwritten principally on the basis of the initial Loan-to-
Value Ratio of the Loans. To the extent losses on Loans exceed
levels estimated by the Rating Agency rating the Series in
determining required levels of overcollateralization or other
credit support, the Trust Fund may experience a loss. To the
extent losses on such Loans exceed levels estimated by the Rating
Agency in determining required levels of overcollateralization or
other credit support, the Trust Fund may experience a loss. See
"SERVICING OF LOANS-Maintenance of Insurance Policies and Other
Servicing Procedures" and "CREDIT SUPPORT."
Nature of Mortgages; Properties
Since, if so specified in the related Prospectus Supplement,
some of the Mortgages are primarily junior liens subordinated to
the rights of the mortgagee under the related senior mortgage or
mortgages, the proceeds of any liquidation, insurance or
condemnation proceedings will be available to satisfy the
outstanding balance of such junior mortgage only to the extent
that the claims of such senior mortgagees have been satisfied in
full, including any related foreclosure costs. In addition, a
junior mortgagee may not foreclose on the Mortgaged Property
securing a junior mortgage unless it forecloses subject to the
senior mortgages, in which case it must either pay the entire
amount due on the senior mortgages to the senior mortgagees at or
prior to the foreclosure sale or undertake the obligation to
make payments on the senior mortgages in the event the mortgagor
is in default thereunder. The Trust Fund will not have any
source of funds to satisfy the senior mortgages or make payments
due to the senior mortgagees.
There are several factors that could adversely affect the
value of the Mortgaged Properties such that the outstanding
balance of the related Mortgage Loan, together with any senior
financing on the Mortgaged Properties, would equal or exceed the
value of the Properties. Among the factors that could adversely
affect the value of the Mortgaged Properties are an overall
decline in the residential real state market in the areas in
which the Mortgaged Properties are located or a decline in the
general condition of the Mortgaged Properties as a result of
failure of borrowers to maintain adequately the Mortgaged
Properties or of natural disasters that are not necessarily
covered by insurance, such as earthquakes and floods. Any such
decline could extinguish the value of a junior interest in
Mortgaged Property before having any effect on the related senior
interest therein. If such a decline occurs, the actual rates of
delinquencies, foreclosure and losses on the Mortgage Loans
secured by second liens could be higher than those currently
experienced in the mortgage lending industry in general. See
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS-Junior Liens; Rights of
Senior Lienholders."
Credit Support Limitations
The amount, type and nature of insurance policies,
subordination, Certificate Guarantee Insurance, letters of credit
and other credit support, if any, required with respect to a
Series will be determined on the basis of criteria established by
each Rating Agency rating such Series. Such criteria are
necessarily based upon an actuarial analysis of the behavior of
Loans in a larger group. Such actuarial analysis is the basis
upon which each Rating Agency determines (a) required amounts and
types of pool insurance, special hazard insurance, reserve funds,
subordination or other credit support and (b) limits on the
number and amount of Loans which have various special payment
characteristics, have various Loan-to-Value Ratios and/or were
made for various purposes (e.g., primary residence, second home,
refinancing). There can be no assurance that the historical data
supporting such actuarial analysis will accurately reflect future
experience nor any assurance that the data derived from a large
pool of housing loans accurately predicts the delinquency,
foreclosure or loss experience of any particular pool of Loans.
In addition, if distributions in reduction of the principal
balance of Certificates of a Series of Certificates are made in
order of the respective Final Scheduled Distribution Dates of the
Class, any limits with respect to the aggregate amount of claims
under any related pool insurance policy and the special hazard
insurance policy may be exhausted before the principal of the
later-maturing Classes has been repaid. As a result, the impact
of significant losses on the Loans may bear primarily upon the
Certificates of the later-maturing Classes.
The Prospectus Supplement for a Series will describe any
reserve funds, insurance policies, letters of credit or other
third-party credit support relating to the Mortgage Assets or to
the Certificates of such Series. Use of such reserve funds and
payments under such insurance policies, letters of credit or
other third-party credit support will be subject to the
conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such reserve funds, insurance
policies, letters of credit or other credit support will not
cover all potential losses or risks. The obligations of the
issuers of any credit support such as a pool insurance policy,
special hazard insurance policy, bankruptcy bond, letter of
credit, Certificate Guarantee Insurance, repurchase bond or other
third-party credit support will not be guaranteed or insured by
the United States, or by any agency or instrumentality thereof.
A Series of Certificates may include a Class or multiple Classes
of Subordinate Certificates to the extent described in the
related Prospectus Supplement. Although such subordination is
intended to reduce the risk of delinquent distributions or
ultimate losses to Holders of Senior Certificates, the
Subordinated Amount will be limited and will decline under
certain circumstances and the related Subordination Reserve Fund,
if any, could be depleted in certain circumstances. See
"DESCRIPTION OF THE CERTIFICATES," "THE TRUST FUNDS" and "CREDIT
SUPPORT."
Certain Loans and Mortgaged Property
Loans such as GPM Loans, GEM Loans, ARMs, Bi-Weekly Loans
and Buy-Down Loans are of recent origin. As a result, reliable
prepayment, loss and foreclosure statistics relating to such
housing loans are not available. Such Loans may be underwritten
on the basis of an assessment that the borrower will have the
ability to make payments in higher amounts in later years and, in
the case of Loans with adjustable mortgage rates, after
relatively short periods of time. See "LOAN UNDERWRITING
PROCEDURES AND STANDARDS" and "CREDIT SUPPORT." Other loans may
be underwritten principally on the basis of the initial Loan-to-
Value Ratio of the Loans. To the extent losses on Loans exceed
levels estimated by the Rating Agency rating the Series in
determining required levels of overcollateralization or other
credit support, the Trust Fund may experience a loss.
Furthermore, Loans made with respect to Manufactured Homes may
entail risks of loss in the event of delinquency and foreclosure
or repossession that are greater than similar risks associated
with traditional Single Family Property. To the extent losses on
such Loans exceed levels estimated by the Rating Agency in
determining required levels of overcollateralization or other
credit support, the Trust Fund may experience a loss. See
"SERVICING OF LOANS-Maintenance of Insurance Policies and Other
Servicing Procedures" and "CREDIT SUPPORT."
Limited Obligations and Assets of Depositor
Unless otherwise set forth in the related Prospectus
Supplement, the Trust Fund for a Series will be the only
available source of funds to make distributions on the
Certificates of such Series. The only obligations of the
Depositor with respect to the Certificates of any Series will be
pursuant to certain representations and warranties. See "THE
POOLING AND SERVICING AGREEMENTS-Assignment of Mortgage Assets"
herein. The Depositor has only limited assets available to
perform its repurchase obligations in respect of any breach of
any representation or warranty. Therefore, prospective investors
in the Certificates should consider the possibility that the
Depositor will not have sufficient assets with which to satisfy
its repurchase obligations in the event that a substantial amount
of Mortgage Loans with respect to a Series is required to be
repurchased due to breaches of representations and warranties.
See "THE DEPOSITOR."
ERISA Considerations
Generally, ERISA applies to investments made by employee
benefit plans and transactions involving the assets of such
plans. Due to the complexity of regulations which govern such
plans, prospective investors that are subject to ERISA are urged
to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Certificates of
any Series. See "ERISA CONSIDERATIONS."
Certain Federal Tax Considerations Regarding REMIC Residual
Interests
Holders of REMIC Residual Interests will be required to
report on their federal income tax returns as ordinary income
their pro rata share of the taxable income of the REMIC
regardless of the amount or timing of their receipt of cash
payments as described in "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS-Residual Interests in a REMIC." Accordingly,
under certain circumstances, holders of Certificates which
constitute REMIC Residual Interests might have taxable income and
tax liabilities arising from such investment during a taxable
year in excess of the cash received during such period. The
requirement that Holders of Residual Interest Certificates report
their pro rata share of the taxable income and net loss of the
REMIC will continue until the principal balances of all Classes
of Certificates of the related Series have been reduced to zero,
even though holders of Residual Interests have received full
payment of their stated interest and principal. A portion (or,
in certain circumstances, all) of a Residual Interest
Certificateholder's share of the REMIC taxable income may be
treated as "excess inclusion" income to such holder which (i)
except in the case of certain thrift institutions, will not be
subject to offset by losses from other activities, (ii) for a tax
exempt Holder, will be treated as unrelated business taxable
income and (iii) for a foreign holder, will not qualify for
exemption from withholding tax. Individual Holders of
Certificates constituting Residual Interests may be limited in
their ability to deduct servicing fees and other expenses of the
REMIC. Because of the special tax treatment of REMIC residual
interests, the taxable income arising in a given year on a REMIC
residual interest will not be equal to the taxable income
associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax
yield. Therefore, the after-tax yield on the Residual Interest
Certificates may be significantly less than that of a corporate
bond or stripped instrument having similar cash flow
characteristics.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in Series pursuant to
separate Pooling and Servicing Agreements among the Depositor,
the Trustee and the Master Servicer for the related Series
identified in the related Prospectus Supplement. The following
summaries describe certain provisions common to each Series. The
summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions
of the Pooling and Servicing Agreement and the Prospectus
Supplement relating to each Series. When particular provisions
or terms used in the Pooling and Servicing Agreement are referred
to, such provisions or terms shall be as specified in the Pooling
and Servicing Agreement.
Each Series will consist of one or more Classes, one or more
of which may consist of Compound Interest Certificates, Floating
Interest Certificates, Interest Weighted Certificates, Principal
Weighted Certificates or Reduced Volatility Certificates. A
Series may also include one or more Classes of Subordinate
Certificates. Each Series will be issued in fully registered
form, in the minimum original principal amount or notional amount
for Certificates of each Class specified in the related
Prospectus Supplement. The transfer of the Certificates may be
registered, and the Certificates may be exchanged, without the
payment of any service charge payable in connection with such
registration of transfer or exchange. If specified in the
related Prospectus Supplement, one or more Classes of a Series
may be available in book-entry form only.
Valuation of Trust Assets
If so stated in the related Prospectus Supplement, each
Mortgage Asset included in the Trust Fund for a Series will be
assigned an initial Asset Value determined in the manner and
subject to the assumptions summarized in the related Prospectus
Supplement. The Asset Value of the Mortgage Assets will not be
less than the initial aggregate principal amount of the
Certificates of the related Series at the date of issuance
thereof.
The Asset Value of Mortgage Assets represents the principal
amount of Certificates of a Series that, based on certain
assumptions, can be supported by the scheduled principal and
interest due on the Mortgage Assets irrespective of prepayments
thereon, the reinvestment income thereon at the Assumed
Reinvestment Rate (which may be zero) and the moneys available to
be withdrawn from related Reserve Funds, if any, as specified in
the related Prospectus Supplement. Individual Mortgage Assets
for a Series which share similar characteristics may be
aggregated into one or more groups (each an "Asset Group"), each
of which will be assigned a single aggregate Asset Value. If so
specified in the related Prospectus Supplement, the Mortgage
Assets in a Trust Fund may be divided into multiple Asset Groups
and the Certificates of separate Classes will evidence beneficial
ownership of each corresponding Asset Group. Unless the related
Prospectus Supplement provides otherwise, the aggregate Asset
Value of an Asset Group will be calculated as though the
underlying Mortgage Assets constitute a single Loan having such
of the characteristics of the Mortgage Assets included in the
Asset Group that would result in the lowest Asset Value being
assigned to each Mortgage Asset included in such Asset Group.
There are a number of alternative means of determining Asset
Value of a Mortgage Asset, including determinations based on the
discounted present value of the remaining scheduled payments on
such Mortgage Asset, determinations based on the relationship
between the interest rate borne by such Mortgage Asset and the
Certificate Rate or Rates for the related Classes of
Certificates, or based upon the aggregate principal balances of
the Mortgage Assets. If applicable, the Prospectus Supplement
for a Series will specify the method or methods and summarize the
related assumptions used to determine the Asset Values of the
Mortgage Assets in the related Trust Fund.
The Assumed Reinvestment Rate, if any, for a Series will be
the highest rate permitted by each Rating Agency rating such
Series or a rate insured, guaranteed or otherwise provided for by
means of a surety bond, interest rate swap agreement, interest
rate cap agreement, Guaranteed Investment Contract, or other
arrangement satisfactory to each such Rating Agency. See "THE
POOLING AND SERVICING AGREEMENTS-Investment of Funds."
Distributions on the Certificates
General. Commencing on the date specified in the related
Prospectus Supplement, distributions of principal and interest on
the Certificates will be made on each Distribution Date to the
extent of the "Available Distribution Amount" as set forth in the
related Prospectus Supplement.
Distributions of interest on Certificates which receive
interest will be made periodically at the intervals and at the
Certificate Rate specified or, with respect to Floating Interest
Certificates, determined in the manner described in the related
Prospectus Supplement. Interest on the Certificates will be
calculated on the basis of a 360-day year consisting of twelve
30-day months, or on such other basis as is specified in the
related Prospectus Supplement.
If funds in the Certificate Account (together with any
amounts transferred from any reserve fund or applicable credit
support) are insufficient to make the full distribution to
Certificateholders described above on any Distribution Date, the
funds available for distribution to the Certificateholders of
each Class will be distributed in accordance with their
respective interests therein, except that Subordinate
Certificateholders, if any, will not, subject to the limitations
described in the related Prospectus Supplement, receive any
distributions until Senior Certificateholders receive the amount
of present distributions due them and the amount of distributions
owed them which were not timely distributed thereon and to which
they are entitled (in each case calculated as described in the
related Prospectus Supplement). If specified in the related
Prospectus Supplement, the difference between the amount which
the Certificateholders would have received if there had been
sufficient eligible funds available for distribution and the
amount actually distributed, plus interest at the applicable
Certificate Rate will be included in the calculation of the
amount which the Certificateholders are entitled to receive on
the next Distribution Date. See "THE POOLING AND SERVICING
AGREEMENTS-Deficiency Events."
Distributions of principal of and interest on Certificates
of a Series will be made by check mailed to Certificateholders of
such Series registered as such on the close of business on the
record date specified in the related Prospectus Supplement at
their addresses appearing on the Certificate Register, except
that (a) distributions may be made by wire transfer (at the
expense of the Certificateholder requesting payment by wire
transfer) in certain circumstances described in the related
Prospectus Supplement and (b) the final distribution in
retirement of a Certificate will be made only upon presentation
and surrender of such Certificate at the corporate trust office
of the Trustee for such Series or such other office of the
Trustee as specified in the Prospectus Supplement. Notice of the
final distribution on a Certificate will be mailed to the Holder
of such Certificate before the Distribution Date on which such
final distribution in retirement of the Certificate is expected
to be made. If specified in the related Prospectus Supplement,
the Certificates of a Series or certain Classes of a Series may
be available only in book-entry form. See "-Book-Entry
Registration."
With respect to reports to be furnished to
Certificateholders concerning a distribution, see "THE POOLING
AND SERVICING AGREEMENTS-Reports to Certificateholders."
Certificates Generally. With respect to any Series,
distributions on the Certificates on each Distribution Date will
generally be allocated to each Certificate entitled thereto on
the basis of the undivided percentage interest (the "Percentage
Interest") evidenced by such Certificate in the Trust Fund or on
the basis of their outstanding principal amounts or notional
amounts (subject to any subordination of the rights of any
Subordinate Classes to receive current distributions as specified
in the related Prospectus Supplement). See "-Subordinate
Certificates." Each Certificate will have a principal amount or
a notional amount and a specified Certificate Rate (which may be
zero). Interest distributions will be made on each Certificate
entitled to an interest distribution on each Distribution Date at
the Certificate Rate specified or, with respect to Floating
Interest Certificates, determined as described in the related
Prospectus Supplement, to the extent funds are available in the
Certificate Account, subject to any subordination of the rights
of any Subordinate Class to receive current distributions. See
"-Subordinate and Other Certificates" and "CREDIT SUPPORT." If
the Mortgage Assets for a Series have adjustable or variable
interest or pass-through rates, then the Certificate Rate of the
Certificates of such Series may also vary, due to changes in such
rates and due to prepayments with respect to Loans comprising or
underlying the related Mortgage Assets. If the Mortgage Assets
for a Series have fixed interest or pass-through rates, then the
Certificate Rate on Certificates of the related Series may be
fixed, or may vary, to the extent prepayments cause changes in
the weighted average interest rate or pass-through rate of the
Mortgage Assets. If the Mortgage Assets have lifetime or
periodic adjustment caps on the respective pass-through rates,
then the Certificate Rate on the Certificates of the related
Series may also reflect such caps.
A Series may include a Class of Interest Weighted
Certificates, a Class of Principal Weighted Certificates, or
both. Unless otherwise specified in the related Prospectus
Supplement, payments received from the Mortgage Assets will be
allocated on the basis of the Percentage Interest of each Class
in the principal component of such distributions, the interest
component of such distributions, or both, and will be further
allocated on a pro rata basis among the Certificates within each
Class. The method or formula for determining the Percentage
Interest of a Certificate will be set forth in the related
Prospectus Supplement.
Interest on all Certificates currently entitled to receive
interest will be distributed on the Distribution Dates specified
in the related Prospectus Supplement, to the extent funds are
available in the Certificate Account, subject to any
subordination of the rights of any Subordinate Class to receive
current distributions. See "-Subordinate Certificates" and
"CREDIT SUPPORT." Distributions of interest on a Class of
Compound Interest Certificates will commence only after the
related Accrual Termination Date specified in the related
Prospectus Supplement. On each Distribution Date prior to and
including the Accrual Termination Date, interest on such Class of
Compound Interest Certificates will accrue and the amount of
interest accrued on such Distribution Date (the "Accrual
Distribution Amount") will be added to the principal balance
thereof on the related Distribution Date. On each Distribution
Date after the Accrual Termination Date, interest distributions
will be made on Classes of Compound Interest Certificates on the
basis of the current Compound Value of such Class. The Compound
Value of a Class of Compound Interest Certificates equals the
initial aggregate principal balance of the Class, plus accrued
and undistributed interest added to such Class through the
immediately preceding Distribution Date, less any principal
distributions previously made in reduction of the aggregate
outstanding principal balance of such Class.
To the extent provided in the related Prospectus Supplement,
a Series may include one or more Classes of Floating Interest
Certificates. The Certificate Rate of a Floating Interest
Certificate will be a variable or adjustable rate, subject to a
Maximum Floating Rate, Minimum Floating Rate, or both. For each
Class of Floating Interest Certificates, the related Prospectus
Supplement will set forth the initial Floating Rate (or the
method of determining it), the Floating Interest Period, and the
formula, index, or other method by which the Floating Rate for
each Floating Interest Period will be determined.
To the extent provided in the related Prospectus Supplement,
a Series may include one or more classes of Reduced Volatility
Certificates.
Distributions of principal will be allocated among the
Classes of a Series in the order of priority and amount specified
in the related Prospectus Supplement.
Subordinate Certificates. Subordinate Certificates may be
included in a Series to provide credit support as described
herein under "CREDIT SUPPORT" in lieu of or in addition to other
forms of credit support. The extent of subordination of a Class
of Subordinate Certificates may be limited as described in the
related Prospectus Supplement. See "CREDIT SUPPORT." If the
Mortgage Assets are divided into separate Asset Groups,
beneficial ownership of which is evidenced by separate Classes of
a Series, credit support may be provided by a cross-support
feature which requires that distributions be made to Senior
Certificates evidencing beneficial ownership of one Asset Group
prior to making distributions on Subordinate Certificates
evidencing a beneficial ownership interest in another Asset Group
within the Trust Fund. Subordinate Certificates will not be
offered hereby or by such related Prospectus Supplement unless
they are rated in one of the four highest rating categories by at
least one Rating Agency.
Special Distributions
Special Distributions. To the extent specified in the
related Prospectus Supplement, Special Distributions in reduction
of Certificate principal amount may be made with respect to the
Certificates of a Series on the day or days of any month
specified therein if, as a result of the prepayment experience on
the Mortgage Assets for such Series or the low yields available
for reinvestment, or both, it is determined (based on assumptions
specified in the Pooling and Servicing Agreement and after giving
effect to the amounts, if any, available to be withdrawn from any
reserve fund for such Series) that the amount anticipated to be
available in the Certificate Account on the date specified in the
related Prospectus Supplement for such Series, will be
insufficient to make scheduled distributions of principal and
interest on the Certificates of such Series on the next
Distribution Date. The amount distributed in reduction of
principal amount will not exceed the Principal Distribution
Amount otherwise required to be paid on the next Distribution
Date. Therefore, the result of such a Special Distribution with
respect to the Certificates of a Series will be to reduce their
aggregate principal amount prior to the next scheduled
Distribution Date.
All distributions in reduction of the Certificate principal
amount pursuant to any Special Distribution will be made in the
order of priority and in the manner specified in the related
Prospectus Supplement. Notice of any Special Distribution will
be mailed by the Trustee to the Certificateholders of the related
Series prior to the Special Distribution Date.
Optional Termination
If so specified in the related Prospectus Supplement for a
Series, the Depositor, the Master Servicer, or another entity
designated in the related Prospectus Supplement may, at its
option, cause an early termination of a Trust Fund by
repurchasing all of the Mortgage Assets from such Trust Fund on
or after a date specified in the related Prospectus Supplement,
or on or after such time as the aggregate principal amount of the
Mortgage Assets is less than a specified percentage of their
initial aggregate principal amount. In the case of a Trust Fund
for which a REMIC election has been made, the Trustee shall
receive a satisfactory opinion of counsel that the repurchase
price will not jeopardize the status of the REMIC and that the
optional termination will be conducted so as to constitute a
"qualified liquidation" under Section 860F of the Code. Such
optional termination will be in addition to terminations which
may result from other events. See "THE POOLING AND SERVICING
AGREEMENTS-Deficiency Event" and "-Termination."
Book-Entry Registration
If so specified in the related Prospectus Supplement, the
Certificates will be issued in book-entry form in the minimum
denominations specified in such Prospectus Supplement and
integral multiples thereof, and each Class will be represented by
a single Certificate registered in the name of the nominee of the
depository, The Depository Trust Company ("DTC"), a limited-
purpose trust company organized under the laws of the State of
New York. No person acquiring an interest in the Certificates (a
"Certificateowner") will be entitled to receive a Certificate
issued in fully registered, certificated form (a "Definitive
Certificate") representing such person's interest in the
Certificates except in the event that the book-entry system for
the Certificates is discontinued (as described below). Unless
and until Definitive Certificates are issued, it is anticipated
that the only Certificateholder of the Certificates will be Cede
& Co., as nominee of DTC. In such case, Certificateowners will
not be registered "Certificateholders" or registered "Holders"
under the Pooling and Servicing Agreement, and Certificateowners
will only be permitted to exercise the rights of
Certificateholders indirectly through DTC Participants.
DTC was created to hold securities for its participating
organizations ("Participants") and facilitate the clearance and
settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its
Participants. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC
system also is available to entities that clear through or
maintain a custodial relationship with a Participant, either
directly or indirectly ("indirect participants").
Certificateowners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer
ownership of Certificates may do so only though Participants and
Indirect Participants. Because DTC can only act on behalf of
Participants and Indirect Participants, the ability of a
Certificateowner to pledge such owner's Certificate to persons or
entities that do not participate in the DTC system, or otherwise
take actions in respect of such Certificate, may be limited. In
addition, under a book-entry format, Certificateowners may
experience some delay in their receipt of principal and interest
distributions with respect to the Certificates since such
distributions will be forwarded to DTC and DTC will then forward
such distributions to its Participants which in turn will forward
them to Indirect Participants or Certificateowners.
Under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC Participants
may make book-entry transfers among Participants through DTC
facilities with respect to the Certificates and DTC, as
registered holder, is required to receive and transmit principal
and interest distributions and distributions with respect to the
Certificates. Participants and Indirect Participants with which
Certificateowners have accounts with respect to Certificates
similarly are required to make book-entry transfers and receive
and transmit such distributions on behalf of their respective
Certificateowners. Accordingly, although Certificateowners will
not possess certificates, the Rules provide a mechanism by which
Certificateowners will receive distributions and will be able to
transfer their interests.
The Depositor understands that DTC will take any action
permitted to be taken by a Certificateholder under the Pooling
and Servicing Agreement only at the direction of one or more
Participants to whose account with DTC the Certificates are
credited. Additionally, the Depositor understands that DTC will
take such actions with respect to holders of a certain specified
interest in the certificates or holders having a certain
specified voting interest only at the direction of and on behalf
of Participants whose holdings represent that specified interest
or voting interest. DTC may take conflicting actions with
respect to other Holders of Certificates to the extent that such
actions are taken on behalf of Participants whose holdings
represent that specified interest or voting interest.
DTC may discontinue providing its services as securities
depository with respect to the Certificates at any time by giving
reasonable notice to the Depositor or the Trustee. Under such
circumstances, in the event that a successor securities
depository is not obtained, Definitive Certificates will be
printed and delivered. In addition the Depositor may at its
option elect to discontinue use of the book-entry system through
DTC. In that event, too, Definitive Certificates will be printed
and delivered.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Payment Delays
With respect to any Series, a period of time will elapse
between receipt of payments or distributions on the Mortgage
Assets and the Distribution Date on which such payments or
distributions are passed through to Certificateholders. Such a
delay will effectively reduce the yield that would otherwise be
obtained if payments or distributions were distributed on or near
the date of receipt. The related Prospectus Supplement may set
forth an example of the timing of receipts and the distribution
thereof to Certificateholders.
Principal Prepayments
With respect to a Series for which the Mortgage Assets
consist of Loans or participation interests therein, when a Loan
prepays in full, the borrower will generally be required to pay
interest on the amount of prepayment only to the prepayment date.
In addition, the prepayment may not be required to be passed
through to Certificateholders until the month following receipt.
The effect of these provisions is to reduce the aggregate amount
of interest which would otherwise be available for distributions
on the Certificates, thus effectively reducing the yield that
would be obtained if interest continued to accrue on the Loan
until the date on which the principal prepayment was scheduled to
be paid. To the extent specified in the related Prospectus
Supplement, this effect on yield may be mitigated by, among other
things, an adjustment to the servicing fee otherwise payable to
the Master Servicer or Servicer with respect to any such prepaid
Loans. See "SERVICING OF LOANS-Advances and Limitations
Thereon."
Timing of Reduction of Principal Balance
A Series may provide that, for purposes of calculating
interest distributions, the principal amount of the Certificates
is deemed reduced as of a date prior to the Distribution Date on
which principal thereon is actually distributed. Consequently,
the amount of interest accrued during any Interest Accrual Period
will be less than the amount that would have accrued on the
actual principal balance of the Certificate outstanding. The
effect of such provisions is to produce a lower yield on the
Certificates than would be obtained if interest were to accrue on
the Certificates on the actual unpaid principal amount of such
Certificates to each Distribution Date. The related Prospectus
Supplement will specify the time at which the principal amounts
of the Certificates are determined or are deemed to reduce for
purposes of calculating interest distributions on Certificates of
such a Series.
Interest or Principal Weighted Certificates
If a Class of Certificates consists of Interest Weighted
Certificates or Principal Weighted Certificates, a lower rate of
principal prepayments than anticipated will negatively affect the
yield to investors in Principal Weighted Certificates, and a
higher rate of principal prepayments than anticipated will
negatively affect the yield to investors in Interest Weighted
Certificates. The Prospectus Supplement for a Series including
such Certificates will include a table showing the effect of
various levels of prepayment on yields on such Certificates.
Such tables will be intended to illustrate the sensitivity of
yields to various prepayment rates and will not be intended to
predict, or provide information which will enable investors to
predict, yields or prepayment rates.
Final Scheduled Distribution Date
The Final Scheduled Distribution Date of each Class of any
Series will be specified in the related Prospectus Supplement and
will be the date (calculated on the basis of the assumptions
applicable to such Series described therein) on which the entire
aggregate principal balance of such Class will be reduced to
zero. Since prepayments on the Loans underlying or comprising
the Mortgage Assets will be used to make distributions in
reduction of the outstanding principal amount of the
Certificates, it is likely that the actual maturity of any Class
will occur earlier, and may occur substantially earlier, than its
Final Scheduled Distribution Date.
Prepayments and Weighted Average Life
The rate of return on reinvestment of distributions of
principal and interest on the Mortgage Assets securing a Series,
the rates at which principal payments are received on such
Mortgage Assets and the rate at which payments are made from any
reserve fund or other credit enhancement for such Series may
affect the ultimate maturity of each Class of such Series.
Prepayments on the Mortgage Assets will accelerate the rate at
which principal is paid or distributed on the Certificates of a
Series. High reinvestment rates tend to increase the amount of
Excess Cash Flow, which, to the extent applied to principal
payments or distributions on the Certificates of a Series, will
accelerate principal payments or distributions on such
Certificates.
Weighted average life refers to the average amount of time
that will elapse from the date of issue of a security until each
dollar of the principal of such security will be repaid to the
investor. The weighted average life of the Certificates of a
Series will be influenced by the rate at which principal on the
Loans comprising or underlying the Mortgage Assets for such
Certificates is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, in whole or in part, and
liquidations due to default).
The rate of principal prepayments on pools of housing loans
is influenced by a variety of economic, demographic, geographic,
legal, tax, social and other factors. The rate of prepayments of
conventional housing loans has fluctuated significantly in recent
years. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Loans comprising or
underlying the Mortgage Assets for a Series, such Loans are
likely to prepay at rates higher than if prevailing interest
rates remain at or above the interest rates borne by such Loans.
In this regard, it should be noted that the Loans comprising or
underlying the Mortgage Assets of a Series may have different
interest rates, and the stated pass-through or interest rate of
certain Mortgage Assets or the Certificate Rate on the
Certificates may be a number of percentage points less than
interest rates on such Loans. In addition, the weighted average
life of the Certificates may be affected by the varying
maturities of the Loans comprising or underlying the Mortgage
Assets. If any Loans comprising or underlying the Mortgage
Assets for a Series have actual terms-to-stated maturity of less
than those assumed in calculating the Final Scheduled
Distribution Date of the related Certificates, one or more Class
of the Series may be fully paid prior to its Final Scheduled
Distribution Date, even in the absence of prepayments and a
reinvestment return higher than the Assumed Reinvestment Rate.
Prepayments on loans are also commonly measured relative to
a prepayment standard or model, such as the Constant Prepayment
Rate ("CPR") prepayment model or the Standard Prepayment
Assumption ("SPA") prepayment model, each as described below.
CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of
loans for the life of such loans. SPA represents an assumed rate
of prepayment each month relative to the then outstanding
principal balance of a pool of loans. A prepayment assumption of
100% of SPA assumes prepayment rates of 0.2% per annum of the
then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum
in each month thereafter until the thirtieth month. Beginning in
the thirtieth month and in each month thereafter during the life
of the loans, 100% of SPA assumes a constant prepayment rate of
6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or
assumption purports to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment
of any pool of loans, including the Loans underlying or
comprising the Mortgage Assets. Thus, it is likely that
prepayment of any Loans comprising or underlying the Mortgage
Assets for any Series will not conform to any particular level of
CPR or SPA.
The Prospectus Supplement for each Series consisting of
multiple classes will describe the prepayment standard or model
used to prepare any illustrative tables setting forth the
weighted average life of each Class of such Series under a given
set of prepayment assumptions. The related Prospectus Supplement
may also describe the percentage of the initial principal balance
of any Class of such Series that would be outstanding on
specified Distribution Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the Loans comprising or
underlying the related Mortgage Assets are made at rates
corresponding to various percentages of CPR or SPA or at such
other rates specified in such Prospectus Supplement. Such tables
and assumptions are intended to illustrate the sensitivity of
weighted average life of the Certificates to various prepayment
rates and will not be intended to predict or to provide
information which will enable investors to predict the actual
weighted average life of the Certificates or prepayment rates of
the Loans comprising or underlying the related Mortgage Assets.
Other Factors Affecting Weighted Average Life
Type of Loan. ARMs, Bi-weekly Loans, GEM Loans, GPM Loans
or Buy-Down Loans comprising or underlying the Mortgage Assets
may experience a rate of principal prepayments which is different
from the principal prepayment rate for ARMs, Bi-weekly Loans, GEM
Loans and GPM Loans included in any other mortgage pool or from
Conventional fixed rate Loans or from other adjustable rate or
graduated equity mortgages having different characteristics.
Because ARMs, Bi-weekly Loans, GEM Loans and GPM Loans have not
been originated in large quantities until recently, there can be
no certainty as to their respective rates of prepayment in either
stable or changing interest rate environments.
In the case of Negatively Amortizing ARMs, if interest rates
rise without a simultaneous increase in the related Scheduled
Payment, Deferred Interest and Negative Amortization may result.
However, borrowers may pay amounts in addition to their Scheduled
Payments in order to avoid such Negative Amortization and to
increase tax deductible interest payments. To the extent that
any of such Mortgage Loans negatively amortize over their
respective terms, future interest accruals are computed on the
higher outstanding principal balance of such mortgage loan and a
smaller portion of the Scheduled Payment is applied to principal
than would be required to amortize the unpaid principal over its
remaining term. Accordingly, the weighted average life of such
Loans will increase. During a period of declining interest
rates, the portion of each Scheduled Payment in excess of the
scheduled interest and principal due will be applied to reduce
the outstanding principal balance of the related Loan, thereby
resulting in accelerated amortization of such Negatively
Amortizing ARM. Any such acceleration in amortization of the
principal balance of any Negatively Amortizing ARM will shorten
the weighted average life of such Mortgage Loan. The application
of partial prepayments to reduce the outstanding principal
balance of a Negatively Amortizing ARM will tend to reduce the
weighted average life of the mortgage loan and will adversely
affect the yield to Holders who purchased their Certificates at a
premium, if any, and Holders of a Class of Interest Weighted
Certificates. The pooling of Negatively Amortizing ARMs having
Rate Adjustment Dates in different months, together with
different initial Mortgage Rates, Lifetime Mortgage Rate Caps,
Minimum Mortgage Rates and stated maturity dates, could result in
some Negatively Amortizing ARMs which comprise or underlie the
Mortgage Assets experiencing negative amortization while the
amortization of other Negatively Amortizing ARMs may be
accelerated.
If the Loans comprising or underlying the Mortgage Assets
for a Series include ARMs that permit the borrower to convert to
a long-term fixed interest rate loan, the Master Servicer,
Servicer, or PMBS Servicer, as applicable, may, if specified in
the related Prospectus Supplement, be obligated to repurchase any
Loan so converted. Any such conversion and repurchase would
reduce the average weighted life of the Certificates of the
related Series.
A GEM Loan provides for scheduled annual increases in the
borrower's Scheduled Payment. Because the additional portion of
the Scheduled Payment is applied to reduce the unpaid principal
balance of the GEM Loan, the stated maturity of a GEM Loan will
be significantly shorter than the 25 to 30 year term used as the
basis for calculating the installments of principal and interest
applicable until the first adjustment date.
The prepayment experience with respect to Manufactured Home
Loans will generally not correspond to the prepayment experience
on other types of housing loans.
Foreclosures and Payment Plans. The number of foreclosures
and the principal amount of the Loans comprising or underlying
the Mortgage Assets which are foreclosed in relation to the
number of Loans which are repaid in accordance with their terms
will affect the weighted average life of the Loans comprising or
underlying the Mortgage Assets and that of the related Series of
Certificates. Servicing decisions made with respect to the
Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Loans in bankruptcy
proceedings, may also have an impact upon the payment patterns of
particular Loans. In particular, the return to Holders of
Certificates who purchased their Certificates at a premium, if
any, and the yield on a Class of Interest Weighted Certificates
may be adversely affected by servicing policies and decisions
relating to foreclosures.
Due on Sale Clauses. The acceleration of prepayment as a
result of certain transfers of the Mortgaged Property securing a
Loan is another factor affecting prepayment rates. The Loans
constituting or underlying the Mortgage Assets may include "due-
on-sale" clauses. Except as otherwise described in the
Prospectus Supplement for a Series, the PMBS Servicer of Loans
underlying Private Mortgage-Backed Securities and the Master
Servicer or the Servicer of Loans constituting or underlying the
Mortgage Assets for a Series will be required, to the extent it
knows of any conveyance or prospective conveyance of the related
residence by any borrower, to enforce any "due-on-sale" clause
applicable to the related Loan under the circumstances and in the
manner it enforces such clauses with respect to other similar
loans in its portfolio. FHA Loans and VA Loans are not permitted
to contain "due-on-sale" clauses and are freely assumable by
qualified persons. However, as homeowners move or default on
their housing loans, the Mortgaged Property is generally sold and
the loans prepaid, even though, by their terms, the loans are not
"due-on-sale" and could have been assumed by new buyers.
Optional Termination. If so specified in the related
Prospectus Supplement, the entity specified therein may cause an
early termination of the related Trust Fund by its repurchase of
the remaining Mortgage Assets therein. See "DESCRIPTION OF THE
CERTIFICATES-Optional Termination."
THE TRUST FUNDS
General
The Trust Fund for each Series will be held by the Trustee
for the benefit of the related Certificateholders. Each Trust
Fund will consist of (a) the Mortgage Assets; (b) amounts held
from time to time in the Collection Account and the Certificate
Account established for such Series; (c) Mortgaged Property which
secured a Loan and which is acquired on behalf of the
Certificateholders by foreclosure, deed in lieu of foreclosure or
repossession; (d) any reserve fund for such Series, if specified
in the related Prospectus Supplement; (e) the Servicing
Agreements, if any, relating to Loans in the Trust Fund; (f) any
primary mortgage insurance policies relating to Loans in the
Trust Fund; (g) any pool insurance policy, any special hazard
insurance policy, any bankruptcy bond or other credit support
relating to the Series; (h) investments held in any fund or
account or any Guaranteed Investment Contract and, if so
specified in the Prospectus Supplement, income from the
reinvestment of such funds; and (i) any other instrument or
agreement relating to the Trust Fund and specified in the related
Prospectus Supplement (which may include an interest rate swap
agreement or an interest rate cap agreement or similar agreement
issued by a bank, insurance company or savings and loan
association).
To the extent specified in the related Prospectus
Supplement, certain amounts ("Retained Interests") which are
received with respect to a Private Mortgage-Backed Security or
Loan comprising the Mortgage Assets for a Series will not be
included in the Trust Fund for such Series, but will be retained
by or payable to the originator, Servicer or seller of such
Private Mortgage-Backed Security or Loan, free and clear of the
interest of Certificateholders under the related Pooling and
Servicing Agreement.
Mortgage Assets in the Trust Fund for a Series may consist
of any combination of the following to the extent and as
specified in the related Prospectus Supplement: (a) Private
Mortgage-Backed Securities or (b) Mortgage Loans or Manufactured
Home Loans, or participation interests therein. Loans which
comprise the Mortgage Assets will be purchased by the Depositor
directly or through an affiliate in the open market or in
privately negotiated transactions. Participation interests in
Loans may be purchased by the Depositor, or an affiliate,
pursuant to a participation agreement. See "THE POOLING AND
SERVICING AGREEMENTS-Assignment of Mortgage Assets."
Private Mortgage-Backed Securities
General Private Mortgage-Backed Securities may consist of
(a) mortgage pass-through certificates, evidencing an undivided
interest in a pool of Loans, (b) collateralized mortgage
obligations secured by Loans or (c) pass-through certificates
representing beneficial interests in Agency Securities. All
Private Mortgage-Backed Securities will be publicly registered or
otherwise exempt from applicable private placement restrictions
and will have been issued pursuant to a pooling and servicing
agreement, an indenture or similar agreement (a "PMBS
Agreement"). The seller/servicer of the underlying Loans will
have entered into the PMBS Agreement with the trustee under such
PMBS Agreement (the "PMBS Trustee"). The PMBS Trustee or its
agent, or a custodian, will possess the Loans underlying such
Private Mortgage-Backed Security. Loans underlying a Private
Mortgage-Backed Security will be serviced by a servicer (the
"PMBS Servicer") directly or by one or more subservicers who may
be subject to the supervision of the PMBS Servicer. The PMBS
Servicer will be an FNMA or FHLMC approved servicer and, if FHA
Loans underlie the Private Mortgage-Backed Securities, approved
by HUD as an FHA mortgagee. Any Private Mortgage-Backed Security
will have been acquired in a secondary transaction and not from
the issuer or an affiliate of the issuer of such Private
Mortgage-Backed Security and each Private Mortgage-Backed
Security will evidence an interest in, or will be secured by a
pledge of, Loans that conform to the descriptions of Loans
contained herein.
The issuer of the Private Mortgage-Backed Securities (the
"PMBS Issuer") will be a financial institution or other entity
engaged generally in the business of mortgage lending, a public
agency or instrumentality of a state, local or federal
government, or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts and acquiring
and selling housing loans to such trusts, and selling beneficial
interests in such trusts. The PMBS Issuer may be an affiliate of
the Depositor. The obligations of the PMBS Issuer will generally
be limited to certain representations and warranties with respect
to the assets conveyed by it to the related trust. Unless
otherwise specified in the related Prospectus Supplement, the
PMBS Issuer will not have guaranteed any of the assets conveyed
to the related trust or any of the Private Mortgage-Backed
Securities issued under the PMBS Agreement. Additionally,
although the Loans underlying the Private Mortgage-Backed
Securities may be guaranteed by an agency or instrumentality of
the United States, the Private Mortgage-Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will be made on the
Private Mortgage-Backed Securities on the dates specified in the
related Prospectus Supplement. The Private Mortgage-Backed
Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal
and interest distributions will be made on the Private Mortgage-
Backed Securities by the PMBS Trustee or the PMBS Servicer. The
PMBS Issuer or the PMBS Servicer may have the right to repurchase
assets underlying the Private Mortgage-Backed Securities after a
certain date or under other circumstances specified in the
related Prospectus Supplement.
Underlying Loans. The Loans underlying the Private
Mortgage-Backed Securities may consist of fixed rate, level
payment, fully amortizing Loans or GEM Loans, GPM Loans, Buy-Down
Loans, Bi-Weekly Loans, ARMs, or Loans having balloon or other
special payment features. Loans may be secured by Single Family
Property or Manufactured Homes. Except as otherwise specified in
the related Prospectus Supplement, (i) no Loan will have had a
Loan-to-Value Ratio at origination in excess of 100%, (ii) each
Loan will have had an original term to stated maturity of not
less than 10 years and not more than 40 years, (iii) each Loan
will be required to be covered by a standard hazard insurance
policy (which may be a blanket policy), and (iv) each Loan (other
than a Loan secured by a Manufactured Home) will be covered by a
title insurance policy.
Credit Support Relating to Private Mortgage-Backed
Securities. Credit support in the form of reserve funds,
subordination of other private mortgage certificates issued under
the PMBS Agreement, letters of credit, insurance policies or
other types of credit support may be provided with respect to the
Loans underlying the Private Mortgage-Backed Securities or with
respect to the Private Mortgage-Backed Securities themselves.
The type, characteristics and amount of credit support, if any,
will be a function of certain characteristics of the Loans and
other factors and will have been established for the Private
Mortgage-Backed Securities on the basis of requirements of the
Rating Agency which assigned a rating to the Private Mortgage-
Backed Securities.
Additional Information. The Prospectus Supplement for a
Series for which the Trust Fund includes Private Mortgage-Backed
Securities will specify (i) the aggregate approximate principal
amount and type of the Private Mortgage-Backed Securities to be
included in the Trust Fund, (ii) certain characteristics of the
Loans which comprise the underlying assets for the Private
Mortgage-Backed Securities including (A) the payment features of
such Loans (i.e., whether they are fixed rate or adjustable rate
and whether they provide for fixed level payments or other
payment features), (B) the approximate aggregate principal
balance, if known, of underlying Loans insured or guaranteed by a
governmental entity, (C) the servicing fee or range of servicing
fees with respect to the Loans, and (D) the minimum and maximum
stated maturities of the underlying Loans at origination, (iii)
the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities, (iv) the weighted average term-to-
stated maturity of the Private Mortgage-Backed Securities, (v)
the pass-through or certificate rate or ranges thereof for the
Private Mortgage-Backed Securities, (vi) the weighted average
pass-through or certificate rate of the Private Mortgage-Backed
Securities, (vii) the PMBS Issuer, the PMBS Servicer (if other
than the PMBS Issuer) and the PMBS Trustee for such Private
Mortgage-Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance
policies, letters of credit or guarantees relating to the Loans
underlying the Private Mortgage-Backed Securities or to such
Private Mortgage-Backed Securities themselves, (ix) the terms on
which the underlying Loans for such Private Mortgage-Backed
Securities may, or are required to, be purchased prior to their
stated maturity or the stated maturity of the Private Mortgage-
Backed Securities, (x) the lien priority of the Loans and (xi)
the terms on which Loans may be substituted for those originally
underlying the Private Mortgage-Backed Securities.
The Mortgage Loans
General. The Trust Fund for a Series may consist of
Mortgage Loans or participation interests therein. Mortgage
Loans comprising the Mortgage Assets and Mortgage Loans in which
participation interests are conveyed to the Trustee are both
referred to herein as the "Mortgage Loans." The Mortgage Loans
comprising the Mortgage Assets will have been originated by
Quality Mortgage USA, Inc. or other affiliates of the Depositor,
or by other mortgage lenders which are FNMA- or FHLMC-approved
sellers, servicers, and, in the case of FHA Loans, approved by
HUD as an FHA mortgagee. The Mortgage Loans may include
Conventional Loans, FHA Loans or VA Loans. The Mortgage Loans
may have fixed interest rates or adjustable interest rates and
may provide for fixed level payments or may be GPM Loans, GEM
Loans, Buy-Down Loans, Bi-Weekly Loans or Mortgage Loans with
other payment characteristics as described below and under
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" herein or in the
related Prospectus Supplement. ARMs may have a feature which
permits the borrower to convert the rate thereon to a long-term
fixed rate. The Mortgage Loans may be secured by mortgages or
deeds of trust or other similar security instruments creating a
first or second lien on Mortgaged Property.
The Mortgaged Properties will include Single Family Property
(i.e., one- to four-family residential housing, including
Condominium Units). The Mortgaged Properties may consist of
detached individual dwellings, individual condominiums,
townhouses, duplexes, row houses, individual units in planned
unit developments and other attached dwelling units. Each Single
Family Property will be located on land owned in fee simple by
the borrower or on land leased by the borrower for a term at
least two years greater than the term of the related Mortgage
Loan. The fee interest in any leased land will be subject to the
lien securing the related Mortgage Loan. See "CERTAIN LEGAL
ASPECTS OF LOANS." If permitted by applicable law, the Mortgage
Pool may also include Mortgaged Properties acquired by
foreclosure or by deed-in-lieu of foreclosure ("REO Property").
To the extent specified in the related Prospectus Supplement, the
Servicer or the Master Servicer may establish and maintain a
trust account or accounts to be used in connection with REO
Properties or other Mortgaged Properties being operated by it or
on its behalf on behalf of the Trust Estate or the Trust Fund, as
the case may be, by the mortgagor as debtor-in-possession or
otherwise. In addition, the Mortgage Pool for a particular
Series may include Mortgage Loans which consist of cash flow
mortgages, installment contracts, mortgage loans with equity
features or other mortgage loans described in the related
Prospectus Supplement.
The aggregate principal balance of Mortgage Loans which are
owner-occupied will be disclosed in the related Prospectus
Supplement. The sole basis for a representation that a given
percentage of the Mortgage Loans are secured by Single Family
Property that is owner-occupied will be either (i) the making of
a representation by the Mortgagor at origination of the Mortgage
Loan either that the underlying Mortgaged Property 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 Property as a
primary residence, or (ii) a finding that the address of the
underlying Mortgaged Property is the borrower's mailing address
as reflected in the Servicer's records. To the extent specified
in the related Prospectus Supplement, the Mortgaged Properties
may include non-owner occupied investment properties and vacation
and second homes. Mortgage Loans secured by investment
properties may also be secured by an assignment of leases and
rents and operating or other cash flow guarantees relating to the
Loans to the extent specified in the related Prospectus
Supplement.
The characteristics of the Mortgage Loans comprising or
underlying the Mortgage Assets for a Series may vary to the
extent that credit support is provided in levels satisfactory to
the Rating Agency which assigns a rating to a Series of
Certificates. Unless otherwise specified in the related
Prospectus Supplement for a Series, the following selection
criteria shall apply with respect to the Mortgage Loans
comprising the Mortgage Assets:
(a) no Mortgage Loan will have had a Loan-to-Value
Ratio at origination in excess of 100%;
(b) each Mortgage Loan must have an original term to
maturity of not less than 10 years and not more than 40
years; and
(c) no Mortgage Loan may be included unless a title
insurance policy or, in lieu thereof, an attorney's opinion
of title, and a standard hazard insurance policy (which may
be a blanket policy) is in effect with respect to the
Mortgaged Property securing such Mortgage Loan.
The initial Loan-to-Value Ratio of any Mortgage Loan
represents the ratio of the principal amount of the Mortgage Loan
outstanding at the origination of such loan divided by the fair
market value of the mortgaged property, as shown in the appraisal
prepared in connection with origination of the Mortgage Loan (the
"Appraised Value"). The fair market value of the Mortgaged
Property securing any Mortgage Loan is the lesser of the purchase
price paid by the borrower or the Appraised Value of such
Mortgaged Property.
Unless otherwise specified in the related Prospectus
Supplement, with respect to Buy-Down Loans, during the period
(the "Buy-Down Period") when the borrower is not obligated to pay
the full Scheduled Payment otherwise due on such loan, each of
the Buy-Down Loans will provide for Scheduled Payments based on a
hypothetical reduced interest rate (the "Buy-Down Mortgage Rate")
that will not have been more than 3% below the mortgage rate at
origination, and for annual increases in the Buy-Down Mortgage
Rate during the Buy-Down Period that will not exceed 1%. The
Buy-Down Period will not exceed three years. The maximum amount
of the Buy-Down Amounts that may be contributed with respect to a
Mortgaged Property having a Loan-to-Value Ratio (i) of 90% or
less at origination is limited to 10% of the Appraised Value of
the Mortgaged Property, and (ii) in excess of 90% at origination
is limited to 6% of the Appraised Value of the Mortgaged
Property, unless otherwise indicated in the applicable Prospectus
Supplement. Unless specified otherwise in the related Prospectus
Supplement, the maximum amount of Funds ("Buy-Down Amounts") that
may be contributed by the Servicer of the related Mortgaged Loan
is limited to 6% of the Appraised Value of the Mortgaged
Property. This limitation does not apply to contributions from
immediate relatives or the employer of the mortgagor. Except as
may be otherwise indicated in the related Prospectus Supplement,
the borrower under each Buy-Down Loan will have been qualified at
a mortgage rate which is not more than 3% per annum below the
current mortgage rate at origination. Accordingly, the repayment
of a Buy-Down Loan is dependent on the ability of the borrower to
make larger Scheduled Payments after the Buy-Down Amounts have
been depleted and, for certain Buy-Down Loans, while such Buy-
Down Amounts are being depleted.
Unless otherwise specified in the related Prospectus
Supplement, the Bi-Weekly Loans will consist of fixed-rate, bi-
weekly payment, conventional, fully-amortizing Mortgage Loans
payable on every other Friday during the term thereof and secured
by first or second mortgages on one- to four-family residential
properties.
Unless otherwise specified in the related Prospectus
Supplement, the ARMs will provide for a fixed initial mortgage
rate for either the first 6, 12, 24, 36 or 84 Scheduled Payments.
Thereafter, the Mortgage Rates are subject to periodic adjustment
based, subject to the applicable limitations, on changes in the
relevant Index described in the applicable Prospectus Supplement,
to a rate equal to the Index plus the Gross Margin, which is a
fixed percentage spread over the Index established contractually
for each ARM, at the time of its origination. An ARM may be
convertible into a fixed-rate Mortgage Loan. To the extent
specified in the related Prospectus Supplement, any ARM so
converted may be subject to repurchase by the Servicer or Master
Servicer.
ARMs have features that are relatively new for the
residential lending market in the United States. In particular,
adjustable mortgage rates can cause payment increases that some
borrowers may find difficult to make. However, each of the ARMs
provides that its mortgage rate may not be adjusted to a rate
above the applicable lifetime mortgage rate cap (the "Lifetime
Mortgage Rate Cap") or below the applicable lifetime minimum
mortgage rate (the "Minimum Mortgage Rate"), if any, for such
ARM. In addition, certain of the ARMs provide for limitations on
the maximum amount by which their mortgage rates may adjust for
any single adjustment period (the "Maximum Mortgage Rate
Adjustment"). Some ARMs are payable in self-amortizing payments
of principal and interest. Other ARMs ("Negatively Amortizing
ARMs") instead provide for limitations on changes in the
Scheduled Payment on such ARMs to protect borrowers from payment
increases due to rising interest rates. Such limitations can
result in Scheduled Payments which are greater or less than the
amount necessary to amortize a Negatively Amortizing ARM by its
original maturity at the mortgage rate in effect during any
particular adjustment period. In the event that the Scheduled
Payment is not sufficient to pay the interest accruing on a
Negatively Amortizing ARM, then the Deferred Interest is added to
the principal balance of such ARM causing the negative
amortization thereof, and will be repaid through future Scheduled
Payments. If specified in the related Prospectus Supplement,
Negatively Amortizing ARMs may provide for the extension of their
original stated maturity to accommodate changes in their mortgage
rate. The relevant Prospectus Supplement will specify whether
the ARMs comprising or underlying the Mortgage Assets are
Negatively Amortizing ARMs.
Unless otherwise specified in the related Prospectus
Supplement, the index applicable to any ARMs comprising the
Mortgage Assets (the "Index") will be one-month LIBOR, six-month
LIBOR, the three-year Treasury Index, the one-year Treasury
Index, the six-month Treasury Index or the Eleventh District
Costs of Funds Index. If applicable, the Prospectus Supplement
for each Series will specify the Index to be used with respect to
any Mortgage Loans underlying such Series.
The related Prospectus Supplement for each Series will
provide information with respect to the Mortgage Loans as of the
Cut-off Date, including, among other things, (a) the aggregate
principal balance of the Mortgage Loans; (b) the weighted average
mortgage rate on the Mortgage Loans, and, in the case of ARMs,
the weighted average of the current mortgage rates and the
Lifetime Mortgage Rate Caps, if any; (c) the average principal
balance of the Mortgage Loans; (d) the weighted average remaining
term-to-stated maturity of the Mortgage Loans and the range of
remaining terms-to-stated maturity; (e) the range of Loan-to-
Value Ratios of the Mortgage Loans; (f) the relative percentage
(by principal balance as of the Cut-off Date) of Mortgage Loans
that are ARMs, Buy-Down Loans, GEM Loans, GPM Loans, Conventional
Loans, Bi-Weekly Loans, FHA Loans and VA Loans, (g) the
percentage of Mortgage Loans (by principal balance as of the Cut-
off Date) that are covered by primary mortgage insurance
policies; (h) any primary mortgage insurance policy, pool
insurance policy, special hazard insurance policy or bankruptcy
bond or other credit support relating to the Mortgage Loans; (i)
the geographic distribution of the Mortgaged Properties securing
the Mortgage Loans and (j) the percentage of Mortgage Loans (by
principal balance as of the Cut-off Date) that are secured by
Single Family Property, investment property and vacation or
second homes. The related Prospectus Supplement will also
specify any other limitations on the types or characteristics of
Mortgage Loans which may comprise or underlie the Mortgage Assets
for a Series.
If information of the nature described above respecting the
Mortgage Loans is not known to the Depositor at the time the
Certificates are initially offered, more general information of
the nature described above will be provided in the Prospectus
Supplement and the final specific information will be set forth
in a Current Report on Form 8-K to be available to investors on
the date of issuance of the related Series and to be filed with
the Commission within 15 days after the initial issuance of such
Certificates.
The Manufactured Home Loans
The Manufactured Home Loans comprising or underlying the
Mortgage Assets for a Series of Certificates will consist of
manufactured housing conditional sales contracts and installment
loan agreements originated by a manufactured housing dealer in
the ordinary course of business and purchased by the Depositor.
Each Manufactured Home Loan will have been originated by a bank
or savings institution which is a FNMA- or FHLMC-approved seller/
servicer or by any financial institution approved for insurance
by the Secretary of Housing and Urban Development pursuant to
Section 2 of the National Housing Act.
The Manufactured Home Loans may be Conventional Loans, FHA
Loans or VA Loans. Each Manufactured Home Loan will be secured
by a Manufactured Home. Unless otherwise specified in the
related Prospectus Supplement, the Manufactured Home Loans will
be fully amortizing and will bear interest at a fixed interest
rate.
The Manufactured Homes securing the Manufactured Home Loans
consist of manufactured homes within the meaning of 42 United
States Code, Section 5402(6), which defines a "manufactured home"
as "a structure, transportable in one or more sections, which in
the traveling mode, is eight body feet or more in width or forty
body feet or more in length, or, when erected on site, is three
hundred twenty or more square feet, and which is built on a
permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required
utilities, and includes the plumbing, heating, air-conditioning,
and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of
[this] paragraph except the size requirements and with respect to
which the manufacturer voluntarily files a certification required
by the Secretary of Housing and Urban Development and complies
with the standards established under [this] chapter."
Unless otherwise specified in the related Prospectus
Supplement for a Series, the following restrictions apply with
respect to Manufactured Home Loans comprising or underlying the
Mortgage Assets for a Series:
(a) no Manufactured Home Loan will have had a Loan-to-
Value Ratio at origination in excess of 100%;
(b) each Manufactured Home Loan must have an original
term to maturity of not less than three years and not more
than 25 years; and
(c) each Manufactured Home Loan must have, as of the
Cut-off Date, a standard hazard insurance policy (which may
be a blanket policy) in effect with respect thereto.
The initial Loan-to-Value Ratio of any Manufactured Home
Loan represents the ratio of the principal amount of the
Manufactured Home Loan outstanding at the origination of such
loan divided by the fair market value of the Manufactured Home,
as shown in the appraisal prepared in connection with origination
of the Manufactured Home Loan (the "Appraised Value"). The fair
market value of the Manufactured Home securing any Manufactured
Home Loan is the lesser of the purchase price paid by the
borrower or the Appraised Value of such Manufactured Home. With
respect to underwriting of Manufactured Home Loans, see "LOAN
UNDERWRITING PROCEDURES AND STANDARDS." With respect to
servicing of Manufactured Home Loans, see "SERVICING OF LOANS."
The related Prospectus Supplement for each Series will
provide information with respect to the Manufactured Home Loans
comprising the Mortgage Assets as of the Cut-off Date, including,
among other things, (a) the aggregate principal balance of the
Manufactured Home Loans comprising or underlying the Mortgage
Assets; (b) the weighted average interest rate on the
Manufactured Home Loans; (c) the average principal balance of the
Manufactured Home Loans; (d) the weighted average remaining
scheduled term to maturity of the Manufactured Home Loans and the
range of remaining scheduled terms to maturity; (e) the range of
Loan-to-Value Ratios of the Manufactured Home Loans; (f) the
relative percentages (by principal balance as of the Cut-off
Date) of Manufactured Home Loans that were made on new
Manufactured Homes and on used Manufactured Homes; (g) any
primary mortgage insurance policy, pool insurance policy, special
hazard insurance policy or bankruptcy bond or other credit
support relating to the Manufactured Home Loans; and (h) the
distribution by state of Manufactured Homes securing the Loans.
The related Prospectus Supplement will also specify any other
limitations on the types or characteristics of Manufactured Home
Loans which may be included in the Mortgage Assets for a Series.
If information of the nature specified above respecting the
Manufactured Home Loans is not known to the Depositor at the time
the Certificates are initially offered, more general information
of the nature described above will be provided in the Prospectus
Supplement and the final specific information will be set forth
in a Current Report on Form 8-K to be available to investors on
the date of issuance of the related Series and to be filed with
the Commission within 15 days after the initial issuance of such
Certificates.
Forward Commitments: Pre-Funding Account
If specified in the Prospectus Supplement relating to any
Series, the Trustee or the Master Servicer may, on behalf of the
related Trust Fund, enter into an agreement (each, a "Forward
Purchase Agreement") with the Depositor whereby the Depositor
will agree to transfer additional Loans to such Trust Fund
following the date on which such Trust Fund is established and
the related Certificates are issued. The Trust Fund may enter
into Forward Purchase Agreements to permit the acquisition of
additional Loans that could not be delivered by the Depositor or
have not formally completed the origination process, in each case
prior to the date on which the Certificates are delivered to the
Certificateholders (the "Closing Date"). Any Forward Purchase
Agreement will require that any Loans so transferred to a Trust
Fund conform to the requirements specified in such Forward
Purchase Agreement. If a Forward Purchase Agreement is to be
utilized, the Trustee will be required to deposit in a segregated
account (each, a "Pre-Funding Account") all or a portion of the
proceeds received by the Trustee in connection with the sale of
one or more classes of Certificates of the related Series; the
additional Loans will be transferred to the related Trust Fund in
exchange for money released to the Depositor from the related
Pre-Funding Account. Each Forward Purchase Agreement will set a
specified period during which any such transfers must occur. The
Forward Purchase Agreement or the related Agreement will require
that, if all moneys originally deposited to such Pre-Funding
Account are not so used by the end of such specified period, then
any remaining moneys will be applied as a mandatory prepayment of
the related class or classes of Certificates as specified in the
related Prospectus Supplement. The specified period for the
acquisition by a Trust Fund of additional Loans will not exceed
three months from the date such Trust Fund is established.
Collection Account and Certificate Account
A separate Collection Account for each Series will be
established by the Master Servicer in the name of the Trustee for
deposit of all distributions received with respect to the
Mortgage Assets for such Series, all Advances, the amount of cash
to be initially deposited therein, if any, reinvestment income
thereon and certain other amounts required to be deposited
therein pursuant to the Pooling and Servicing Agreement. Any
reinvestment income or other gain from investments of funds in
the Collection Account will be credited to such Collection
Account, and any loss resulting from such investments will be
charged to such Collection Account. Such reinvestment income
may, however, be payable to the Master Servicer or to a Servicer
as additional servicing compensation. See "SERVICING OF LOANS"
and "THE POOLING AND SERVICING AGREEMENTS-Investment of Funds."
In such a case, such reinvestment income would not be included in
calculation of the Available Distribution Amount. See
"DESCRIPTION OF THE CERTIFICATES-Distributions on the
Certificates."
Funds on deposit in the Collection Account will be available
for deposit into the Certificate Account for certain payments
provided for in the Pooling and Servicing Agreement. Amounts in
the Collection Account constituting reinvestment income which is
payable to the Master Servicer as additional servicing compensa-
tion or for the reimbursement of advances or expenses, amounts in
respect of any Servicing Fee, Retained Interest, and amounts to
be deposited into any reserve fund will generally not be included
in determining amounts to be remitted to the Trustee for deposit
into the Certificate Account.
A separate Certificate Account will be established by the
Trustee or by the Master Servicer, in either case in the name of
the Trustee for the benefit of the Certificateholders into which
all funds received from the Master Servicer and all required
withdrawals from any reserve funds for such Series will be
deposited, pending distribution to the Certificateholders. Any
reinvestment income or other gain from investments of funds in
the Certificate Account will be credited to the Certificate
Account and any loss resulting from such investments will be
charged to such Certificate Account. Such reinvestment income,
may, however, be payable to the Master Servicer as additional
servicing compensation. On each Distribution Date, all funds on
deposit in the Certificate Account, subject to certain permitted
withdrawals by the Trustee as set forth in the Pooling and
Servicing Agreement, will be available for remittance to the
Certificateholders; provided, that if it is specified in the
related Prospectus Supplement that the Certificate Account will
be maintained by the Master Servicer in the name of the Trustee,
then, prior to each Distribution Date, funds in the Certificate
Account will be transferred to a separate account established by
and in the name of the Trustee from which the funds on deposit
therein will, subject to permitted withdrawals by the Trustee as
specified above, be available for remittance to the
Certificateholders. See also "THE POOLING AND SERVICING
AGREEMENTS-Certificate Account."
Other Funds or Accounts
A Trust Fund may include certain other funds and accounts or
a security interest in certain funds and accounts for the purpose
of, among other things, paying certain administrative fees and
expenses of the Trust Fund and accumulating funds pending their
distribution. Certain funds may be established with the Trustee
with respect to Buy-Down Loans, GPM Loans, or other Loans having
special payment features included in the Trust Fund in addition
to or in lieu of any such similar funds to be held by the
Servicer. See "SERVICING OF LOANS-Payments on Loans; Deposits to
Collection Accounts."
LOAN UNDERWRITING PROCEDURES AND STANDARDS
Underwriting Standards
The Depositor expects that all Loans comprising the Mortgage
Assets for a Series will have been originated in accordance with
the underwriting procedures and standards described herein. Any
material variations from the underwriting procedures and
standards described herein will be described in the related
Prospectus Supplement. The originator of the Loans (or another
entity specified in the related Prospectus Supplement) will make
representations and warranties concerning compliance with such
underwriting procedures and standards.
Mortgage Loans will have been originated by Quality Mortgage
USA, Inc., or other affiliates of the Depositor, or a mortgage
lender which is a savings and loan association, savings bank,
commercial bank, credit union, insurance company or similar
institution which is supervised and examined by a federal or
state authority or by a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Sections 203 and 211 of
the National Housing Act or a wholly-owned subsidiary thereof.
Manufactured Home Loans may have been originated by such
institutions or by a financial institution approved for insurance
by the Secretary of Housing and Urban Development pursuant to
Section 2 of the National Housing Act. The originator of a Loan
will have applied underwriting procedures intended to evaluate
the borrower's credit standing and repayment ability and the
value and adequacy of the related property as collateral. FHA
Loans and VA Loans will have been originated in compliance with
the underwriting policies of FHA and VA, respectively.
Each borrower will have been required to complete an
application designed to provide to the original lender pertinent
credit information about the borrower. As part of the
description of the borrower's financial condition, the borrower
will have furnished, among other things, information with respect
to its assets, liabilities, income, credit history, employment
history and personal information, and an authorization to apply
for a credit report which summarizes the borrower's credit
history with local merchants and lenders and any record of
bankruptcy. If the borrower was self-employed, the borrower will
have been required to submit copies of recent tax returns. The
borrower may also have been required to authorize verifications
of deposits at financial institutions where the borrower had
demand or savings accounts. Certain considerations may cause an
originator of Loans to depart from these guidelines. For
example, when two individuals co-sign the loan documents, the
incomes and expenses of both individuals may be included in the
computation.
The adequacy of the property financed by the related Loan as
security for repayment of such Loan will generally have been
determined by appraisal in accordance with pre-established
appraisal procedure guidelines for appraisals established by or
acceptable to the originator. Appraisers may be staff appraisers
employed by the Loan originator or independent appraisers
selected in accordance with pre-established guidelines
established by the Loan originator. The appraisal procedure
guidelines will have required that the appraiser or an agent on
its behalf to personally inspect the property and to verify that
it was in good condition and that construction, if new, had been
completed. The appraisal will have been based upon a market data
analysis of recent sales of comparable properties and, when
deemed applicable, a replacement cost analysis based on the
current cost of constructing or purchasing a similar property.
Based on the data provided, certain verifications and the
appraisal, a determination will have been made by the original
lender that the borrower's monthly income would be sufficient to
enable the borrower to meet its monthly obligations on the Loan
and other expenses related to the property (such as property
taxes, utility costs and standard hazard insurance and, if
applicable, primary mortgage insurance and maintenance fees) and
certain other fixed obligations other than housing expenses. The
originating lender's guidelines for Loans secured by Single
Family Property generally will specify that Scheduled Payments
plus taxes and insurance and all Scheduled Payments extending
beyond one year (including those mentioned above and other fixed
obligations, such as car payments) would equal no more than
specified percentages of the prospective borrower's gross income.
These guidelines will generally be applied only to the payments
to be made during the first year of the Loan. Except as
otherwise specified in the related Prospectus Supplement, with
respect to Mortgage Loans that are Conventional Loans,
underwriting guidelines used to establish the relevant
percentages of gross income will be similar to underwriting
guidelines used by FNMA and FHLMC at the time of origination of
the Loan, except that the ratio of Scheduled Payments and certain
other fixed obligations to monthly gross income may exceed the
comparable FNMA or FHLMC limits as specified in the related
Prospectus Supplement.
With respect to FHA Loans and VA Loans, traditional
underwriting guidelines used by the FHA and the VA, as the case
may be, which were in effect at the time of origination of each
Loan will generally have been applied. With respect to
Manufactured Home Loans that are Conventional Loans, the related
Prospectus Supplement will specify the required minimum
downpayment, the maximum amount of purchase price eligible for
financing, the maximum original principal amount that may be
financed, and the limitations on ratios of borrower's Scheduled
Payment to gross monthly income and monthly income net of other
fixed payment obligations. Income derived from the Mortgaged
Property constituting investment property may have been
considered for underwriting purposes, rather than the income of
the borrower from other sources. With respect to Mortgaged
Property consisting of vacation or second homes, no income
derived from the property will have been considered for
underwriting purposes.
Certain types of Loans that may be included in the Mortgage
Assets for a Series are recently developed and may involve
additional uncertainties not present in traditional types of
loans. For example, Buy-Down Loans, GEM Loans and GPM Loans
provide for escalating or variable payments by the borrower.
These types of Loans are underwritten on the basis of a judgment
that the borrower will have the ability to make larger Scheduled
Payments in subsequent years. ARMs may involve similar
assessments.
To the extent specified in the related Prospectus
Supplement, the Depositor may purchase Loans (or participation
interests therein) for inclusion in a Trust Fund that are
underwritten under standards and procedures which vary from and
are less stringent than those described herein. For instance,
Loans may be underwritten under a "limited documentation
program," if specified in the Prospectus Supplement. With
respect to such Loans, minimal investigation into the borrowers'
credit history and income profile is undertaken by the originator
and such Loans may be underwritten primarily on the basis of an
appraisal of the Mortgaged Property and Loan-to-Value Ratio on
origination. Thus, if the Loan-to-Value Ratio is less than a
percentage specified in the related Prospectus Supplement, the
originator may forego certain aspects of the review relating to
monthly income, and traditional ratios of monthly or total
expenses to gross income may not be applied.
In addition, Mortgage Loans may have been originated in
connection with a governmental program under which underwriting
standards were significantly less stringent and designed to
promote home ownership or the availability of affordable
residential rental property notwithstanding higher risks of
default and losses. The related Prospectus Supplement will
specify the underwriting standards applicable to such Mortgage
Loans.
The underwriting standards applied by the Loan originator
require that the underwriting officers be satisfied that the
value of the property being financed, as indicated by an
appraisal, currently supports and is anticipated to support in
the future the outstanding loan balance, and provides sufficient
value to mitigate the effects of adverse shifts in real estate
values. Certain states where the Mortgaged Properties may be
located have "antideficiency" laws requiring, in general, that
lenders providing credit on Single Family Property look solely to
the property for repayment in the event of foreclosure. See
"CERTAIN LEGAL ASPECTS OF LOANS."
Loss Experience
The general appreciation of real estate values experienced
in the past has been a factor in limiting the general loss
experience on Conventional Loans. However, there can be no
assurance that the past pattern of appreciation in value of the
real property securing such Loans will continue. Further, there
is no assurance that appreciation of real estate values generally
will limit loss experiences on non-traditional housing such as
Manufactured Homes. Similarly, no assurance can be given that
the value of the Mortgaged Property securing a Loan has remained
or will remain at the level existing on the date of origination
of such Loan. If the residential real estate market should
experience an overall decline in property values such that the
outstanding balances of the Loans and any secondary financing on
the Mortgaged Properties securing such Loans become equal to or
greater than the value of such Mortgaged Properties, then the
actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage
lending industry. See "CERTAIN LEGAL ASPECTS OF LOANS."
No assurance can be given that values of Manufactured Homes
have or will remain at the levels existing on the dates of
origination of the related Loan. Manufactured Homes are less
likely to experience appreciation in value and more likely to
experience depreciation in value over time than other types of
Mortgaged Property. Additionally, delinquency, loss and
foreclosure experience on Manufactured Home Loans may be
adversely affected to a greater degree by regional and local
economic conditions than more traditional Mortgaged Property.
To the extent that losses resulting from delinquencies,
losses and foreclosures or repossession of Mortgaged Property
with respect to Loans included in the Mortgage Assets for a
Series of Certificates are not covered by the methods of credit
support or the insurance policies described herein or in the
related Prospectus Supplement, such losses will be borne by
Holders of the Certificates of such Series. Even where credit
support covers all losses resulting from delinquency and
foreclosure or repossession, the effect of foreclosures and
repossessions may be to increase prepayment experience on the
Mortgage Assets, thus reducing average weighted life and
affecting yield to maturity. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS."
Representations and Warranties
Unless otherwise specified in the related Prospectus
Supplement or in the Pooling and Servicing Agreement, the
Depositor will represent and warrant to the Trustee with respect
to the Mortgage Loans comprising the Mortgage Assets in a Trust
Fund, upon delivery of the Mortgage Loans to the Trustee
hereunder, among other things, that, based upon representations
and warranties of the originator of the Loans: (i) the
information set forth in the Final Mortgage Loan Schedule is
complete, true and correct as of the Cut-off Date; (ii) it had
good title to each Mortgage Note and the Mortgage and it was the
sole owner of each of the Mortgage Loans free and clear of any
and all liens, claims, pledges, charges or security interests of
any nature (other than any junior lien on the Mortgaged Property
encumbered by the related Mortgage) and has full right and
authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the same;
(iii) each Mortgage evidences a valid and enforceable first or
second lien on the property therein described, except for Liens
for real estate taxes and special assessments not yet due and
payable and, covenants, conditions and restrictions, rights of
way, easements and other matters of the public record as of the
date of recording which are acceptable to mortgage lending
institutions generally, or which are specifically referred to or
otherwise considered in the appraisal made for the originator of
the Mortgage Loan, or which do not adversely affect the appraised
value of the Mortgaged Property as set forth in such appraisal,
and other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage; (iv) no
instrument of release or waiver has been executed in connection
with the Mortgage Loan, and no Mortgagor has been released, in
whole or in part, except in connection with an assumption
agreement which has been approved by the primary mortgage
guaranty insurer, if any, and which has been delivered to the
Trustee; (v) to the best of the Depositor's knowledge, there is
no proceeding pending or threatened for the total or partial
condemnation of the Mortgaged Property, nor is such a proceeding
currently occurring, and as of the Closing Date such property to
the best of the Depositor's knowledge, is free of material damage
and is in at least adequate repair; (vi) to the best of the
Depositor's knowledge, there are no mechanics' or similar liens
or claims which have been filed for work, labor or material (and,
to the best of the Depositor's knowledge, no rights are
outstanding that under law could give rise to such lien)
affecting the Mortgaged Property which are, or may be, liens
prior or equal to, the lien of the Mortgage (except those that
are insured by the original title insurance policy; (vii) to the
best of the Depositor's knowledge, all of the improvements which
were included for the purpose of determining the appraised value
of the Mortgaged Property lie wholly within the boundaries and
building restriction lines of such property or are insured
against, and no improvements on adjoining properties encroach
upon the Mortgaged Property, unless, in either case, an agreement
permitting such encroachment is recorded in the applicable real
property records and such agreement was taken into account in
conducting the appraisal of the Mortgaged Property; (viii) the
Depositor has no knowledge of any circumstances or conditions
with respect to the Mortgage, the Mortgaged Property, the
Mortgagor or the Mortgagor's credit standing which would cause
investors to regard the Mortgage Loan as an unacceptable
investment, cause the Mortgage Loan to become delinquent, or
materially and adversely affect the value or marketability of the
Mortgage Loan; (ix) to the best of the Depositor's knowledge, no
improvement considered in determining the appraisal value located
on or being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation. All inspections, licenses
and certificates required to be made or issued with respect to
the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates,
have been made or obtained from the appropriate authorities and
the Mortgaged Property is lawfully occupied under applicable law;
(x) each appraisal is on a form acceptable to FNMA or FHLMC with
such riders as are acceptable to FNMA and FHLMC, as the case may
be; (xi) the Mortgage Note and the related Mortgage are genuine,
and, to the best of the Depositor's knowledge, each is the legal,
valid and binding obligation of the maker thereof, enforceable in
accordance with its terms, such enforceability being subject to
bankruptcy, insolvency, moratorium or other laws affecting the
rights of creditors generally, and to general principles of
equity. To the best of the Depositor's knowledge, all parties to
the Mortgage Note and the Mortgage had legal capacity to execute
the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage have been duly and properly executed by such parties;
(xii) any and all requirements of any federal, state or local law
including, without limitation, usury, truth-in-lending, real
estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage
Loan have been complied with in all material respects; (xiii) the
proceeds of the Mortgage Loan have been fully disbursed, there is
no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor
have been complied with. All costs, fees and expenses incurred
in making, or closing or recording the Mortgage Loans were paid;
(xiv) a lender's policy of title insurance or a commitment
(binder) to issue the same was effective on the date of the
origination of each Mortgage Loan, each such policy is valid and
remains in full force and effect and each such policy was issued
by a title insurer acceptable to FNMA or FHLMC and in a form
acceptable to FNMA or FHLMC; (xv) all improvements upon the
Mortgaged Property are insured by a generally acceptable insurer
against loss by fire, hazards of extended coverage and such other
hazards as are customary in the area where the Mortgaged Property
is located, pursuant to insurance policies conforming to the
requirements of the related Pooling and Servicing Agreement;
(xvi) there is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the
Mortgagor to pay the unpaid principal of or interest on such
Mortgage Note, and any applicable right of rescission has
expired; (xvii) the Mortgage Loan was originated by the Depositor
or by a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution
which is supervised and examined by a Federal or State authority,
or by a mortgagee approved by the Secretary of HUD or
subsequently acquired by the Depositor from such originator;
(xviii) the Mortgage contains a customary "due on sale" clause;
(xix) the Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of
the benefits of the security, including, (y) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and
(z) otherwise by judicial foreclosure. The Depositor has no
knowledge of any homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the
Mortgaged Property as a trustee's sale or the right to foreclose
the Mortgage; (xx) with respect to each Mortgage constituting a
deed of trust, a trustee, duly qualified if required under
applicable law to serve as such, has been properly designated and
currently so serves and is named in such Mortgage, and no fees or
expenses are or will become payable by the Certificateholders to
the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor; and (xxi) any
other representations and warranties respecting the Mortgage
Loans specified in the related Prospectus Supplement or the
related Pooling and Servicing Agreement.
If the Mortgage Loans include Condominium Loans, no
representation regarding hazard insurance will be given.
Generally, the Condominium Association is responsible for
maintaining standard hazard insurance insuring the entire
Condominium Building (including each individual Condominium
Unit), and the borrowers of that Condominium do not maintain
separate hazard insurance on their individual Condominium Units.
See "SERVICING OF LOANS-Maintenance of Insurance Policies and
Other Servicing Procedures."
Unless otherwise specified in the related Prospectus
Supplement, with respect to each Manufactured Home Loan, the
Depositor based upon representations and warranties of the
originator of such Manufactured Home Loan will represent and
warrant, among other things, that (i) immediately prior to the
transfer and assignment of the Manufactured Home Loans to the
Trustee, the Depositor had good title to, and was the sole owner
of, each Manufactured Home Loan; (ii) as of the date of such
transfer and assignment, the Manufactured Home Loans are subject
to no offsets, defenses or counterclaims; (iii) each Manufactured
Home Loan at the time it was made complied in all material
respects with applicable state and federal laws, including usury,
equal credit opportunity and truth-in-lending or similar
disclosure laws; (iv) as of the date of such transfer and
assignment, each Manufactured Home Loan constitutes a valid first
or second lien on the related Manufactured Home and such
Manufactured Home is free of material damage and is in at least
adequate repair; and (v) with respect to each Manufactured Home
Loan, any required hazard insurance policy was effective at the
origination of each Manufactured Home Loan and remained in effect
on the date of the transfer and assignment of the Manufactured
Home Loan from the Depositor and that all premiums due on such
insurance have been paid in full.
Upon the discovery of the breach of any representation or
warranty made by the Depositor in respect of a Loan that
adversely affects the payments of principal and interest on the
Loan or otherwise adversely and materially affects the value of
such Loan, the Depositor will be obligated to cure such breach in
all material respects, repurchase such Loan from the Trustee, or
deliver a Qualified Substitute Mortgage Loan as described below
under "THE POOLING AND SERVICING AGREEMENTS-Assignment of
Mortgage Assets." See "RISK FACTORS-Limited Obligations and
Assets of the Depositor." The PMBS Trustee (in the case of
Private Mortgage-Backed Securities) or the Trustee, as
applicable, will be required to enforce this obligation following
the practices it would employ in its good faith business judgment
were it the owner of such Loan. If so specified in the related
Prospectus Supplement, the Depositor may be obligated to enforce
such obligations rather than the Trustee or PMBS Trustee.
SERVICING OF LOANS
General
Customary servicing functions with respect to Loans
constituting the Mortgage Assets in the Trust Fund will be
provided by the Master Servicer directly or through one or more
servicers (the "Servicers") subject to supervision by the Master
Servicer. If the Master Servicer is not directly servicing the
Loans, then the Master Servicer will (i) administer and supervise
the performance by the Servicers of their servicing
responsibilities under their servicing agreements ("Servicing
Agreements") with the Master Servicer, (ii) maintain any standard
or special hazard insurance policy, primary mortgage insurance
bankruptcy bond or pool insurance policy required for the related
Loans and (iii) advance funds as described below under
"Advances." If the Master Servicer services the Loans through
Servicers as its agents, the Master Servicer will be ultimately
responsible for the performance of all servicing activities,
including those performed by the Servicers notwithstanding its
delegation of certain responsibilities to such Servicer.
The Master Servicer will be a party to the Pooling and
Servicing Agreement for any Series for which Loans comprise the
Mortgage Assets and may be a party to a Participation Agreement
executed with respect to any Participation Certificates which
constitute the Mortgage Assets. The Master Servicer may be the
Depositor or an affiliate of the Depositor. The Master Servicer
will be paid a Servicing Fee for the performance of its services
and duties under each Pooling and Servicing Agreement as
specified in the related Prospectus Supplement. Each Servicer,
if any, will be entitled to receive a portion of the Servicing
Fee. In addition, the Master Servicer or Servicer may be
entitled to retain late charges, assumption fees and similar
charges to the extent collected from mortgagors. If a Servicer
is terminated by the Master Servicer, the servicing function of
the Servicer will be either transferred to a substitute Servicer
or performed by the Master Servicer. The Master Servicer will be
entitled to retain the portion of the Servicing Fee paid to the
Servicer under a terminated Servicing Agreement if the Master
Servicer elects to perform such servicing functions itself.
The Master Servicer, at its election, may pay itself the
Servicing Fee for a Series with respect to each Mortgage Loan
either by (a) withholding the Servicing Fee from any scheduled
payment of interest prior to the deposit of such payment in the
Collection Account for such Series, (b) withdrawing the Servicing
Fee from the Collection Account after the entire Scheduled
Payment has been deposited in the Collection Account, or (c)
requesting that the Trustee pay the Servicing Fee out of amounts
in the Certificate Account.
Collection Procedures; Escrow Accounts
The Master Servicer will make reasonable efforts to collect
all payments required to be made under the Mortgage Loans and
will, consistent with the Pooling and Servicing Agreement for a
Series and any applicable insurance policies and other credit
supports, follow such collection procedures as it follows with
respect to comparable loans held in its own portfolio.
Consistent with the above, the Master Servicer may, in its
discretion, (i) waive any assumption fee, late payment charge, or
other charge in connection with a Loan and (ii) arrange with a
mortgagor a schedule for the liquidation of delinquencies by
extending the Due Dates for Scheduled Payments on such Loan.
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will not establish and maintain
escrow accounts ("Escrow Accounts") in which payments by
borrowers to pay taxes, assessments, mortgage and hazard
insurance premiums, and other comparable items will be deposited.
Deposits to and Withdrawals from the Collection Account
The Collection Account will be an account maintained (i) at
a depository institution or trust company, the long-term
unsecured debt obligations of which at the time of any deposit
therein are rated within the four highest rating categories by
each Rating Agency rating the Certificates of such Series or (ii)
in an account or accounts the deposits in which are insured to
the maximum extent available by the FDIC or which are secured in
a manner meeting requirements established by each Rating Agency,
or (iii) in which such accounts are insured by the FDIC (to the
limits established by the FDIC), the uninsured deposits in which
are otherwise secured that, as evidenced by an opinion of counsel
delivered to the Trustee, the Certificateholders have a claim
with respect to the funds in such account or a perfected first
security interest against any collateral (which shall be limited
to Eligible Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository
institution or trust company with which such account is
maintained, so long as such account shall not adversely affect
the rating on the Certificates or (iv) any other account
acceptable to each Rating Agency rating the Certificates of the
related Series.
If so specified in the related Prospectus Supplement, the
Collection Account may be maintained as an interest-bearing
account, or the funds held therein may be invested, pending
remittance to the Trustee, in Eligible Investments. Unless
otherwise specified in the related Prospectus Supplement, the
Master Servicer will be entitled to receive as additional
compensation any interest or other income earned on funds in the
Collection Account.
The Master Servicer will deposit into the Collection Account
for each Series on the Business Day following the Closing Date
any amounts representing Scheduled Payments due after the related
Cut-off Date but received by the Master Servicer on or before the
related Cut-off Date, and thereafter, after the date of receipt
thereof, the following payments and collections received or made
by it (other than in respect of principal of and interest on the
related Loans due on or before such Cut-off Date):
(i) All payments on account of principal, including
prepayments, on such Loans net of any portion of such
payments that represent recoveries of nonrecoverable
Advances;
(ii) All payments on account of interest on such Loans
net of any portion thereof retained by the related Servicer
(including the Master Servicer), if any, as servicing
compensation on the Loans in accordance with the related
Pooling and Servicing Agreement;
(iii) All Insurance Proceeds and all amounts received by
the Master Servicer in connection with the liquidation of
defaulted Loans or property acquired in respect thereof,
whether through foreclosure sale or otherwise, including
payments in connection with such Loans received from the
mortgagor, other than amounts required to be paid to the
mortgagor pursuant to the terms of the applicable Mortgage
or otherwise pursuant to law ("Liquidation Proceeds"),
exclusive of proceeds to be applied to the restoration or
repair of the Mortgaged Property or released to the
Mortgagor in accordance with the Master Servicer's normal
servicing procedures, net of expenses incurred by the Master
Servicer (or the related Servicer) in connection with the
liquidation of any defaulted Mortgage Loan and not recovered
under a primary mortgage insurance policy or a pool
insurance policy ("Liquidation Expenses"); unpaid servicing
compensation and nonrecoverable Advances in accordance with
the related Pooling and Servicing Agreement;
(iv) All proceeds received of any Loans pursuant to the
related Pooling and Servicing Agreement;
(v) All amounts required to be deposited therein in
connection with any losses on Eligible Investments pursuant
to the related Pooling and Servicing Agreement;
(vi) All Advances for such Series made by the Master
Servicer or a Servicer pursuant to the related Pooling and
Servicing Agreement; and
(vii) All other amounts required to be deposited therein
pursuant to the related Pooling and Servicing Agreement.
The Master Servicer will be permitted, from time to time, to
make withdrawals from the Collection Account for each Series for
the following purposes:
(i) to reimburse itself for Advances for such Series
made by it pursuant to the related Pooling and Servicing
Agreement; the Master Servicer's right to reimburse itself
being limited to amounts received on or in respect of
particular Loans (including, for this purpose, Liquidation
Proceeds and amounts representing proceeds of insurance
policies covering the related Mortgaged Property) which
represent late recoveries of Scheduled Payments respecting
which any such Advance was made;
(ii) to reimburse itself for any Advances for such
Series that the Master Servicer determines in good faith it
will be unable to recover from amounts representing late
recoveries of Scheduled Payments respecting which such
Advance was made or from Liquidation Proceeds or the
proceeds of insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for
Liquidation Expenses and for amounts expended by it in good
faith in connection with the restoration of damaged
Mortgaged Property and, to the extent that Liquidation
Proceeds after such reimbursement are in excess of the
outstanding principal balance of the related Loan, together
with accrued and unpaid interest thereon at the applicable
weighted average Certificate Rate to the Due Date next
succeeding the date of its receipt of such Liquidation
Proceeds, to pay to itself out of such excess the amount of
any unpaid servicing compensation with respect to the
related Mortgage Loan and to pay any unpaid servicing
compensation to the Servicer;
(iv) to pay to itself as servicing compensation that
portion of any payment as to interest that equals the
Servicing Fee with respect to such Mortgage Loan for the
period with respect to which such interest payment was made,
and, as additional servicing compensation, earnings on or
investment income with respect to funds credited to the
Collection Account;
(v) to reimburse itself from Insurance Proceeds for
insurance expenses and to pay any unpaid servicing
compensation to itself, such payment of servicing
compensation to be made in accordance with the related
Pooling and Servicing Agreement and being limited to the
amount, if any, by which the aggregate of Liquidation
Proceeds and Insurance Proceeds received in connection with
the liquidation of a defaulted Mortgage Loan is, after the
deduction of insurance expenses, and servicing compensation
payable to the Servicer of such Mortgage Loan, if any, in
excess of the outstanding principal balance of such Mortgage
Loan, together with accrued and unpaid interest thereon at
the applicable weighted average Certificate Rate;
(vi) to pay to itself, a Servicer or the Depositor, as
the case may be, with respect to each Mortgage Loan or
property acquired in respect thereof that has been
repurchased pursuant to the Pooling and Servicing Agreement,
all amounts received thereon and not taken into account in
determining the related outstanding principal balance of
such repurchased Mortgage Loan;
(vii) to reimburse itself or the Depositor for expenses
incurred by and reimbursable to it or the Depositor with
respect to indemnification;
(viii) to make payments to certain Certificateholders in
the manner specified in the Pooling and Servicing Agreement;
(ix) to withdraw any amount deposited in the Collection
Account and not required to be deposited therein; and
(x) to clear and terminate the Collection Account
pursuant to the related Pooling and Servicing Agreement.
Servicing Accounts
In those cases where a Servicer is servicing a Mortgage
Loan, the Servicer will establish and maintain an account (a
"Servicing Account") that will comply with the standards set
forth above, and which is otherwise acceptable to the Master
Servicer. The Servicer is required to deposit into the Servicing
Account all proceeds of Mortgage Loans received by the Servicer,
subject to withdrawal to the extent permitted by the applicable
servicing agreement. On the date specified in the related
Prospectus Supplement, the Servicer will remit to the Master
Servicer all funds held in the Servicing Account with respect to
each Mortgage Loan consisting of an amount equal to the sum of
(i) all amounts received by the Servicer with respect to the
Mortgage Loans serviced by it as of the Servicer Remittance Date,
except (a) any monthly payment prepaid for a Due Date subsequent
to the month in which the Servicer Remittance Date occurs, (b)
any amounts received by such Servicer with respect to such
Mortgage Loans that constitute a late recovery with respect to an
advance previously made by such Servicer with respect to such
Mortgage Loans, and (c) any Retained Interest payable to such
Servicer under the terms of such servicing agreement; (ii) all
partial principal Prepayments received in the calendar month
prior to the month of the Servicer Remittance Date or applied as
of the Due Date in the month of the Servicer Remittance Date;
(iii) all principal Prepayments in full received in the calendar
month prior to the month of the Servicer Remittance Date, in each
case together with interest received thereon through the date of
prepayment at the applicable Mortgage Rate (net of the related
servicing compensation and any Retained Interest payable to such
Servicer under the terms of such servicing agreement) whether or
not received from the Mortgagor; and (iv) all Insurance Proceeds
and Liquidation Proceeds (net of Liquidation Expenses) received
in the calendar month prior to the month of the Servicer
Remittance Date. The Servicer may deduct from each remittance,
as provided above, an amount to the extent not previously paid to
or retained by it. The Servicer may, to the extent described in
the related Prospectus Supplement, be required to advance any
monthly installment of principal and interest that was not
received, less its servicing fee, by the date specified in the
related Prospectus Supplement.
Buy-Down Loans and Other Subsidized Loans
With respect to each Buy-Down Loan, if any, included in a
Trust Fund the Master Servicer will deposit all Buy-Down Amounts
in a custodial account (which may be interest-bearing) complying
with the requirements set forth above for the Collection Account
(the "Buy-Down Fund"). The amount of such deposit, together with
investment earnings thereon at the rate specified in the related
Prospectus Supplement, will provide sufficient funds to support
the payments on such Buy-Down Loan on a level debt service basis.
The Master Servicer will not be obligated to add to the Buy-Down
Account should amounts therein and investment earnings prove
insufficient to maintain the scheduled level of payments on the
Buy-Down Loans, in which event distributions to the
Certificateholders may be affected. The related Prospectus
Supplement will specify whether a Buy-Down Fund will or will not
be included in or deemed to be a part of the Trust Fund.
The terms of certain of the Loans may provide for the
contribution of subsidy funds by the seller of the related
Mortgaged Property or by another entity. With respect to each
such Loan, the Master Servicer will deposit the subsidy funds in
a custodial account (which may be interest bearing) complying
with the requirements set forth above for the Collection Account
set forth above (a "Subsidy Fund"). Unless otherwise specified
in the related Prospectus Supplement, the terms of each such Loan
will provide for the contribution of the entire undiscounted
amount of subsidy amounts necessary to maintain the scheduled
level of payments due during the early years of such Loan.
Neither the Master Servicer, any Servicer nor the Depositor will
be obligated to add to such Subsidy Fund any of its own funds.
The related Prospectus Supplement will specify whether a Subsidy
Fund will or will not be included in or deemed to be a part of
the Trust Fund.
With respect to any other type of Loan which provides for
payments other than on the basis of level payments, including GPM
Loans, an account may be established as described in the related
Prospectus Supplement on terms similar to those relating to the
Buy-Down Fund or Subsidy Fund.
Advances and Limitations Thereon
General. The related Prospectus Supplement will describe
the circumstances under which the Master Servicer or Servicer
will make Advances with respect to delinquent payments on Loans.
Any such obligation may be limited in amount, may be limited to
advances received from the Servicers, if any, or may not be
activated until a certain portion of a specified reserve fund is
depleted. If the Master Servicer is obligated to make Advances,
a surety bond or other credit support may be provided with
respect to such obligation as described in the related Prospectus
Supplement. Advances are intended to provide liquidity and not
to guarantee or insure against losses. Accordingly, any funds
advanced are recoverable by the Servicer or the Master Servicer,
as the case may be, out of amounts received on particular Loans
which represent late recoveries of principal or interest,
proceeds of insurance polices or Liquidation Proceeds respecting
which any such Advance was made. If an Advance is made and
subsequently determined to be nonrecoverable from late
collections, proceeds of insurance polices or Liquidation
Proceeds from the related Loan, the Servicer or Master Servicer
will be entitled to reimbursement from other funds in the
Certificate Account, Collection Account or Servicing Account, as
the case may be, or from a specified reserve fund as applicable,
to the extent specified in the related Prospectus Supplement.
Advances in Connection With Prepaid Loans. In addition when
a borrower makes a principal prepayment in full between Due Dates
on the related Loan, the borrower will generally be required to
pay interest on the principal amount prepaid only to the date of
such prepayment. If and to the extent provided in the related
Prospectus Supplement, in order that one or more Classes of the
Certificateholders of a Series will not be adversely affected by
any resulting shortfall in interest, the Master Servicer may be
obligated to advance moneys from its own funds up to an amount
otherwise payable to it as servicing compensation for such month
to the extent necessary to include in its remittance to the
Trustee for deposit into the Certificate Account an amount equal
to a full Scheduled Payment of interest on the related Loan
(adjusted to the applicable weighted average Certificate Rate).
Any such principal prepayment, together with a full Scheduled
Payment of interest thereon at the applicable Certificate Rates
(to the extent of such adjustment or advance), will be
distributed to Certificateholders on the related Distribution
Date. If the amount necessary to include a full Scheduled
Payment of interest as described above exceeds the amount which
the Master Servicer is obligated to advance, as applicable, a
shortfall may occur as a result of a prepayment in full. See
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS."
Maintenance of Insurance Policies and Other Servicing Procedures
Standard Hazard Insurance; Flood Insurance. The Master
Servicer will be required to maintain or to cause the borrower on
each Loan to maintain or will use its best reasonable efforts to
cause each Servicer of a Loan to maintain a standard hazard
insurance policy providing coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is
customary in the state in which the property securing the related
Loan is located. See "DESCRIPTION OF MORTGAGE AND OTHER
INSURANCE." Unless otherwise specified in the related Prospectus
Supplement, coverage will be in an amount at least equal to the
greater of (i) the amount necessary to avoid the enforcement of
any co-insurance clause contained in the policy or (ii) the
outstanding principal balance of the related Loan. The Master
Servicer will also maintain on REO Property that secured a
defaulted Loan and that has been acquired upon foreclosure, deed
in lieu of foreclosure, or repossession, a standard hazard
insurance policy in an amount that is at least equal to the
maximum insurable value of such REO Property. No earthquake or
other additional insurance will be required of any borrower or
will be maintained on REO Property acquired in respect of a
defaulted Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and shall require
such additional insurance. When, at the time of origination of a
Loan, the property securing that Loan is located in a federally
designated special flood hazard area, the Master Servicer will
cause to be maintained or use its best reasonable efforts to
cause the Servicer to maintain with respect to such property
flood insurance as required under the Flood Disaster Protection
Act of 1973, to the extent available, or as described in the
related Prospectus Supplement.
Any amounts collected by the Master Servicer or the
Servicer, as the case may be, under any such policies of
insurance (other than amounts to be applied to the restoration or
repair of the Mortgaged Property, released to the borrower in
accordance with normal servicing procedures or used to reimburse
the Master Servicer for amounts to which it is entitled to
reimbursement) will be deposited in the Collection Account. In
the event that the Master Servicer obtains and maintains a
blanket policy insuring against hazard losses on all of the
Loans, written by an insurer then acceptable to each Rating
Agency which assigns a rating to such Series, it will
conclusively be deemed to have satisfied its obligations to cause
to be maintained a standard hazard insurance policy for each Loan
or related REO Property. This blanket policy may contain a
deductible clause, in which case the Master Servicer will, in the
event that there has been a loss that would have been covered by
such policy absent such deductible clause, deposit in the
Collection Account the amount not otherwise payable under the
blanket policy because of the application of such deductible
clause.
The Depositor will not require that a standard hazard or
flood insurance policy be maintained on a Condominium Unit
relating to any Condominium Loan. Generally, the Condominium
Association is responsible for maintenance of hazard insurance
insuring the entire Condominium building (including each
individual Condominium Unit), and the owner(s) of an individual
Condominium Unit do not maintain separate hazard insurance
policies. To the extent, however, that a Condominium Association
and the related borrower on a Condominium Loan do not maintain
such insurance or do not maintain adequate coverage or any
insurance proceeds are not applied to the restoration of damaged
property, any damage to such borrower's Condominium Unit or the
related Condominium Building could significantly reduce the value
of the collateral securing such Condominium Loan to the extent
not covered by other credit support.
Special Hazard Insurance Policy. If, and to the extent
specified in the related Prospectus Supplement, the Master
Servicer will maintain a special hazard insurance policy, in the
amount set forth in the related Prospectus Supplement, in full
force and effect with respect to the Loans. The Master Servicer
will agree to pay the premium for any special hazard insurance
policy on a timely basis. If the special hazard insurance policy
is canceled or terminated for any reason (other than the
exhaustion of total policy coverage), the Master Servicer will
exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to the special hazard
insurance policy with a total coverage which is equal to the then
existing coverage of the terminated special hazard insurance
policy; provided that if the cost of any such replacement policy
is greater than the cost of the terminated special hazard
insurance policy, the amount of coverage under the replacement
policy will, unless otherwise specified in the related Prospectus
Supplement, be reduced to a level such that the applicable
premium does not exceed 150% of the cost of the special hazard
insurance policy that was replaced. Any amounts collected by the
Master Servicer under the special hazard insurance policy in the
nature of insurance proceeds will be deposited in the Collection
Account (net of amounts to be used to repair, restore or replace
the related property securing the Loan or to reimburse the Master
Servicer (or a Servicer) for related amounts owed to it).
Certain characteristics of the special hazard insurance policy
are described under "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-
Hazard Insurance on the Loans."
FHA Insurance and VA Guarantees. To the extent specified in
the related Prospectus Supplement, all or a portion of the Loans
may be insured by the FHA or guaranteed by the VA. The Master
Servicer will be required to take such steps as are reasonably
necessary to keep such insurance and guarantees in full force and
effect. See "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-
Mortgage Insurance on the Loans."
Pool Insurance Policy. If so specified in the related
Prospectus Supplement, the Master Servicer will be obligated to
use its best reasonable efforts to maintain a pool insurance
policy with respect to the Loans in the amount and with the
coverage described in the related Prospectus Supplement. The
Master Servicer will be obligated to pay the premiums for such
pool insurance policy on a timely basis.
The Prospectus Supplement will identify the pool insurer for
the related Series of Certificates. If the pool insurer ceases
to be a Qualified Insurer because it is not approved as an
insurer by FHLMC or FNMA or because its claims-paying ability is
no longer rated in the category required by the related
Prospectus Supplement, the Master Servicer will be obligated to
review, no less often than monthly, the financial condition of
the pool insurer to determine whether recoveries under the pool
insurance policy are jeopardized by reason of the financial
condition of the pool insurer. If the Master Servicer determines
that recoveries may be so jeopardized or if the pool insurer
ceases to be qualified under applicable law to transact a
mortgage guaranty insurance business, the Master Servicer will
exercise its best reasonable efforts to obtain from another
Qualified Insurer a comparable replacement pool insurance policy
with a total coverage equal to the then outstanding coverage of
the pool insurance policy to be replaced; provided that, if the
premium rate on the replacement policy is greater than that of
the existing pool insurance policy, then the coverage of the
replacement policy will, unless otherwise specified in the
related Prospectus Supplement, be reduced to a level such that
its premium rate does not exceed 150% of the premium rate on the
pool insurance policy to be replaced. Payments made under a pool
insurance policy will be deposited into the Collection Account
(net of expenses of the Master Servicer or any related
unreimbursed Advances or unpaid Servicing Fee). Certain
characteristics of the pool insurance policy are described under
"DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-Mortgage Insurance
on the Loans."
Bankruptcy Bond. If so specified in the related Prospectus
Supplement, the Master Servicer will be obligated to use its best
reasonable efforts to obtain and thereafter maintain a bankruptcy
bond or similar insurance or guaranty in full force and effect
throughout the term of the related Pooling and Servicing
Agreement, unless coverage thereunder has been exhausted through
payment of claims. If so specified in the Prospectus Supplement,
the Master Servicer will be required to pay from its servicing
compensation the premiums for the bankruptcy bond on a timely
basis. Coverage under the bankruptcy bond may be cancelled or
reduced by the Master Servicer at any time, provided that such
cancellation or reduction does not adversely affect the then
current rating of the related Series of Certificates. See
"DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-Bankruptcy Bond."
Presentation of Claims; Realization Upon Defaulted Loans
The Master Servicer, on behalf of the Trustee and the
Certificateholders, will be required to present or cause to be
presented, claims with respect to any standard hazard insurance
policy, pool insurance policy, special hazard insurance policy,
bankruptcy bond, or primary mortgage insurance policy, and to the
FHA and the VA, if applicable in respect of any FHA insurance or
VA guarantee respecting defaulted Mortgage Loans.
The Master Servicer will use its reasonable best efforts to
foreclose upon, repossess or otherwise comparably convert the
ownership of the real properties securing such of the related
Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of
delinquent payments. In connection with such foreclosure or
other conversion, the Master Servicer will follow such practices
and procedures as it deems necessary or advisable and as are
normal and usual in its servicing activities with respect to
comparable loans serviced by it. However, the Master Servicer
will not be required to expend its own funds in connection with
any foreclosure or towards the restoration of the property unless
it determines: (i) that such restoration or foreclosure will
increase the Liquidation Proceeds in respect of the related
Mortgage Loan available to the Certificateholders after
reimbursement to itself for such expenses and (ii) that such
expenses will be recoverable by it either through Liquidation
Proceeds or the proceeds of insurance. Notwithstanding anything
to the contrary herein, in the case of a Trust Fund for which a
REMIC election has been made, the Master Servicer shall not
liquidate any collateral acquired through foreclosure later than
one year after the acquisition of such collateral. While the
holder of Mortgaged Property acquired through foreclosure can
often maximize its recovery by providing financing to a new
purchaser, the Trust Fund will have no ability to do so and
neither the Master Servicer nor any Servicer will be required to
do so.
Similarly, if any property securing a defaulted Loan is
damaged and proceeds, if any, from the related standard hazard
insurance policy or the applicable special hazard insurance
policy, if any, are insufficient to restore the damaged property
to a condition sufficient to permit recovery under any pool
insurance policy or any primary mortgage insurance policy, FHA
insurance, or VA guarantee, neither the Master Servicer nor any
Servicer will be required to expend its own funds to restore the
damaged property unless it determines (i) that such restoration
will increase the Liquidation Proceeds in respect of the Loan
after reimbursement of the expenses incurred by such Servicer or
the Master Servicer and (ii) that such expenses will be
recoverable by it through proceeds of the sale of the property or
proceeds of the related pool insurance policy or any related
primary mortgage insurance policy, FHA insurance, or VA
guarantee.
With respect to a defaulted Manufactured Home Loan, the
value of the related Manufactured Home can be expected to be less
on resale than a new Manufactured Home. To the extent equity
does not cushion the loss in market value, and such loss is not
covered by other credit support, a loss may be experienced by the
Trust Fund.
Enforcement of Due-on-Sale Clauses
When any Mortgaged Property is about to be conveyed by the
borrower, the Master Servicer will, to the extent it has
knowledge of such prospective conveyance and prior to the time of
the consummation of such conveyance, exercise the Trustee's right
to accelerate the maturity of such Loan under the applicable
"due-on-sale" clause, if any, unless the Master Servicer
reasonably believes that such clause is not enforceable under
applicable law or if the enforcement of such clause would result
in loss of coverage under any primary mortgage insurance policy.
If such conditions are not met or the Master Servicer reasonably
believes that enforcement of a due-on-sale clause will not be
enforceable, the Master Servicer is authorized to accept from or
enter into an assumption agreement, on behalf of the Trustee,
with the person to whom such property has been or is about to be
conveyed, pursuant to which such person becomes liable under the
Loan and pursuant to which the original borrower is released from
liability and such person is substituted as the borrower and
becomes liable under the Loan. Any fee collected in connection
with an assumption will be retained by the Master Servicer as
additional servicing compensation. The terms of a Loan may not
be changed in connection with an assumption except that, if the
terms of the Loan so permit, and subject to certain other
conditions, the interest rate may be increased (but not
decreased) to a prevailing market rate. Unless otherwise
specified in the related Prospectus Supplement,
Certificateholders would not benefit from any such increase.
Servicing Compensation and Payment of Expenses
The Master Servicer or any Servicer will be entitled to a
servicing fee in an amount to be determined as specified in the
related Prospectus Supplement. The servicing fee may be fixed or
variable, as specified in the related Prospectus Supplement. The
Master Servicer or any Servicer will also be entitled to
additional servicing compensation, which may include, as
specified in the related Prospectus Supplement, assumption fees,
late payment charges, or excess proceeds following disposition of
property in connection with defaulted Loans.
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will pay the fees including,
without limitation, the payment of the fees and expenses of the
Trustee and independent accountants, payment of insurance policy
premiums and the cost of credit support, if any, payment of
expenses incurred in enforcing the obligations of Servicers and
in preparation of reports to Certificateholders. Certain of
these expenses may be reimbursable pursuant to the terms of the
Pooling and Servicing Agreement from Liquidation Proceeds and the
proceeds of insurance policies and, in the case of enforcement of
the obligations of Servicers, from any recoveries in excess of
amounts due with respect to the related Loans or from specific
recoveries of costs.
The Master Servicer will be entitled to reimbursement for
certain expenses incurred by it in connection with the
liquidation of defaulted Loans. The related Trust Fund will
suffer no loss by reason of such expenses to the extent claims
are paid under related insurance policies or from the Liquidation
Proceeds. If claims are either not made or paid under the
applicable insurance policies or if coverage thereunder has been
exhausted, the related Trust Fund will suffer a loss to the
extent that Liquidation Proceeds, after reimbursement of the
Master Servicer's expenses, are less than the outstanding
principal balance of and unpaid interest on the related Loan
which would be distributable to Certificateholders. In addition,
the Master Servicer will be entitled to reimbursement of
expenditures incurred by it in connection with the restoration of
property securing a defaulted Loan, such right of reimbursement
being prior to the rights of the Certificateholders to receive
any related proceeds of insurance policies, Liquidation Proceeds
or amounts derived from other credit supports. The Master
Servicer is also entitled to reimbursement from the Collection
Account and the Certificate Account for Advances.
When a borrower makes a principal prepayment in full between
Due Dates on the related Loan, the borrower will generally be
required to pay interest on the amount prepaid only to the date
of prepayment. If and to the extent provided in the related
Prospectus Supplement, in order that one or more Classes of the
Certificateholders of a Series will not be adversely affected by
any resulting shortfall in interest, the amount of the Servicing
Fee may be reduced, to the extent necessary to include in the
Master Servicer's remittance to the Trustee for deposit into the
Certificate Account, an amount equal to a full scheduled payment
of interest on the related Loan (adjusted to the applicable
weighted average Certificate Rate). Any such principal
prepayment, together with a full Scheduled Payment of interest
thereon at the applicable Certificate Rates (to the extent of
such adjustment or advance), will be distributed to
Certificateholders on the related Distribution Date. If the
amount necessary to include a full Scheduled Payment of interest
as described above exceeds the amount of Servicing Fee, a
shortfall to Certificateholders may occur as a result of a
prepayment in full. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS."
The rights of the Master Servicer to receive funds from the
Collection Account or the Certificate Account for a Series,
whether as the Servicing Fee or other compensation, or for the
reimbursement of Advances, expenses or otherwise, are not
subordinate to the rights of Certificateholders of such Series.
Evidence as to Compliance
The Pooling and Servicing Agreement for each Series will
provide that each year, a firm of independent public accountants
will furnish a statement to the Trustee to the effect that such
firm has examined certain documents and records relating to the
servicing of the Loans by the Master Servicer and that, on the
basis of such examination, such firm is of the opinion that the
servicing has been conducted in compliance with the Pooling and
Servicing Agreement except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions as are
set forth in such statement.
The Pooling and Servicing Agreement for each Series will
also provide for delivery to the Trustee for such Series of an
annual Statement signed by an officer of the Master Servicer to
the effect that the Master Servicer has fulfilled its obligations
under the Pooling and Servicing Agreement throughout the
preceding calendar year.
Certain Matters Regarding the Master Servicer
The Master Servicer for each Series will be identified in
the related Prospectus Supplement. The Master Servicer may be
the Depositor or an affiliate of the Depositor and may have other
business relationships with the Depositor and its affiliates.
Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer may not resign from its
obligations and duties under the Pooling and Servicing Agreement
except upon its determination that its duties thereunder are no
longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor Master
Servicer has assumed the Master Servicer's obligations and duties
under the Pooling and Servicing Agreement.
In the event of an Event of Default under the Pooling and
Servicing Agreement, the Master Servicer may be replaced by the
Trustee or a successor Master Servicer. See "THE POOLING AND
SERVICING AGREEMENTS-Rights upon Events of Default."
Each Pooling and Servicing Agreement will also provide that
neither the Master Servicer, nor any director, officer, employee
or agent of the Master Servicer, will be under any liability to
the related Trust Fund or the Certificateholders for any action
taken or for failing to take any action in good faith pursuant to
the Pooling and Servicing Agreement or for errors in judgment;
provided, however, that neither the Master Servicer nor any such
person will be protected against any breach of warranty or
representations made under the Pooling and Servicing Agreement or
the failure to perform its obligations in compliance with any
standard of care set forth in the Pooling and Servicing Agreement
or liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance
of their duties or by reason of reckless disregard of their
obligations and duties thereunder. Each Pooling and Servicing
Agreement will further provide that the Master Servicer and any
director, officer, employee or agent of the Master Servicer is
entitled to indemnification from the related Trust Fund and will
be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Pooling and
Servicing Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of duties thereunder
or by reason of reckless disregard of obligations and duties
thereunder, In addition, the Pooling and Servicing Agreement
provides that the Master Servicer is not under any obligation to
appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Pooling
and Servicing Agreement which, in its opinion, may involve it in
any expense or liability. The Master Servicer may, in its
discretion, undertake any such action which it may deem necessary
or desirable with respect to the Pooling and Servicing Agreement
and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event,
the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs, and liabilities of
the Trust Fund and the Master Servicer will be entitled to be
reimbursed therefor out of the Collection Account (or the
Certificate Account, if applicable).
CREDIT SUPPORT
General
For any Series, credit support may be provided with respect
to one or more Classes thereof or the related Mortgage Assets.
Credit support may be in the form of a letter of credit, the
subordination of one or more Classes of the Certificates of such
Series, the establishment of one or more reserve funds, use of a
pool insurance policy, bankruptcy bond, repurchase bond or
special hazard insurance policy, certificate guarantee insurance,
the use of cross-support features or another method of credit
support described in the related Prospectus Supplement, or any
combination of the foregoing, in any case, in such amounts and
having such terms and conditions as are acceptable to each Rating
Agency which assigns a rating to the Certificates of the related
Series.
The credit support 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 at the
Certificate Rate. If losses occur which exceed the amount
covered by credit support or which are not covered by the credit
support, Certificateholders will bear their allocable share of
deficiencies. See "THE POOLING AND SERVICING AGREEMENTS-
Deficiency Event." If credit support is provided with respect to
a Series, or the related Mortgage Assets, the related Prospectus
Supplement will include a description of (a) the amount payable
under such credit support, (b) any conditions to payment
thereunder not otherwise described herein, (c) the conditions
under which the amount payable under such credit support may be
reduced and under which such credit support may be terminated or
replaced and (d) the material provisions of any agreement
relating to such credit support. Additionally, the related
Prospectus Supplement will set forth certain information with
respect to the issuer of any third-party credit support,
including (a) a brief description of its principal business
activities, (b) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or
licensed to do business, (c) if applicable, the identity of
regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (d) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the
date specified in the Prospectus Supplement.
Subordinate Certificates; Subordination Reserve Fund
One or more Classes of a Series may be Subordinate
Certificates. If so specified in the related Prospectus
Supplement, the rights of the Subordinate Certificateholders to
receive distributions of principal and interest from the
Certificate Account on any Distribution Date will be subordinated
to such rights of the Senior Certificateholders to the extent of
the then applicable Subordinated Amount as defined in the related
Prospectus Supplement. The Subordinated Amount will generally
decrease whenever amounts otherwise payable to the Subordinate
Certificateholders are paid to the Senior Certificateholders
(including amounts withdrawn from the Subordination Reserve Fund,
if any, and paid to the Senior Certificateholders), and will
increase whenever there is distributed to the Subordinate
Certificateholders amounts in respect of which subordination
payments have previously been paid to the Senior
Certificateholders (which will occur when subordination payments
in respect of delinquencies and certain other deficiencies have
been recovered).
A Series may include a Class or Subordinate Certificates
entitled to receive cash flows remaining after distributions made
to all other Classes. Such right will effectively be subordinate
to the rights of other Certificateholders, but will not be
limited to the Subordinated Amount. If so specified in the
related Prospectus Supplement, the subordination of a Class may
apply only in the event of certain types of losses not covered by
insurance policies or other credit support, such as losses
arising from damage to property securing a Loan not covered by
standard hazard insurance policies, losses resulting from the
bankruptcy of a borrower and application of certain provisions of
the Bankruptcy Code, or losses resulting from the denial of
insurance coverage due to fraud or misrepresentation in
connection with the origination of a Loan.
With respect to any Series which includes one or more
Classes of Subordinate Certificates, a Subordination Reserve Fund
may be established. The Subordination Reserve Fund, if any, will
be funded with cash, a letter of credit, a demand note or
Eligible Reserve Fund Investments, or by the retention of amounts
of principal or interest otherwise payable to Holders of
Subordinate Certificates, or both, as specified in the related
Prospectus Supplement. The Subordination Reserve Fund will not
be a part of the Trust Fund, unless otherwise specified in the
related Prospectus Supplement. If the Subordination Reserve Fund
is not a part of the Trust Fund, the Trustee will have a security
interest therein on behalf of the Senior Certificateholders.
Moneys will be withdrawn from the Subordination Reserve Fund to
make distributions of principal of or interest on Senior
Certificates under the circumstances set forth in the related
Prospectus Supplement.
Moneys deposited in any Subordination Reserve Fund will be
invested in Eligible Reserve Fund Investments. Any reinvestment
income or other gain from such investments will be credited to
the Subordination Reserve Fund for such Series, and any loss
resulting from such investments will be charged to such
Subordination Reserve Fund. Amounts in any Subordination Reserve
Fund in excess of the Required Reserve Fund Balance may be
periodically released to the Subordinate Certificateholders under
the conditions and to the extent specified in the related
Prospectus Supplement. Additional information concerning any
Subordination Reserve Fund will be set forth in the related
Prospectus Supplement, including the amount of any initial
deposit to such Subordination Reserve Fund, the Required Reserve
Fund Balance to be maintained therein, the purposes for which
funds in the Subordination Reserve Fund may be applied to make
distributions to Senior Certificateholders and the employment of
reinvestment earnings on amounts in the Subordination Reserve
Fund, if any.
Cross-Support Features
If the Mortgage Assets for a Series are divided into
separate Asset Groups, the beneficial ownership of which is
evidenced by a separate Class or Classes of a Series, credit
support may be provided by a cross support feature which requires
that distributions be made on Senior Certificates evidencing the
beneficial ownership of one Asset Group prior to distributions on
Subordinate Certificates evidencing the beneficial ownership
interest in another Asset Group within the Trust Fund. The
related Prospectus Supplement for a Series which includes a
cross-support feature will describe the manner and conditions for
applying such cross-support feature.
Insurance
Credit support with respect to a Series may be provided by
various forms of insurance policies, subject to limits on the
aggregate dollar amount of claims that will be payable under each
such insurance policy, with respect to all Loans comprising or
underlying the Mortgage Assets for a Series, or such of the Loans
as have certain characteristics. Such insurance policies include
standard hazard insurance and may, if specified in the related
Prospectus Supplement, include primary mortgage insurance and a
pool insurance policy covering losses in amounts in excess of
coverage of any primary mortgage insurance policy, a special
hazard insurance policy covering certain risks not covered by
standard hazard insurance policies, a bankruptcy bond covering
certain losses resulting from the bankruptcy of a borrower and
application of certain provisions of the Bankruptcy Code, a
repurchase bond covering the repurchase of a Loan for which
mortgage insurance or hazard insurance coverage has been denied
due to misrepresentations in connection with the organization of
the related Loan, or other insurance covering other risks
associated with the particular type of Loan. See "DESCRIPTION OF
MORTGAGE AND OTHER INSURANCE." Copies of the actual pool
insurance policy, special hazard insurance policy, bankruptcy
bond or repurchase bond, if any, relating to the Loans comprising
the Mortgage Assets for a Series will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be
filed within 15 days of issuance of the Certificates of the
related Series.
Letter of Credit
The letter of credit, if any, with respect to a Series of
Certificates will be issued by the bank or financial institution
specified in the related Prospectus Supplement (the "L/C Bank").
Under the letter of credit, the L/C Bank will be obligated to
honor drawings thereunder in an aggregate fixed dollar amount,
net of unreimbursed payments thereunder, equal to the percentage
specified in the related Prospectus Supplement of the aggregate
principal balance of the Loans on the related Cut-off Date or of
one or more Classes of Certificates. If so specified in the
related Prospectus Supplement, the letter of credit may permit
drawings in the event of losses not covered by insurance policies
or other credit support, such as losses arising from damage not
covered by standard hazard insurance policies, losses resulting
from the bankruptcy of a borrower and the application of certain
provisions of the Bankruptcy Code, or losses resulting from
denial of insurance coverage due to misrepresentations in
connection with the origination of a Loan. The amount available
under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations
of the L/C Bank under the letter of credit for each Series of
Certificates will expire at the earlier of the date specified in
the related Prospectus Supplement or the termination of the Trust
Fund. See "DESCRIPTION OF THE CERTIFICATES-Optional Termination"
and "THE POOLING AND SERVICING AGREEMENTS-Termination." A copy of
the letter of credit for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be
filed within 15 days of issuance of the Certificates of the
related Series.
Certificate Guarantee Insurance
Certificate Guarantee Insurance, if any, with respect to a
Series of Certificates will be provided by one or more insurance
companies. Such Certificate Guarantee Insurance will guarantee,
with respect to one or more Classes of Certificates of the
related Series, timely distributions of interest and full
distributions of principal on the basis of a schedule of
principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the Certificate Guarantee
Insurance will also guarantee against any payment made to a
Certificateholder which is subsequently recovered as a "voidable
preference" payment under the Bankruptcy Code. A copy of the
Certificate Guarantee Insurance for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related Series.
Reserve Funds
One or more Reserve Funds may be established with respect to
a Series, in which cash, a letter of credit, Eligible Reserve
Fund Investments, a demand note or a combination thereof, in the
amounts, if any, to be funded over time by depositing therein a
specified amount of the distributions received on the related
Mortgage Assets as specified in the related Prospectus
Supplement.
Amounts on deposit in any reserve fund for a Series,
together with the reinvestment income thereon, will be applied by
the Trustee for the purposes, in the manner, and to the extent
specified in the related Prospectus Supplement. A Reserve Fund
may be provided to increase the likelihood of timely payments of
principal of and interest on the Certificates, if required as a
condition to the rating of such Series by each Rating Agency
rating such Series, or to reduce the likelihood of Special
Distributions with respect to any Series. Reserve Funds may be
established to provide limited protection, in an amount
satisfactory to each Rating Agency which assigns a rating to the
Certificates, against certain types of losses not covered by
insurance policies or other credit support, such as losses
arising from damage not covered by standard hazard insurance
policies, losses resulting from the bankruptcy of a borrower and
the application of certain provisions of the Bankruptcy Code or
losses resulting from denial of insurance coverage due to fraud
or misrepresentation in connection with the origination of a
Loan. Following each Distribution Date amounts in such Reserve
Fund in excess of any required reserve fund balance may be
released from the Reserve Fund under the conditions and to the
extent specified in the related Prospectus Supplement and will
not be available for further application by the Trustee.
Moneys deposited in any Reserve Funds will be invested in
Eligible Reserve Fund Investments. Any reinvestment income or
other gain from such investments will be credited to the related
Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such
income may be payable to the Master Servicer or a Servicer as
additional servicing compensation. See "SERVICING OF LOANS" and
"THE POOLING AND SERVICING AGREEMENTS-Investment of Funds." The
Reserve Fund, if any, for a Series will not be a part of the
Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be
set forth in the related Prospectus Supplement, including the
initial balance of such Reserve Fund, the required Reserve Fund
balance to be maintained, the purposes for which funds in the
Reserve Fund may be applied to make distributions to
Certificateholders and use of investment earnings from the
Reserve Fund, if any.
DESCRIPTION OF MORTGAGE AND OTHER INSURANCE
The following descriptions of pool insurance policies,
special hazard insurance policies, standard hazard insurance
policies, bankruptcy bonds, repurchase bonds and other insurance
and the respective coverages thereunder are general descriptions
only and do not purport to be complete.
Mortgage Insurance on the Loans
General. Unless otherwise specified in the related
Prospectus Supplement, Mortgage Loans will not be covered by
primary mortgage insurance policies, regardless of the Loan-to-
Value Ratio of the Mortgage Loan.
A pool insurance policy will be obtained if so specified in
the related Prospectus Supplement to cover certain losses
occurring as a result of default by the borrowers to the extent
not covered by any primary mortgage insurance policy, FHA
Insurance or VA Guarantee. See "Pool Insurance Policy" below.
Neither the primary mortgage insurance policies nor any pool
insurance policy will insure against certain losses sustained in
the event of a personal bankruptcy of the borrower under a
Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF LOANS." Such
losses will be covered to the extent described in the related
Prospectus Supplement by the bankruptcy bond or other credit
support, if any.
To the extent that the primary mortgage insurance policies
do not cover all losses on a defaulted or foreclosed Mortgage
Loan, and to the extent such losses are not covered by the pool
insurance policy or other credit support for such Series, such
losses, if any, would affect payments to Certificateholders. In
addition, the pool insurance policy and primary mortgage
insurance policies do not provide coverage against hazard losses.
See "Hazard Insurance on the Loans" below. Certain hazard risks
will not be insured and the occurrence of such hazards could
adversely affect payments to the Certificateholders.
FHA Insurance and VA Guarantees. The FHA is responsible for
administering various federal programs, including mortgage
insurance, authorized under the Housing Act, as amended, and the
United States Housing Act of 1937, as amended.
The insurance premiums for FHA Loans will be collected by
HUD-approved lenders or by the Master Servicer or Servicer and
paid to the FHA. The regulations governing FHA single-family
mortgage insurance programs provide that insurance benefits are
payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or
upon assignment of the defaulted Mortgage Loan to HUD. With
respect to a defaulted FHA Loan, the Master Servicer or Servicer
is limited in its ability to initiate foreclosure proceedings.
When it is determined, by the Master Servicer or Servicer or HUD,
that default was caused by circumstances beyond the mortgagor's
control, the Master Servicer or Servicer is expected to make an
effort to avoid foreclosure by entering, if feasible, into one of
a number of available forms of forbearance plans with the
mortgagor. Such plans may involve the reduction or suspension of
Scheduled Payments for a specified period, with such payments to
be made upon or before the maturity date of the Mortgage Note, or
the recasting of payments due under the Mortgage Note up to or
beyond the scheduled maturity date. In addition, when a default
caused by such circumstances is accompanied by certain other
criteria, HUD may provide relief by making payments to the Master
Servicer or the Servicer in partial or full satisfaction of
amounts due under the Mortgage Loan (which payments are to be
repaid by the borrower to HUD) or by accepting assignment of the
Mortgage Loan from the Master Servicer or the Servicer. With
certain exceptions, at least three full installments must be due
and unpaid under the Mortgage Loan, and HUD must have rejected
any request for relief from the mortgagor before the Master
Servicer or the Servicer may initiate foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims
in cash or in debentures issued by HUD. Presently, claims are
being paid in cash, and claims have not been paid in debentures
since 1965. HUD debentures issued in satisfaction of FHA
insurance claims bear interest at the applicable HUD debenture
interest rate. The Master Servicer or the Servicer of each FHA
Loan will be obligated to purchase any such debenture issued in
satisfaction of a defaulted FHA Loan serviced by it for an amount
equal to the unpaid principal balance of the FHA Loan.
The amount of insurance benefits generally paid by the FHA
is equal to the entire unpaid principal amount of the defaulted
Mortgage Loan adjusted to reimburse the Master Servicer or the
Servicer for certain costs and expenses and to deduct certain
amounts received or retained by the Master Servicer or the
Servicer after default. When entitlement to insurance benefits
results from foreclosure (or other acquisition of possession) and
conveyance to HUD, the Master Servicer or the Servicer is
compensated for no more than two-thirds of its foreclosure costs,
and is compensated for interest accrued and unpaid prior to such
date but in general only to the extent it was allowed pursuant to
a forbearance plan approved by HUD. When entitlement to
insurance benefits results from assignment of the Mortgage Loan
to HUD, the insurance payment includes full compensation for
interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA Loan, bears
interest from a date 30 days after the borrower's first
uncorrected failure to perform any obligation or make any payment
due under the Mortgage Loan and, upon assignment, from the date
of assignment, to the date of payment of the claim, in each case
at the same mortgage rate as the applicable HUD debenture
interest rate as described above.
With respect to a defaulted VA Loan, the Master Servicer or
the Servicer is, absent exceptional circumstances, authorized to
announce its intention to foreclose only when the default has
continued for three months. Generally, a claim for the guarantee
is submitted after liquidation of the mortgaged property.
The amount payable under the guarantee will be the
percentage of the VA Loan originally guaranteed applied to
indebtedness outstanding as of the applicable date of computation
as specified in the VA regulations. Payments under the guarantee
will equal the unpaid principal amount of the VA Loan, interest
accrued on the unpaid balance of the VA Loan to the appropriate
date of computation and limited expenses of the mortgagee, but in
each case only to the extent that such amounts have not been
recovered through liquidation of the Mortgaged Property. The
amount payable under the guarantee may in no event exceed the
amount of the original guarantee.
Primary Mortgage Insurance. If so specified in the related
Prospectus Supplement, to the extent described therein, the
Master Servicer will be required to use its best reasonable
efforts to keep, or to cause each Servicer to keep, in full force
and effect, a primary mortgage insurance policy with respect to
each Conventional Loan for which such coverage is required for as
long as the related mortgagor is obligated to maintain such
primary mortgage insurance under the terms of the related Loan.
The Master Servicer will not cancel or refuse to renew any such
primary mortgage insurance policy in effect at the date of the
initial issuance of the Certificates that is required to be kept
in force unless a replacement primary mortgage insurance policy
for such cancelled or nonrenewed policy is maintained with a
Qualified Insurer.
Primary insurance policies will be required with respect to
Manufactured Home Loans only to the extent described in the
related Prospectus Supplement. If primary mortgage insurance is
to be maintained with respect to Manufactured Home Loans, the
Master Servicer will be required to maintain such insurance as
described above.
Pool Insurance Policy. If so specified in the related
Prospectus Supplement, the Master Servicer will be required to
maintain a pool insurance policy and to present or cause the
Servicers, if any, to present claims thereunder on behalf of the
Trustee and the Certificateholders. See "SERVICING OF LOANS-
Maintenance of Insurance Policies and Other Servicing
Procedures." Any mortgage pool insurance policy with respect to
a Trust Fund will be issued by the pool insurer named in the
related Prospectus Supplement. Each policy will, subject to the
limitations specified in the related Prospectus Supplement, cover
certain losses in an amount equal to a percentage specified in
the related Prospectus Supplement (or in a Current Report on Form
8-K) of the aggregate principal balance of the Mortgage Loans on
the Cut-off Date. The Master Servicer will use reasonable
efforts to maintain the mortgage pool insurance policy and to
present claims thereunder to the pool insurer on behalf of
itself, the Trustee and the Certificateholders. The mortgage
pool insurance policies, however, are not blanket policies
against loss (typically, such policies do not cover Special
Hazard Losses, Fraud Losses and Bankruptcy Losses), since claims
thereunder may only be made respecting particular defaulted
Mortgage Loans and only upon satisfaction of certain conditions
precedent due to a failure to pay irrespective of the reason
therefor. The related Prospectus Supplement will describe in
detail the provisions of any pool insurance policy.
Mortgage Insurance with Respect to Manufactured Home Loans.
A Manufactured Home Loan may be an FHA Loan or a VA Loan. Any
primary mortgage or similar insurance and any pool insurance
policy with respect to Manufactured Home Loans will be described
in the related Prospectus Supplement.
Hazard Insurance on the Loans
Standard Hazard Insurance Policies. 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 for property of the type securing the related
Loans. In general, the standard form of fire and extended
coverage policy will cover physical damage to or destruction of,
the improvements on the property caused by fire, lightning,
explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions
particularized in each policy. Because the standard hazard
insurance policies relating to the Loans will be underwritten by
different hazard insurers and will cover properties located in
various states, such policies will not contain identical terms
and conditions. The basic terms, however, generally will be
determined by state law and generally will be similar. Most such
policies typically will not cover any physical damage resulting
from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes,
landslides, and mud-flows), nuclear reaction, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in
certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not
intended to be all-inclusive. Uninsured risks not covered by a
special hazard insurance policy or other form of credit support
will adversely affect distributions to Certificateholders. When
a property securing a Loan is located in a flood area identified
by HUD pursuant to the Flood Disaster Protection Act of 1973, as
amended, the Master Servicer will be required to cause flood
insurance to be maintained with respect to such property, to the
extent available.
The standard hazard insurance policies covering properties
securing Loans typically will contain a coinsurance" clause
which, in effect, will require the insured at all times to carry
hazard insurance of a specified percentage (generally 80% to 90%)
of the full replacement value of the dwellings, structures and
other improvements on the Mortgaged Property 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 hazard 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 on the Mortgaged Property.
Since the amount of hazard insurance to be maintained on the
improvements securing the Loans declines as the principal
balances owing thereon decrease, and since the value of
residential real estate in the areas which the Mortgaged Property
is located fluctuates in value over time, the effect of this
requirement in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the
damage to the Mortgaged Property.
The Depositor will not require that a standard hazard or
flood insurance policy be maintained for any Condominium Loan.
Generally, the Condominium Association is Condominium Units) and
the owner(s) of an individual Condominium Unit do not maintain
separate hazard insurance policies. To the extent, however, that
either the Condominium Association or the related borrower do not
maintain such insurance, or do not maintain adequate coverage, or
do not apply any insurance proceeds to the restoration of damaged
property, then damage to such borrower's Condominium Unit or such
Condominium Building could significantly reduce the value of the
Mortgaged Property securing such Condominium Loan.
Special Hazard Insurance Policy. Although the terms of such
policies vary to some degree, a special hazard insurance policy
typically provides that, where there has been damage to property
securing a defaulted or foreclosed Loan (title to which has been
acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood
insurance policy, if applicable, required to be maintained with
respect to such property, or in connection with partial loss
resulting from the application of the coinsurance clause in a
standard hazard insurance policy, the special hazard insurer will
pay the lesser of (i) the cost of repair or replacement of such
property or (ii) upon transfer of the property to the special
hazard insurer, the unpaid principal balance of such Loan at the
time of acquisition of such property by foreclosure or deed in
lieu of foreclosure, plus accrued interest to the date of claim
settlement and certain expenses incurred by the Master Servicer
or the Servicer with respect to such property. If the unpaid
principal balance 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
property. Any amount paid as the cost of repair of the property
will reduce coverage by such amount. Special hazard insurance
policies typically do not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design,
faulty workmanship or materials (except under certain
circumstances), nuclear reaction, flood (if the mortgaged
property is in a federally designated flood area), chemical
contamination and certain other risks.
Restoration of the property with the proceeds described
under (i) above is expected to satisfy the condition under the
pool insurance policy that the property be restored before a
claim under such pool insurance policy may be validly presented
with respect to the defaulted Loan secured by such property. The
payment described under (ii) above will render unnecessary
presentation of a claim in respect of such Loan under the pool
insurance policy. Therefore, so long as the pool insurance
policy remains in effect, the payment by the special hazard
insurer of the cost of repair or of the unpaid principal balance
of the related Loan plus accrued interest and certain expenses
will not affect the total insurance proceeds paid to holders of
the Certificates, but will affect the relative amounts of
coverage remaining under the special hazard insurance policy and
pool insurance policy.
Bankruptcy Bond
In the event of a bankruptcy of a borrower, the bankruptcy
court may establish the value of the property securing the
related Loan at an amount less than the then outstanding
principal balance of such Loan. The amount of the secured debt
could be reduced to such value, and the holder of such Loan thus
would become an unsecured creditor to the extent the outstanding
principal balance of such Loan exceeds the value so assigned to
the property by the bankruptcy court. In addition, certain other
modifications of the terms of a Loan can result from a bankruptcy
proceeding. See "CERTAIN LEGAL ASPECTS OF LOANS" herein. If so
provided in the related Prospectus Supplement, the Master
Servicer will obtain a bankruptcy bond or similar insurance
contract (the "bankruptcy bond") for proceedings with respect to
borrowers under the Bankruptcy Code. The bankruptcy bond will
cover certain losses resulting from a reduction by a bankruptcy
court of scheduled payments of principal of and interest on a
Loan or a reduction by such court of the principal amount of a
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.
The bankruptcy bond will provide coverage in the aggregate
amount specified in the related Prospectus Supplement for all
Loans in the Trust Fund secured by single unit primary
residences. Such amount will be reduced by payments made under
such bankruptcy bond in respect of such Loans and will not be
restored.
Repurchase Bond
If so specified in the related Prospectus Supplement, the
Depositor or Master Servicer will be obligated to repurchase any
Loan (up to an aggregate dollar amount specified in the related
Prospectus Supplement) for which insurance coverage is denied due
to dishonesty, misrepresentation or fraud in connection with the
origination or sale of such Loan. Such obligation may be secured
by a surety bond guaranteeing payment of the amount to be paid by
the Depositor or the Master Servicer.
THE POOLING AND SERVICING AGREEMENTS
The following summaries describe certain provisions of the
Pooling and Servicing Agreements. The summaries do not purport
to be complete and are subject to, and qualified in their
entirety by reference to, the provisions of the Pooling and
Servicing Agreements. Where particular provisions or terms used
in the Pooling and Servicing Agreements are referred to, such
provisions or terms are as specified in the Pooling and Servicing
Agreements.
Assignment of Mortgage Assets
General. The Depositor will transfer, convey and assign to
the Trustee all right, title and interest of the Depositor in the
Mortgage Assets and other property to be included in the Trust
Fund for a Series. Such assignment will include all principal
and interest due on or with respect to the Mortgage Assets after
the Cutoff Date specified in the related Prospectus Supplement
(except for any Retained Interests). The Trustee will,
concurrently with such assignment, execute and deliver the
Certificates.
Assignment of Private Mortgage-Backed Securities. The
Depositor will cause Private Mortgage-Backed Securities to be
registered in the name of the Trustee (or its nominee or
correspondent). The Trustee (or its agent or correspondent) will
have possession of any certificated Private Mortgage-Backed
Securities. The Trustee will generally not be in possession of
or be assignee of record of any underlying assets for a Private
Mortgage-Backed Security. See "THE TRUST FUNDS-Private Mortgage-
Backed Securities." Each Private Mortgage-Backed Security will
be identified in a schedule appearing as an exhibit to the
related Pooling and Servicing Agreement (the "Mortgage
Certificate Schedule"), which will specify the original principal
amount, outstanding principal balance as of the Cut-off Date,
annual pass-through rate or interest rate and maturity date for
each Private Mortgage-Backed Security conveyed to the Trustee.
In the Pooling and Servicing Agreement, the Depositor will
represent and warrant to the Trustee regarding the Private
Mortgage-Backed Securities: (i) that the information contained
in the Mortgage Certificate Schedule is true and correct in all
material respects; (ii) that, immediately prior to the conveyance
of the Private Mortgage-Backed Securities, the Depositor had good
title thereto, and was the sole owner thereof (subject to any
Retained Interests); (iii) that there has been no other sale by
it of such Private Mortgage-Backed Securities and (iv) that there
is no existing lien, charge, security interest or other
encumbrance (other than any Retained Interest) on such Private
Mortgage Backed Securities.
Assignment of Mortgage Loans. In addition, the Depositor
will, as to each Mortgage Loan, deliver or cause to be delivered
to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the Mortgage Note endorsed without
recourse to the order of the Trustee or in blank, the original
Mortgage with evidence of recording indicated thereon (except for
any Mortgage not returned from the public recording office, in
which case a copy of such Mortgage will be delivered, together
with a certificate that the original of such mortgage was
delivered to such recording office) and an assignment of the
Mortgage in recordable form. The Trustee or the Custodian will
hold such documents in trust for the benefit of the
Certificateholders.
The Depositor will, at the time of delivery of the
Certificates, cause assignments to the Trustee of the Mortgage
Loans to be recorded in the appropriate public office for real
property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the Mortgage Loan. If
specified in the related Prospectus Supplement, the Depositor
will cause such assignments to be so recorded within the time
after delivery of the Certificates as is specified in the related
Prospectus Supplement, in which event, the Pooling and Servicing
Agreement may, as specified in the related Prospectus Supplement,
require the Depositor to repurchase from the Trustee any Mortgage
Loan required to be recorded but not recorded within such time,
at the price described above with respect to repurchase by reason
of defective documentation. The enforcement of the repurchase
obligation will generally constitute the sole remedy available to
the Certificateholders or the Trustee for the failure of a
Mortgage Loan to be recorded.
Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Trust Agreement (the "Mortgage
Loan Schedule"). Such Mortgage Loan Schedule will specify with
respect to each Mortgage Loan: the original principal amount and
unpaid principal balance as of the Cut-off Date; the current
interest rate; the current Scheduled Payment of principal and
interest; the maturity date of the related mortgage note; if the
Mortgage Loan is an ARM, the Lifetime Mortgage Rate Cap, if any,
and the current Index; and, if the Mortgage Loan is a GPM Loan, a
CEM Loan, a Buy-Down Loan or a Mortgage Loan with other than
fixed Scheduled Payments and level amortization, the terms
thereof.
Assignment of Manufactured Home Loans. The Depositor will
cause any Manufactured Home Loans included in the Mortgage Assets
for a Series of Certificates to be assigned to the Trustee,
together with principal and interest due on or with respect to
the Manufactured Home Loans after the Cut-off Date specified in
the related Prospectus Supplement. Each Manufactured Home Loan
will be identified in a loan schedule (the "Loan Schedule")
appearing as an exhibit to the related Pooling and Servicing
Agreement. Such Loan Schedule will specify, with respect to each
Manufactured Home Loan, among other things: the original
principal balance and the outstanding principal balance as of the
close of business on the Cut-off Date; the interest rate; the
current Scheduled Payment of principal and interest; and the
maturity date of the Manufactured Home Loan.
In addition, with respect to each Manufactured Home Loan,
the Depositor will deliver or cause to be delivered to the
Trustee, or, as specified in the related Prospectus Supplement,
the custodian, the original Manufactured Home Loan and copies of
documents and instruments related to each Manufactured Home Loan
and the security interest in the Manufactured Home securing each
Manufactured Home Loan. To give notice of the right, title and
interest of the Certificateholders to the Manufactured Home
Loans, the Depositor will cause a UCC-1 financing statement to be
filed identifying the Trustee as the secured party and
identifying all Manufactured Home Loans as collateral. Unless
otherwise specified in the related Prospectus Supplement, the
Manufactured Home Loans will not be stamped or otherwise marked
to reflect their assignment from the Depositor to the Trustee.
Therefore, if a subsequent purchaser were able to take physical
possession of the Manufactured Home Loans without notice of such
assignment, the interest of the Certificateholders in the
Manufactured Home Loans could be defeated. See "CERTAIN LEGAL
ASPECTS OF LOANS-Manufactured Home Loans."
The Depositor will provide limited representations and
warranties to the Trustee concerning the Manufactured Home Loans.
Such representations and warranties will include: (i) that the
information contained in the Loan Schedule provides an accurate
listing of the Manufactured Home Loans and that the information
respecting such Manufactured Home Loans set forth in such Loan
Schedule is true and correct in all material respects at the date
or dates respecting which such information is furnished; (ii)
that, immediately prior to the conveyance of the Manufactured
Home Loans, the Depositor had good title to, and was sole owner
of, each such Manufactured Home Loan (subject to any Retained
Interests); (iii) that there has been no other sale by it of such
Manufactured Home Loans and that the Manufactured Home Loan is
not subject to any lien, charge, security interest or other
encumbrance; (iv) if the Master Servicer will not directly
service the Manufactured Home Loans, each Servicing Agreement
entered into with a Servicer with respect to Manufactured Home
Loans comprising the Mortgage Assets has been assigned and
conveyed to the Trustee and is not subject to any offset,
counterclaim, encumbrance or other charge; and (v) the Depositor
has obtained from each of the Master Servicer, the Servicer, the
originator of the Manufactured Home Loans or such other entity
that is the seller of the related Manufactured Home Loan
representations and warranties relating to certain information
respecting the origination of and current status of the
Manufactured Home Loans, and has no knowledge of any fact which
would cause it to believe that such representations and
warranties are inaccurate in any material respect. See "LOAN
UNDERWRITING PROCEDURES AND STANDARDS."
Assignment of Participation Certificates. The Depositor
will cause any Participation Certificates obtained under a
participation agreement to be assigned to the Trustee by
delivering to the Trustee the Participation Certificate, which
will be reregistered in the name of the Trustee. The Trustee
will generally not be in possession of or be assignee of record
with respect to the Loans represented by the Participation
Certificate. Each Participation Certificate will be identified
in a "Participation Certificate Schedule" which will specify the
original principal balance, outstanding principal balance as of
the Cut-off Date, pass-through rate and maturity date for each
Participation Certificate. In the Pooling and Servicing
Agreement, the Depositor will represent and warrant to the
Trustee regarding the Participation Certificate: (i) that the
information contained in the Participation Certificate Schedule
is true and correct in all material respects; (ii) that,
immediately prior to the conveyance of the Participation
Certificates, the Depositor had good title to and was sole owner
of the Participation Certificate; (iii) that there has been no
other sale by it of such Participation Certificate and (iv) that
such Participation Certificate is not subject to any existing
lien, charge, security interest or other encumbrance (other than
any Retained Interests).
Repurchase and Substitution of Non-Conforming Loans
If any document in the Loan file delivered by the Depositor
to the Trustee is found by the Trustee within 90 days of the
execution of the related Pooling and Servicing Agreement (or
promptly after the Trustee's receipt of any document permitted to
be delivered after the Closing Date) to be defective in any
material respect and the related Servicer does not cure such
defect within 60 days from the date the Depositor was notified of
the defect by the Trustee, or within such other period specified
in the related Prospectus Supplement, the related Servicer, if
and to the extent it is obligated to do so under the related
servicing agreement will, not later than 90 days, or within such
other period specified in the related Prospectus Supplement, from
the date the Depositor was notified of the defect by the Trustee,
repurchase the related Mortgage Loan or any property acquired in
respect thereof from the Trustee at a price equal to the
outstanding principal balance of such Mortgage Loan (or, in the
case of a foreclosed Mortgage Loan, the outstanding principal
balance of such Mortgage Loan immediately prior to foreclosure),
plus accrued and unpaid interest to the date of the next
scheduled payment on such Mortgage Loan at the related weighted
average Certificate Rate.
If so specified in the related Prospectus Supplement, the
Depositor may, rather than repurchase the Loan as described
above, remove such Loan from the Trust Fund (the "Deleted Loan")
and substitute in its place one or more other Loans (each, a
"Qualified Substitute Mortgage Loan") provided, however, that (i)
with respect to a Trust Fund for which no REMIC election is made,
such substitution must be effected within 90 days of the date of
initial issuance of the Certificates and (ii) with respect to a
Trust Fund for which a REMIC election is made, the Trustee must
have received a satisfactory opinion of counsel that such
substitution will not cause the Trust Fund to lose its status as
a REMIC.
Any Qualified Substitute Mortgage Loan will have, on the
date of substitution, (i) an outstanding principal balance, after
deduction of all Scheduled Payments due in the month of
substitution, not in excess of the outstanding principal balance
of the Deleted Loan (the amount of any shortfall to be deposited
to the Certificate Account in the month of substitution for
distribution to Certificateholders), (ii) an interest rate not
less than (and not more than 2% greater than) the interest rate
of the Deleted Loan, (iii) a remaining term-to-stated maturity
not greater than (and not more than one year less than) that of
the Deleted Loan, and will (iv) comply with all of the
representations and warranties set forth in the applicable
agreement as of the date of substitution.
The above-described cure, repurchase or substitution
obligations constitute the sole remedies available to the
Certificateholders or the Trustee for a material defect in a Loan
document.
The Depositor will make representations and warranties with
respect to Loans which comprise the Mortgage Assets for a Series.
See "LOAN UNDERWRITING PROCEDURES AND STANDARDS-Representations
and Warranties." If the related Servicer cannot cure a breach of
any such representations and warranties in all material respects
within 60 days after notification by the Master Servicer of such
breach, and if such breach is of a nature that adversely affects
the payments of principal and interest on the Loan or otherwise
adversely and materially affects the value of such Loan, the
Servicer is obligated to substitute or repurchase the affected
Mortgage Loan if such Servicer is required to do so under the
applicable servicing agreement.
Reports to Certificateholders
The Master Servicer will prepare and will forward or will
provide to the Trustee for forwarding to each Certificateholder
on each Distribution Date, or as soon hereafter as is
practicable, a statement setting forth, to the extent applicable
to any Series as specified in the related Pooling and Servicing
Agreement, among other things:
(i) as applicable, either (A) the amount of such
distribution allocable to principal on the Mortgage Assets,
separately identifying the aggregate amount of any principal
prepayments included therein and the amount, if any,
advanced by the Master Servicer or by a Servicer or (B) the
amount of the principal distribution in reduction of stated
principal amount (or Compound Value) of each Class and the
aggregate unpaid principal amount (or Compound Value) of
each Class following such distribution;
(ii) as applicable, either (A) the amount of such
distribution allocable to interest on the Mortgage Assets
and the amount, if any, advanced by the Master Servicer or a
Servicer or (B) the amount of the interest distribution;
(iii) the amount of servicing compensation with respect
to the Mortgage Assets paid during the Due Period commencing
on the Due Date to which such distribution relates and the
amount of servicing compensation during such period
attributable to penalties and fees;
(iv) with respect to Compound Interest Certificates,
prior to the Accrual Termination Date in addition to the
information specified in (i)(B) above, the amount of
interest accrued on such Certificates during the related
Interest Accrual Period and added to the Compound Value
thereof;
(v) in the case of Floating Interest Certificates, the
Floating Rate applicable to the distribution being made;
(vi) if applicable, the amount of any shortfall (i.e.,
the difference between the aggregate amounts of principal
and interest which Certificateholders would have received if
there were sufficient eligible funds in the Certificate
Account and the amounts actually distributed);
(vii) if applicable, the number and aggregate principal
balances of Loans delinquent for (A) two consecutive
payments and (B) three or more consecutive payments, as of
the close of business on the Determination Date to which
such distribution relates;
(viii) if applicable, the book value of any REO Property
acquired on behalf of Certificateholders through
foreclosure, grant of a deed in lieu of foreclosure or
repossession as of the close of business on the Business Day
preceding the Distribution Date to which such distribution
relates;
(ix) if applicable, the amount of coverage under any
pool insurance policy as of the close of business on the
applicable Distribution Date;
(x) if applicable, the amount of coverage under any
special hazard insurance policy as of the close of business
on the applicable Distribution Date;
(xi) if applicable, the amount of coverage under any
bankruptcy bond as of the close of business on the
applicable Distribution Date;
(xii) in the case of any other credit support described
in the related Prospectus Supplement, the amount of coverage
of such credit support as of the close of business on the
applicable Distribution Date;
(xiii) in the case of any Series which includes a
Subordinate Class, the Subordinated Amount, if any,
determined as of the related Determination Date and if the
distribution to the Senior Certificateholders is less than
their required distribution, the amount of the shortfall;
(xiv) the amount of any withdrawal from any applicable
Reserve Fund included in amounts actually distributed to
Certificateholders and the remaining balance of each Reserve
Fund (including any Subordination Reserve Fund), if any, on
such Distribution Date, after giving effect to distributions
made on such date; and
(xv) such other information as specified in the related
Pooling and Servicing Agreement.
In addition, within a reasonable period of time after the
end of each calendar year the Master Servicer will furnish to
each Certificateholder of record at any time during such calendar
year a report summarizing the items provided to
Certificateholders as specified in the Pooling and Servicing
Agreement to enable Certificateholders to prepare their tax
returns including, without limitation, the amount of original
issue discount accrued on the Certificates, if applicable.
Information in the Distribution Date and annual reports provided
to the Certificateholders will not have been examined and
reported upon by an independent public accountant. However, the
Master Servicer will provide to the Trustee a report by
independent public accountants with respect to the Master
Servicer's servicing of the Loans. See "SERVICING OF LOANS-
Evidence as to Compliance."
Investment of Funds
The Certificate Account, Collection Account or Custodial
Account, if any, and any other funds and accounts for a Series
that may be invested by the Trustee or by the Master Servicer or
by the Servicer, if any, can be invested only in Eligible
Investments acceptable to each Rating Agency rating such Series,
which may include, without limitation, (i) direct obligations of,
and obligations fully guaranteed by, the United States of
America, or any agency of the United States of America, the
obligations of which are backed by the full faith and credit of
the United States of America; (ii) general obligations of or
obligations guaranteed by any state of the United States of
America or the District of Columbia receiving one of the two
highest long-term rating of each Rating Agency, or such lower
ratings as will not result in the downgrading or withdrawal of
the ratings then assigned to the Certificates by each Rating
Agency; (iii) commercial paper which is then rated in the highest
commercial paper rating categories of each Rating Agency, or such
lower category as will not result in the downgrading or
withdrawal of the ratings then assigned to the Certificates by
each Rating Agency; (iv) certificates of deposit, demand or time
deposits, federal funds or bankers' acceptances issued by any
depository institution or trust company incorporated under the
laws of the United States of America or of any state thereof and
subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or
long term debt obligations of such depository institution or
trust company (or in the case of the principal depository
institution in a holding company system, the commercial paper or
long term debt obligations of such holding company) are then
rated in the highest rating category of each Rating Agency, in
the case of commercial paper, or in the second highest category
in the case of long term debt obligations; (v) demand or time
deposits or certificates of deposit issued by any bank or trust
company or savings and loan association and fully insured by the
FDIC; (vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation which do not adversely
affect the rating on the Certificates of such Series at the time
of the issuance of or investing in such guaranteed reinvestment
agreements; (vii) repurchase obligations with respect to any
security described in (i) and (ii) above or any other security
issued or guaranteed by an agency or instrumentality of the
United States of America, in either case entered into with a
depository institution or trust company (acting as principal)
described in (iv) above; (viii) securities bearing interest or
sold at a discount issued by any corporation incorporated under
the laws of the United States of America or any state thereof
which, at the time of such investment or contractual commitment
providing for such investments are then rated in one of the two
highest categories of each Rating Agency, or in such lower rating
category as will not result in the downgrading or withdrawal of
the ratings then assigned to the Certificates of such Series by
each Rating Agency; and (ix) such other investments which do not
adversely affect the rating on the Certificates of such Series as
confirmed in writing by each Rating Agency.
Funds held in a Reserve Fund or Subordinated Reserve Fund
may be invested in certain Eligible Reserve Fund Investments
which may include Eligible Investments, mortgage loans, mortgage
pass-through or participation securities, mortgage-backed bonds
or notes or other investments to the extent specified in the
related Prospectus Supplement.
Eligible Investments or Eligible Reserve Fund Investments
with respect to a Series will include only obligations or
securities that mature on or before the date on which the amounts
in the Collection Account are required to be remitted to the
Trustee and amounts in the Certificate Account, any Reserve Fund
or the Subordinated Reserve Fund for such Series are required or
may be anticipated to be required to be applied for the benefit
of Certificateholders of such Series.
If so provided in the related Prospectus Supplement, the
reinvestment income from the Subordination Reserve Fund, other
Reserve Fund, Servicer Account, Collection Account or the
Certificate Account may be property of the Master Servicer or a
Servicer and not available for distributions to
Certificateholders. See "SERVICING OF LOANS."
Event of Default
Events of Default under the Pooling and Servicing Agreement
for each Series include (i) any failure by the Master Servicer to
distribute to Certificateholders of such Series any required
payment which continues unremedied for five business days, or one
business day for certain other required payments, after the
giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor for such Series, or to the Master
Servicer and the Trustee by the Holders of Certificates of such
Series evidencing not less than 25% of the aggregate outstanding
principal amount of the Certificates for such Series, (ii) any
failure by the Master Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
Pooling and Servicing Agreement which continues unremedied for 60
days (or 15 days in the case of a failure to maintain any
insurance policy required to be maintained pursuant to the
Pooling and Servicing Agreement) after the giving of written
notice of such failure to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer and the Trustee by the
Holders of Certificates of such Series evidencing not less than
25% of the aggregate outstanding principal amount of the
Certificates and (iii) certain events in insolvency, readjustment
of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by the Master Servicer indicating
its insolvency, reorganization or inability to pay its
obligations.
Rights Upon Event of Default
So long as an Event of Default remains unremedied under the
Pooling and Servicing Agreement for a Series, the Trustee for
such Series or Holders of Certificates of such Series evidencing
not less than 25% of the aggregate outstanding principal amount
of the Certificates for such Series (the first 25% who provide
such notice) or the Depositor may terminate all of the rights and
obligations of the Master Servicer as servicer under the Pooling
and Servicing Agreement and in and to the Mortgage Loans (other
than its right as a Certificateholder under the Pooling and
Servicing Agreement which rights the Master Servicer will retain
under all circumstances), whereupon the Trustee will succeed to
all the responsibilities, duties and liabilities of the Master
Servicer under the Pooling and Servicing Agreement and will be
entitled to reasonable servicing compensation not to exceed the
applicable servicing fee, together with other servicing
compensation in the form of assumption fees, late payment charges
or otherwise as provided in the Pooling and Servicing Agreement.
If, however, the RTC or the FDIC is appointed as the receiver for
the Master Servicer, and no Event of Default other than such
receivership or insolvency exists, the RTC or the FDIC may have
the power to prevent either the Trustee or the Certificateholders
from effecting a transfer of servicing.
In the event that the Trustee is unwilling or unable so to
act, it may select, or petition a court of competent jurisdiction
to appoint, any established mortgage loan servicing institution
the appointment of which does not adversely affect the then
current rating of the Certificates of the related Series to act
as successor Master Servicer under the provisions of such Pooling
and Servicing Agreement relating to the servicing of the Mortgage
Loans. The successor Master Servicer would be entitled to
reasonable servicing compensation in an amount not to exceed the
Servicing Fee as set forth in the related Prospectus Supplement,
together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise, as provided
in the Pooling and Servicing Agreement.
During the continuance of any Event of Default under the
Pooling and Servicing Agreement for a Series, the Trustee for
such Series will have the right to take action to enforce its
rights and remedies and to protect and enforce the rights and
remedies of the Certificateholders of such Series, and Holders of
Certificates evidencing not less than 25% of the aggregate
outstanding principal amount of the Certificates for such Series
may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising
any trust or power conferred upon that Trustee. However, the
Trustee will not be under any obligation to pursue any such
remedy or to exercise any of such trusts or powers unless such
Certificateholders have offered the Trustee reasonable security
or indemnity against the cost, expenses and liabilities which may
be incurred by the Trustee therein or thereby. Also, the Trustee
may decline to follow any such direction if the Trustee
determines that the action or proceeding so directed may not
lawfully be taken or would involve it in personal liability or be
unjustly prejudicial to the non-assenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such
Holder's status as a Certificateholder, will have any right under
the Pooling and Servicing Agreement for such Series to institute
any proceeding with respect to the Trust Agreement, unless such
Holder previously has given to the Trustee for such Series
written notice of default and unless the Holders of Certificates
evidencing not less than 25% of the aggregate outstanding
principal amount of the Certificates for such Series have made
written request upon the Trustee to institute such proceeding in
its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for 60 days has
neglected or refused to institute any such proceeding.
Deficiency Event
A "Deficiency Event" with respect to the Certificates of a
Series as to which such term is applicable (as set forth in the
related Prospectus Supplement) is defined in the Pooling and
Servicing Agreement as being the inability of the Trustee to
distribute to Holders of one or more Classes of Certificates of
such Series (other than any Class of Subordinate Certificates
prior to the time that the Available Distribution Amount is
reduced to zero), in accordance with the terms thereof and the
Pooling and Servicing Agreement, any distribution of principal or
interest thereon when and as distributable, in each case because
of the insufficiency for such purpose of the funds then held in
the related Trust Fund.
Upon the occurrence of a Deficiency Event, the Trustee or
other party named in the related Pooling and Servicing Agreement
is required to determine whether or not the application on a
monthly basis (regardless of the frequency of regular
Distribution Dates) of all future Scheduled Payments on the
Mortgage Assets included in the related Trust Fund and other
amounts receivable with respect to such Trust Fund towards
payments on such Certificates in accordance with the priorities
as to distributions of principal and interest set forth in such
Certificates will be sufficient to make distributions of interest
at the applicable Certificate Rates and to distribute in full the
principal amount of each such outstanding Certificate on or
before its respective Stated Maturity.
The Trustee (or other specified party) will obtain and rely
upon an opinion or report of a firm of independent accountants of
recognized national reputation as to the sufficiency of the
amounts receivable with respect to such Trust Fund to make such
distributions on the Certificates, which opinion or report will
be conclusive evidence as to such sufficiency. Pending the
making of any such determination, distributions on the
Certificates will continue to be made in accordance with their
terms.
In the event that the Trustee (or other specified party)
makes a determination of sufficiency, the Trustee will apply all
amounts received in respect of the related Trust Fund (after
payment of fees and expenses of the Trustee and accountants for
the Trust Fund) to distributions on the Certificates of such
Series in accordance with their terms, except that such
distributions will be made monthly and without regard to the
amount of principal that would otherwise be distributable on any
Distribution Date. Under certain circumstances following such
positive determination, the Trustee may resume making
distributions on such Certificates expressly in accordance with
their terms.
If the Trustee (or other specified party) is unable to make
the positive determination described above, the Trustee will
apply all amounts received in respect of the related Trust Fund
(after payment of Trustee and accountants' fees and expenses) to
monthly distributions on the Certificates of such Series pro
rata, without regard to the priorities as to distribution of
principal set forth in such Certificates, and such Certificates
will, to the extent permitted by applicable law, accrue interest
at the highest Certificate Rate borne by any Certificate of such
Series (excluding any Class of Interest Weighted Certificates or
any Class with a Floating Rate that varies inversely with a
current Index) or, with respect to each Class of Floating
Interest Certificates, at the weighted average Certificate Rate,
calculated on the basis of the maximum interest rat& applicable
to such Class on the original principal amount of the
Certificates of that Class (excluding any Class of Interest
Weighted Certificates or any Class with a Floating Rate that
varies inversely with a current Index). In such event, the
Holders evidencing not less than at least 66% or more of the
aggregate outstanding principal amount of the Certificates of
such Series may direct the Trustee to sell the related Trust
Fund, any such direction being irrevocable and binding upon the
Holders of all Certificates of such Series and upon the owners of
the residual interests in such Trust Fund. In the absence of
such a direction, the Trustee may not sell all or any portion of
such Trust Fund.
The Trustee
The identity of the commercial bank, savings and loan
association or trust company named as the Trustee for each Series
of Certificates will be set forth in the related Prospectus
Supplement. The entity serving as Trustee may have normal
banking relationships with the Depositor or the Master Servicer.
In addition, for the purpose of meeting the legal requirements of
certain local jurisdictions, the Trustee will have the power to
appoint co-trustees or separate trustees of all or any part of
the Trust Fund relating to a Series of Certificates. In the
event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Pooling
and Servicing Agreement relating to such Series will be conferred
or imposed upon the Trustee and each such separate trustee or co-
trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations
solely at the direction of the Trustee. The Trustee may also
appoint agents to perform any of the responsibilities of the
Trustee, which agents shall have any or all of the rights,
powers, duties and obligations of the Trustee conferred on them
by such appointment; provided that the Trustee shall continue to
be responsible for its duties and obligations under the Pooling
and Servicing Agreement.
Duties of the Trustee
The Trustee makes no representations as to the validity or
sufficiency of the Pooling and Servicing Agreement, the
Certificates or of any Mortgage Asset or related documents. If
no Event of Default (as defined in the related Pooling and
Servicing Agreement) has occurred, the Trustee is required to
perform only those duties specifically required of it under the
Pooling and Servicing Agreement. Upon receipt of the various
certificates, statements, reports or other instruments required
to be furnished to it, the Trustee is required to examine them to
determine whether they are in the form required by the related
Pooling and Servicing Agreement. However, the Trustee will not
be responsible for the accuracy or content of any such documents
furnished by it or the Certificateholders to the Master Servicer
under the Pooling and Servicing Agreement.
The Trustee may be held liable for its own negligent action
or failure to act, or for its own willful misconduct; provided,
however, that the Trustee will 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
Certificateholders in an Event of Default, see "Rights Upon Event
of Default" above. The Trustee is not required to expend or risk
its own funds or otherwise incur any financial liability in the
performance of any of its duties under a Pooling and Servicing
Agreement, or in the exercise of any of its rights or powers, if
it has reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
Resignation of Trustee
The Trustee may, upon written notice to the Depositor,
resign at any time, in which event the Depositor will be
obligated to use its best efforts to appoint a successor Trustee.
If no successor Trustee has been appointed and has accepted the
appointment within 30 days after giving such notice of
resignation, the resigning Trustee may petition any court of
competent jurisdiction for appointment of a successor Trustee.
The Trustee may also be removed at any time (i) by the Depositor,
if the Trustee ceases to be eligible to continue as such under
the Pooling and Servicing Agreement, (ii) if the Trustee becomes
insolvent, (iii) if a tax is imposed or threatened with respect
to the Trust Fund by any state in which the Trustee or the Trust
Fund held by the Trustee pursuant to the Pooling and Servicing
Agreement is located, or (iv) by the Holders of Certificates
evidencing over 50% of the aggregate outstanding principal amount
of the Certificates in the Trust Fund upon 30 days' advance
written notice to the Trustee and to the Depositor. 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.
Certificate Account
The Trustee will establish a separate account (the
"Certificate Account") in its name as Trustee for the
Certificateholders, or if it is so specified in the related
Prospectus Supplement, the Certificate Account may be established
by the Master Servicer in the name of the Trustee. If specified
in the related Prospectus Supplement, the Certificate Account may
be maintained as an interest bearing account or the funds held
therein may be invested, pending disbursement to
Certificateholders of the related Series, pursuant to the terms
of the terms of the Pooling and Servicing Agreement, in Eligible
Investments. The Master Servicer will be entitled to receive as
additional compensation, any interest or other income earned on
funds in the Certificate Account. There will be deposited into
the Certificate Account monthly all funds received from the
Master Servicer and required withdrawals from any reserve funds.
The Trustee is permitted from time to time to make withdrawals
from the Certificate Account for each Series to remove amounts
deposited therein in error, to pay to the Master Servicer any
reinvestment income on funds held in the Certificate Account to
the extent it is entitled, to remit to the Master Servicer its
Servicing Fee, assumption or substitution fees, late payment
charges and other mortgagor charges, reimbursement of Advances
and expenses, to make deposits to any reserve fund, to make
regular distributions to the Certificateholders, to clear and
terminate the Certificate Account and to make other withdrawals
as required or permitted by the related Pooling and Servicing
Agreement.
Expense Reserve Fund
If specified in the Prospectus Supplement relating to a
Series, the Depositor may deposit on the related Closing Date in
an account to be established with the Trustee (the "Expense
Reserve Fund") cash or Eligible Investments which will be
available to pay anticipated fees and expenses of the Trustee or
other agents. The Expense Reserve Fund for a Series may also be
funded over time through the deposit therein of all or a portion
of cash flow, to the extent described in the related Prospectus
Supplement. The Expense Reserve Fund, if any, will not be part
of the Trust Fund held for the benefit of the Holders. Amounts
on deposit in any Expense Reserve Fund will be invested in one or
more Eligible Investments.
Amendment of Pooling and Servicing Agreement
The Pooling and Servicing Agreement for each Series of
Certificates may be amended by the Depositor, the Master
Servicer, and the Trustee with respect to such Series, without
notice to or consent of the Certificateholders (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein
which may be defective or inconsistent with any other provision
therein, (iii) to make any other provisions with respect to
matters or questions arising under such Pooling and Servicing
Agreement which are not inconsistent with any other provisions of
such Pooling and Servicing Agreement or (iv) to comply with any
requirements imposed by the Code; provided that such amendment
(other than pursuant to clause (iv) above) will not adversely
affect in any material respect the interests of any
Certificateholders of such Series. The Pooling and Servicing
Agreement for each Series may also be amended by the Trustee, the
Master Servicer and the Depositor with respect to such Series
with the consent of the Holders possessing not less than 66-2/3%
of the aggregate outstanding principal amount of the Certificates
of each Class of such Series affected thereby, for the purpose of
adding any provisions to or changing in any manner or eliminating
any of the provisions of such Pooling and Servicing Agreement or
modifying in any manner the rights of Certificateholders of such
Series; provided, however, that no such amendment may (i) reduce
the amount or delay the timing of payments on any Certificate
without the consent of the Holder of such Certificate; (ii)
adversely affect the REMIC status, if a REMIC election has been
made, for the related Trust Fund of a Series; or (iii) reduce the
aforesaid percentage of aggregate outstanding principal amount of
Certificates of each Class, the Holders of which are required to
consent to any such amendment without the consent of the Holders
of 100% of the aggregate outstanding principal amount of each
Class of Certificates affected thereby.
Voting Rights
The related Prospectus Supplement will set forth the method
of determining allocation of voting rights with respect to a
Series, if other than as set forth herein.
List of Certificateholders
Upon written request of three or more Certificateholders of
record of a Series for purposes of communicating with other
Certificateholders with respect to their rights under the Pooling
and Servicing Agreement or under the Certificates for such
Series, which request is accompanied by a copy of the
communication which such Certificateholders propose to transmit,
the Trustee will afford such Certificateholders access during
business hours to the most recent list of Certificateholders of
that Series held by the Trustee.
No Pooling and Servicing Agreement will provide for the
holding of any annual or other meeting of Certificateholders.
REMIC Administrator
With respect to any Series, preparation of certain reports
and certain other administrative duties with respect to the Trust
Fund may be performed by a REMIC administrator, who may be an
affiliate of the Depositor.
Termination
The obligations created by the Pooling and Servicing
Agreement for a Series will terminate upon the distribution to
Certificateholders of all amounts distributable to them pursuant
to such Pooling and Servicing Agreement after (i) the later of
the final payment or other liquidation of the last Mortgage Loan
remaining in the Trust Fund for such Series or the disposition of
all property acquired upon foreclosure or deed in lieu of
foreclosure in respect of any Mortgage Loan or (ii) the
repurchase by the Master Servicer from the Trustee for such
Series of all Mortgage Loans at that time subject to the Pooling
and Servicing Agreement and all property acquired in respect of
any Mortgage Loan, as described below. The Pooling and Servicing
Agreement for each Series permits, but does not require, the
Master Servicer to repurchase from the Trust Fund for such Series
all remaining Mortgage Loans at a price equal to 100% of the
aggregate principal balances of such Mortgage Loans, plus accrued
interest at the applicable weighted average Certificate Rate
through the last day of the Due Period in which repurchase occurs
plus the lesser of (A) the appraised value of any such property
and (B) the Stated Principal Balance of the Mortgage Loan
relating to such property. The exercise of such right will
effect early retirement of the Certificates of such Series, but
the Master Servicer's right to so purchase is subject to the
aggregate principal balances of the Mortgage Loans at the time of
repurchase being less than a fixed percentage, to be set forth in
the related Prospectus Supplement, of the Cut-off Date Aggregate
Principal Balance. In no event, however, will the trust created
by the Pooling and Servicing Agreement continue beyond the
expiration of 21 years from the death of the last survivor of
certain persons identified therein. For each Series, the Master
Servicer or the Trustee, as applicable, will give written notice
of termination of the Pooling and Servicing Agreement to each
Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at an office
or agency specified in the notice of termination. If so provided
in the related Prospectus Supplement for a Series, the Depositor
or another entity may effect an optional termination of the Trust
Fund under the circumstances described in such Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES-Optional
Termination."
CERTAIN LEGAL ASPECTS OF LOANS
The following discussion contains summaries of certain legal
aspects of housing 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 properties
securing the housing loans are situated. The summaries are
qualified in their entirety by reference to the applicable
federal and state laws governing the Loans.
Mortgages
The Mortgage Loans comprising or underlying the Mortgage
Assets for a Series will be secured by either mortgages or deeds
of trust or deeds to secure debt, depending upon the prevailing
practice in the state in which the property subject to a Mortgage
Loan is located. The filing of a mortgage, deed of trust or deed
to secure debt creates a lien or title interest upon the real
property covered by such instrument and represents the security
for the repayment of an obligation that is customarily evidenced
by a promissory note. It is not prior to the lien for real
estate taxes and assessments or other charges imposed under
governmental police powers and may also be subject to other
liens, such as mechanic's and materialmen's liens, pursuant to
the laws of the jurisdiction in which the Mortgaged Property is
located. Priority with respect to such instruments depends on
their terms and in some cases the term of separate subordination
or intercreditor agreements, the knowledge of the parties to the
mortgage and generally on the order of recording with the
applicable state, county or municipal office. There are two
parties to a mortgage, the mortgagor, who is the
borrower/homeowner or the land trustee (as described below), and
the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, there are three parties
because title to the property is held by a land trustee under a
land trust agreement of which the borrower/homeowner is the
beneficiary. At origination of a mortgage loan, the borrower
executes a separate undertaking to make payments on the mortgage
note. A deed of trust transaction normally has three parties,
the trustor, who is the borrower/homeowner, the beneficiary, who
is the lender, and the trustee, a third-party grantee. Under a
deed of trust, the trustor grants the property, irrevocably until
the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation. The mortgagee's
authority under a mortgage and the trustee's authority under a
deed of trust are governed by the law of the state in which the
real property is located, the express provisions of the mortgage
or deed of trust, and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
Foreclosure on Mortgages
Foreclosure of a deed of trust is generally accomplished by
a non-judicial trustee's sale under a specific provision in the
deed of trust which authorizes the trustee to sell the property
upon any default by the borrower under the terms of the note or
deed of trust. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any
person who has recorded a request for a copy of a notice of
default and notice of sale. In addition, the trustee in some
states must provide notice to any other individual having an
interest in the real property, including any junior lienholders.
The trustor, borrower, or any person having a junior encumbrance
on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and
expenses incurred in enforcing the obligation. Generally, state
law controls the amount of foreclosure expenses and costs,
including attorney's fees, which may be recovered by a lender.
If the deed of trust is not reinstated, a notice of sale must be
posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be
posted on the property, recorded and sent to all parties having
an interest in the real property.
An action to foreclose a mortgage is an action to recover
the mortgage debt by enforcing the mortgagee's rights under the
mortgage. It is regulated by statutes and rules and subject
throughout to the court's equitable powers. Generally, a
mortgagor is bound by the terms of the mortgage note and the
mortgage as made and cannot be relieved from his default if the
mortgagee has exercised his rights in a commercially reasonable
manner. However, since a foreclosure action historically was
equitable in nature, the court may exercise equitable powers to
relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was
neither willful nor in bad faith or the mortgagee's action
established a waiver, fraud, bad faith, or oppressive or
unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain
circumstances a court of equity may relieve the mortgagor from an
entirely technical default where such default was not willful.
A foreclosure action is subject to most of the delays and
expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring up to several years to complete.
Moreover, a foreclosure sale may be challenged after it has been
concluded on the grounds that it was conducted in a manner that
did not fully comply with applicable laws, or that the sale price
was the result of collusion or other improper practices.
Similarly, a suit against the debtor on the mortgage note may
take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at
the same time.
In case of foreclosure under either a mortgage or a deed of
trust, the sale by the referee or other designated officer or by
the trustee is a public sale. However, because of the difficulty
potential third party purchasers at the sale have in determining
the exact status of title and because the physical condition of
the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the
property at a foreclosure sale. Regardless of the price paid at
a foreclosure sale, the United States Supreme Court in BFP v.
Resolution Trust Corporation, as Receiver for Imperial Federal
Savings and Loan Association, et al., determined that a sale
conclusively will be determined to have been for an amount equal
to the "reasonably equivalent value" of the foreclosed property,
so long as all the requirements of the State's foreclosure law
have been complied with. If these requirements are not met, the
sale may be attacked within up to three years after a bankruptcy
filing by the debtor, and even longer under state law, on a
number of grounds, including that the sale resulted in a
fraudulent conveyance or violated other applicable laws. It is
common for the lender to purchase the property from the trustee
or referee for an amount which may be equal to the principal
amount of the mortgage or deed of trust plus accrued and unpaid
interest and the expenses of foreclosure, in which event the
mortgagor's debt will be extinguished or the lender may purchase
for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such a
judgment is available. Thereafter, the lender will assume the
burdens of ownership, including obtaining casualty insurance,
paying taxes and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender
will commonly obtain the services of a real estate broker and pay
the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the
receipt of any mortgage guaranty insurance proceeds.
The proceeds received by the referee or trustee from the
sale are applied first to the costs, fees and expenses of sale
and then in satisfaction of the indebtedness secured by the
mortgage or deed of trust under which the sale was conducted.
Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in
default. Any additional proceeds are generally payable to the
mortgagor or trustor. The payment of the proceeds to the holders
of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal
proceedings.
The purposes of a foreclosure action are to enable the
mortgagee to realize upon its security and to bar the mortgagor,
and all persons who have an interest in the property which is
subordinate to the foreclosing mortgagee, from their "equity of
redemption." The doctrine of equity of redemption provides that,
until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure
sale, those having an interest which is subordinate to that of
the foreclosing mortgagee have an equity of redemption and may
redeem the property by paying the entire debt with interest. In
addition, in some states, when a foreclosure action has been
commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must be made
parties and duly summoned to the foreclosure action in order for
their equity of redemption to be barred.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or
foreclosure of a mortgage, the trustor or mortgagor and
foreclosed junior lienors are given a statutory period in which
to redeem the property from the foreclosure sale. The right of
redemption should be distinguished from the equity of redemption,
which is a nonstatutory right that must be exercised prior to the
foreclosure sale. In some states, redemption may occur only upon
payment of the entire principal balance of the loan, accrued
interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the
foreclosed property. The right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure
or sale under a deed of trust. Consequently, the practical
effect of a right of redemption is to force the lender to retain
the property and pay the expenses of ownership until the
redemption period has run. In some states, there is no right to
redeem property after a trustee's sale under a deed of trust.
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 is a personal judgment
against the former borrower equal in most cases to the difference
between the net amount realized upon the public sale of the real
property and the amount due to the lender. Other statutes
require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal
action against the borrower. In certain other states, the lender
has the option of bringing a personal action against the borrower
on the debt without first exhausting such security; however in
some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may
be precluded from exercising remedies with respect to the
security. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that
lenders will usually proceed against the security first rather
than bringing a personal action against the borrower. Finally,
other statutory provisions limit any deficiency judgment against
the former borrower following a judicial sale to the excess of
the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining
a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale. Certain state
laws also place a limitation on the mortgagee with respect to
late payment charges.
Federal Bankruptcy and Other Laws Affecting Creditors'
Rights. In addition to laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including the
federal bankruptcy laws, the Federal Soldiers' and Sailors'
Relief Act, and state laws affording relief to debtors, may
interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment.
For example, with respect to federal bankruptcy law, the filing
of a petition acts as a stay against the enforcement of remedies
for collection of a debt. Moreover, a court with federal
bankruptcy jurisdiction may permit a debtor through a Chapter 13
under the Bankruptcy Code rehabilitative plan to cure a monetary
default with respect to a loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the
original loan payment schedule even though the lender accelerated
the loan and the lender has taken all steps to realize upon his
security (provided no sale of the property has yet occurred)
prior to the filing of the debtor's Chapter 13 petition. Some
courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that
effected the curing of a loan default by permitting the obligor
to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also
indicated that the terms of a loan secured by property of the
debtor may be modified if the borrower has filed a petition under
Chapter 13. These courts have suggested that such modifications
may include reducing the amount of each monthly payment, changing
the rate of interest, altering the repayment schedule and
reducing the lender's security interest to the value of the
residence, thus leaving the lender a general unsecured creditor
for the difference between the value of the residence and the
outstanding balance of the loan. Federal bankruptcy law and
limited case law indicate that the foregoing modifications could
not be applied to the terms of a loan secured exclusively by
property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its
security to the extent the value of the security exceeds the
debt, plus post-petition interest, attorney's fees and costs.
In a Chapter 11 case under the Bankruptcy Code, the lender
is precluded from foreclosing without authorization from the
bankruptcy court. The lender's lien may be transferred to other
collateral and/or be limited in amount to the value of the
lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may
be adjusted to market rates and the priority of the loan may be
subordinated to bankruptcy court-approved financing. The
bankruptcy court can, in effect, invalidate due-on-sale clauses
through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code recognizes priority to certain tax liens
over the lender's security. This may delay or interfere with the
enforcement of rights in respect of a defaulted Loan. In
addition, substantive requirements are imposed upon lenders in
connection with the origination and the servicing of mortgage
loans by numerous federal and some state consumer protection
laws. The 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 impose specific
statutory liabilities upon lenders who originate loans and who
fail to comply with the provisions of the law. In some cases,
this liability may affect assignees of the loans.
Soldiers' and Sailors' Civil Relief Act. Generally, under
the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Mortgage Loan
(including a borrower who is a member of the National Guard or is
in reserve status at the time of the origination of the Mortgage
Loan and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such
interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Trust Fund to
collect full amounts of interest on certain of the Mortgage
Loans. Any shortfall in interest collections resulting from the
application of the Relief Act could result in losses to the
holders of the Certificates. In addition, the Relief Act imposes
limitations which would impair the ability of the Trust Fund to
foreclose on an affected Mortgage Loan during the borrower's
period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses
occasioned by the inability to realize upon the Mortgaged
Property in a timely fashion.
Junior Liens; Rights of Senior Lienholders
The rights of the Trust Fund (and therefore the
Certificateholders) as beneficiary under a junior deed of trust
or as mortgagee under a junior mortgage are subordinate to those
of the mortgagee or beneficiary under the senior mortgage or deed
of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds
and to cause the property securing the junior 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 holders thereof assert their subordinate interest in a
property in foreclosure litigation or satisfy the defaulted
senior loan. As discussed more fully below, in many states a
junior mortgagee or beneficiary may satisfy a defaulted senior
loan in full, or 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.
The standard form of the mortgage or deed of trust used by
most institutional lenders confers on the mortgagee or
beneficiary the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such
proceeds and awards to any indebtedness secured by the mortgage
or deed of trust, in such order as the mortgagee or beneficiary
may determine. Thus, in the event improvements on the property
are damaged or destroyed by fire or other casualty, or in the
event the property is taken by condemnation, the mortgagee or
beneficiary under the underlying first mortgage or deed of trust
will have the prior right to collect any insurance proceeds
payable under a hazard insurance policy and any award of damages
in connection with the condemnation and to apply the same to the
indebtedness secured by the first mortgage or deed of trust.
Proceeds in excess of the amount of first mortgage indebtedness
will, in most cases, be applied to the indebtedness of a junior
mortgage or trust deed.
The form of mortgage or deed of trust used by most
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 made under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of
the mortgage or deed of trust and the date of the future advance,
and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such 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 has actual knowledge of the intervening junior mortgages or
deeds of trust and other liens, the advance will be subordinate
to such intervening junior mortgages or deeds of trust and other
liens. Priority of advances under the clause rests, in many
other states, on state statutes giving priority to all advances
made under the loan agreement to a "credit limit" amount stated
in the recorded mortgage.
Another provision typically found in the form of the
mortgage or deed of trust used by most institutional lenders
obligates 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 the mortgage or
deed 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.
Due-on-Sale Clauses in Mortgage Loans
A note, mortgage or deed of trust relating to the Mortgage
Loans generally contains a "due-on-sale" clause permitting
acceleration of the maturity of a loan if the borrower transfers
its interest in the property. In recent years, court decisions
and legislative actions placed substantial restrictions on the
right of lenders to enforce such clauses in many states. By
virtue, however, of the Garn St. Germain Depository Institutions
Act of 1982 (the "Garn Act") effective October 15, 1982 (which
purports to preempt state laws which prohibit the enforcement of
due-on-sale clauses by providing among other matters, that "due-
on-sale" clauses in certain loans made after the effective date
of the Garn Act are enforceable, within certain limitations as
set forth in the Garn Act and the regulations promulgated
thereunder) the Servicer or the Master Servicer may nevertheless
be able to accelerate many of the Mortgage Loans that contain a
"due-on-sale" provision upon transfer of an interest in the
property subject to the Mortgage Loans, regardless of the
Servicer's or the Master Servicer's ability to demonstrate that a
sale threatens its legitimate security interest.
Enforceability of Prepayment and Late Payment Fees
Forms of notes, mortgages and deeds of trust used by lenders
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 the 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 are typically retained by servicers as additional
servicing compensation.
Equitable Limitations on Remedies
In connection with lenders' attempts to realize upon their
security, courts have invoked general equitable principles. The
equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan
documents. Examples of judicial remedies that have been
fashioned include 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 that lenders reinstate loans or recast payment schedules
in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have
limited the right of a lender to realize upon his security if the
default under the security agreement is not monetary, such as the
borrower's failure to adequately maintain the property or the
borrower's execution of secondary financing affecting the
property. Finally, some courts have been faced with the issue of
whether or not federal or state constitutional provisions
reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition
to the statutorily-prescribed minimums. For the most part, these
cases have upheld the notice provisions as being reasonable or
have found that, in cases involving the sale by a trustee under a
deed of trust or by a mortgagee under a mortgage having a power
of sale, there is insufficient state action to afford
constitutional protections to the borrower.
The Mortgage Loans may include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary
default of the borrower, after the applicable cure period. The
courts of all states will enforce clauses providing for
acceleration in the event of a material payment default.
However, courts of any state, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or
unjust and the circumstances would render the acceleration
unconscionable.
Most conventional single-family mortgage loans may be
prepaid in full or in part without penalty. The regulations of
the Federal Home Loan Bank Board, as succeeded by the OTS,
prohibit the imposition of a prepayment penalty or equivalent fee
for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in
full has been tendered may be compelled to give either a release
of the mortgage or an instrument assigning the existing mortgage.
The absence of a restraint on prepayment, particularly with
respect to Mortgage Loans having higher mortgage rates, may
increase the likelihood of refinancing or other early retirements
of the Mortgage Loans.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, enacted in March 1980 ("Title V"),
provides that state usury limitations shall not apply to certain
types of residential [first] [second] mortgage loans originated
by certain lenders after March 31, 1980. The OTS, as successor
to the Federal Home Loan Bank Board, is authorized to issue rules
and regulations and to publish interpretations governing
implementation of Title V authorizes any state to reimpose
interest rate limits by adopting, before April 1, 1983, a state
law, or by certifying that the voters of such state have voted in
favor of any provision, constitutional or otherwise, which
expressly rejects an application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline.
In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount
points or other charges on mortgage loans covered by Title V. In
any state in which application of Title V has been expressly
rejected or a provision limiting discount points or other charges
is adopted, no Mortgage Loans originated after the date of such
state action will be eligible as Mortgage Assets if such Mortgage
Loans bear interest or provide for discount points or charges in
excess of permitted levels.
Adjustable Interest Rate Loans
ARMs originated by non-federally chartered lenders have
historically been subject to a variety of restrictions. Such
restrictions differed from state to state, resulting in
difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender
complied with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that,
notwithstanding any state law to the contrary, state chartered
banks may originate "alternative mortgage instruments" (including
ARMs) in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of
alternative mortgage instruments by national banks; state
chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the
National Credit Union Administration with respect to origination
of alternative mortgage instruments by federal credit unions and
all other nonfederally chartered housing creditors, including
state-chartered savings and loan associations; and statechartered
savings banks and mortgage banking companies may originate
alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, as
succeeded by the OTS, with respect to origination of alternative
mortgage instruments by federal savings and loan associations.
Title VIII provides that any state may reject applicability of
the provisions of Title VIII by adopting, prior to October 15,
1985, a law or constitutional provision expressly rejecting the
applicability of such provisions. Certain states have taken such
action.
Environmental Legislation
Real property pledged as security to a lender may be subject
to certain environmental risks. Under the laws of certain
states, contamination of a property may give to a lien on the
property to assure the costs of clean-up. In several states,
such a lien has priority over the lien of an existing mortgage
against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), a
lender may be liable, as an "owner" or "operator," for costs of
addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or
employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by a prior owner. A
lender also risks such liability on foreclosure of the Mortgaged
Property. Excluded from CERCLA's definition of "owner" or
"operator," however, is a person "who without participating in
the management of the facility, holds indicia of ownership
primarily to protect his security interest." On April 29, 1992,
the United States Environmental Protection Agency ("EPA") issued
a final rule intended to protect lenders from liability under
CERCLA. This rule was in response to a 1990 decision of the
United States Court of Appeals for the Eleventh Circuit, United
States v. Fleet Factors Corp., which narrowly construed the
security interest exemption under CERCLA to hold lenders liable
if they had the capacity to influence their borrower's management
of hazardous waste. While the scope of permissible activities in
which a lender may engage to protect its security interest is
still uncertain and the rule will not protect a lender against
liability under other laws or theories, EPA's rule provides
conditions under which a lender may demonstrate that it holds
indicia of ownership primarily to protect its security interest
and does not participate in the management of the facility. If a
lender is or becomes liable, it can bring an action for
contribution against the owner or operator who created the
environmental hazard, but that person or entity may be bankrupt
or otherwise judgment proof. Such clean-up costs may be
substantial. It is possible that such costs could become a
liability of the Trust Estate and occasion a loss to
Certificateholders in certain circumstances described above if
such remedial costs were incurred.
At the time the Loans were originated, it is possible that
no environmental assessment or a very limited environmental
assessment of the Mortgaged Properties was conducted.
Manufactured Home Loans
Security Interests in the Manufactured Homes. Law governing
perfection of a security interest in a Manufactured Home varies
from state to state. Security interests in Manufactured Homes
may be perfected either by notation of the secured party's lien
on the certificate of title or by delivery of the required
documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some nontitle states,
perfection pursuant to the provisions of the UCC is required.
The lender of a servicer may effect such notation or delivery of
the required documents and fees, and obtain possession of the
certificate of title, as appropriate under the laws of the state
in which any manufactured home securing a Manufactured Home Loan
is registered. In the event such notation or delivery is not
effected or the security interest is not filed in accordance with
the applicable law (for example, is filed under a motor vehicle
title statute rather than under the UCC, in a few states), a
first priority security interest in the Manufactured Home
securing a Manufactured Home Loan may not be obtained.
As Manufactured Homes have become larger and often have been
attached to their sites without any apparent intention to move
them, courts in many states have held that Manufactured Homes,
under certain circumstances, may become subject to real estate
title and recording laws. As a result, a security interest in a
Manufactured Home could be rendered subordinate to the interests
of other parties claiming an interest in the Manufactured Home
under applicable state real estate law. In order to perfect a
security interest in a Manufactured Home under real estate laws,
the holder of the security interest must file either a "fixture
filing" under the provisions or the UCC or a real estate mortgage
under the real estate laws of the state where the home is
located. These filings must be made in the real estate records
office of the county where the home is located. Manufactured
Home Loans typically contain provisions prohibiting the borrower
from permanently attaching the Manufactured Home to its site. So
long as the borrower does not violate this agreement, a security
interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If,
however, a Manufactured Home is permanently attached to its site,
other parties could obtain an interest in the manufactured home
which is prior to the security interest originally retained by
the lender or its assignee.
With respect to a Series of Certificates evidencing
interests in a Trust Fund that includes Manufactured Home Loans
and as described in the related Prospectus Supplement, the Master
Servicer may be required to perfect a security interest in the
Manufactured Home under applicable real estate laws. If such
real estate filings are not made and if any of the foregoing
events were to occur, the only recourse of the Certificateholders
would be against the Master Servicer pursuant to its repurchase
obligation for breach of warranties. A PMBS Agreement pursuant
to which Private Mortgage-Backed Securities backed by
Manufactured Home Loans are issued will have substantially
similar requirements for perfection of a security interest.
In general, upon an assignment of a Manufactured Home Loan,
the certificate of title relating to the Manufactured Home will
not be amended to identify the assignee as the new secured party.
In most states, an assignment is an effective conveyance of such
security interest without amendment of any lien noted on the
related certificate of title and the new secured party succeeds
to the assignor's rights as the secured party. However, in some
states there exists a risk that, in the absence of an amendment
to the certificate of title, such assignment of the security
interest might not be held effective against creditors of the
assignor.
Relocation of a Manufactured Home. In the event that the
owner of a Manufactured Home moves the home to a state other than
the state in which such Manufactured Home initially is
registered, under the laws of most states the perfected security
interest in the Manufactured Home would continue for four months
after such relocation and thereafter only if and after the owner
reregisters the Manufactured Home in such state. If the owner
were to relocate a Manufactured Home to another state and not
reregister the Manufactured Home in such state, and if steps are
not taken to reperfect the Trustee's security interest in such
state, the security interest in the Manufactured Home would cease
to be perfected. A majority of states generally require
surrender of a certificate of title to reregister a Manufactured
Home; accordingly, possession of the certificate of title to such
Manufactured Home must be surrendered or, in the case of
Manufactured Homes registered in states which provide for
notation of lien, the notice of surrender must be given to any
person whose security interest in the Manufactured Home is noted
on the certificate of title. Accordingly, the owner of the
Manufactured Home Loan would have the opportunity to reperfect
its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of
title for registration of a Manufactured Home, reregistration
could defeat perfection. In the ordinary course of servicing the
Manufactured Home Loans, the Master Servicer will be required to
take steps to effect reperfection upon receipt of notice of
reregistration or information from the borrower as to relocation.
Similarly, when a borrower under a Manufactured Home Loan sells
the related Manufactured Home, the Trustee must surrender
possession of the certificate of title or the Trustee will
receive notice as a result of its lien noted thereon and
accordingly will be an opportunity to require satisfaction of the
related Manufactured
Home Loan Before Release of the Lien. Under the Pooling and
Servicing Agreement, the Master Servicer is obligated to take
such steps, at the Master Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured
Homes. PMBS Agreements pursuant to which Private Mortgage-Backed
Securities backed by Manufactured Home Loans are issued will
impose substantially similar requirements.
Intervening Liens. Under the laws of most states, liens for
repairs performed on a Manufactured Home take priority even over
a perfected security interest. The Master Servicer or the
originator of such Loans will represent that it has no knowledge
of any such liens with respect to any Manufactured Home securing
payment on any Manufactured Home Loan. However, such liens could
arise at any time during the term of a Manufactured Home Loan.
No notice will be given to the Trustee or Certificateholders in
the event such a lien arises. PMBS Agreements pursuant to which
Private Mortgage-Backed Securities backed by Manufactured Home
Loans are issued will contain substantially similar requirements.
Enforcement of Security Interests in Manufactured Homes. So
long as the Manufactured Home has not become subject to the real
estate law, a creditor can repossess a Manufactured Home securing
a Manufactured Home Loan by voluntary surrender, by "self-help"
repossession that is "peaceful" (i.e., without breach of the
peace) or in the absence of voluntary surrender and the ability
to repossess without breach of the peace, by judicial process.
The holder of a Manufactured Home Loan must give the debtor a
number of days notice, which varies from 10 to 30 days depending
on the state, prior to commencement of any repossession. The UCC
and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the debtor be given
notice of any sale prior to resale of the unit so that the debtor
may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the holder of a
Manufactured Home Loan would be entitled to be paid out of the
sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders or
subsequently perfected interests or, thereafter, to the borrower.
Under the laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a borrower for any
deficiency on repossession and resale of the Manufactured Home
securing such borrower's loan. However, some states impose
prohibitions or limitations on deficiency judgments. See "Anti-
deficiency Legislation and Other Limitations on Lenders" above.
Certain other statutory provisions, including federal and
state bankruptcy and insolvency laws and general equitable
principles, may limit or delay the ability of a lender to
repossess and resell collateral or enforce a deficiency judgment.
See "Federal Bankruptcy and Other Laws Affecting Creditors'
Rights" and "Equitable Limitations on Remedies" above.
Consumer Protection Laws. The so-called "Holder-In-Due-
Course" rule of the Federal Trade Commission is intended to
defeat the ability of the transferor of a consumer credit
contract who is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to
transfer such contract free of notice of claims by the borrower
thereunder. The effect of this rule is to subject the assignee
of such a contract to all claims and defenses which the borrower
could assert against the seller of goods. Liability under this
rule is limited to amounts paid under a Manufactured Home Loan;
however, the borrower also may be able to assert the rule to set
off remaining amounts due as a defense against a claim brought
against such borrower. Numerous other federal and state consumer
protection laws impose requirements applicable to the origination
and lending pursuant to the Manufactured Home Loan, including the
Truth-in-Lending Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act
and the Uniform Consumer Credit Code. In the case of some of
these laws, the failure to comply with their provisions may
affect the enforceability of the related Manufactured Home Loan.
Transfers of Manufactured Homes; Enforceability of "Due-on-
Sale" Clauses. Loans and installment sale contracts relating to
a Manufactured Home Loan typically prohibit the sale or transfer
of the related Manufactured Homes without the consent of the
lender and permit the acceleration of the maturity of the
Manufactured Home Loans by the lender upon any such sale or
transfer for which no such consent is granted.
In the case of a transfer of a Manufactured Home, the
lender's ability to accelerate the maturity of the related
Manufactured Home Loan will depend on the enforceability under
state law of the "due-on-sale" clause. The Garn-St Germain
Depository Institutions Act of 1982 preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of
"due-on-sale" clauses applicable to the Manufactured Homes. See
"Due-on-Sale Clauses in Mortgage Loans" above. With respect to
any Manufactured Home Loan secured by a Manufactured Home
occupied by the borrower, the ability to accelerate will not
apply to those types of transfers discussed in "Due-on-Sale
Clauses in Mortgage Loans" above. FHA Loans and VA Loans are not
permitted to contain "due-on-sale" clauses, and so are freely
assumable.
Applicability of Usury Laws. Title V provides that, subject
to the following conditions, state usury limitations shall not
apply to any loan which is secured by a [first] [second] lien on
certain kinds of Manufactured Homes. The Manufactured Home Loans
would be covered if they satisfy certain conditions, among other
things, governing the terms of any prepayments, late charges and
deferral fees and requiring a 30-day notice period prior to
instituting any action leading to repossession of or foreclosure
with respect to the related unit. See "Applicability of Usury
Laws" above.
Soldiers' and Sailors' Civil Relief Act. Generally, under
the terms of the Relief Act, a borrower who enters military
service after the origination of such borrower's Manufactured
Home Loan (including a borrower who is a member of the National
Guard or is in reserve status at the time of the origination of
the Manufactured Home Loan and is later called to active duty)
may not be charged interest above an annual rate of 6% during the
period of such borrower's active duty status, unless a court
orders otherwise upon application of the lender. It is possible
that such interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the Trust Fund to
collect full amounts of interest on certain of the Manufactured
Home Loans. Any shortfall in interest collections resulting from
the application of the Relief Act could result in losses to the
holders of the Certificates, In addition, the Relief Act imposes
limitations which would impair the ability of the Trust Fund to
enforce the lien with respect to an affected Manufactured Home
Loan during the borrower's period of active duty status. Thus,
in the event that such a Manufactured Home Loan goes into
default, there may be delays and losses occasioned by the
inability to enforce the lien with respect to the Manufactured
Home in a timely fashion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the anticipated
material federal income tax consequences of the purchase,
ownership and disposition of the Certificates offered hereunder.
This discussion is directed solely to those persons who are the
original holders of the Certificate and who hold the Certificates
as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986 (the "Code") and does not purport
to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which
(such as banks, insurance companies, tax-exempt organizations and
foreign investors) may be subject to special rules. Further, the
authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing
interpretations, which could apply retroactively. Taxpayers
should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where
the anticipated tax treatment has been discussed herein. In
addition to the federal income tax consequences described herein,
potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition
of the Certificates. See "State and Other Tax Consequences."
Certificateholders are advised to consult their own tax advisors
concerning the federal, state, local or other tax consequences to
them of the purchase, ownership and disposition of the
Certificates offered hereunder.
The Federal income tax consequences of an investment in a
Certificate of a Series or a Class thereof will vary depending on
the characteristics of such Certificate. The following
discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a
Trust Fund, or a portion thereof, which the Trustee will covenant
to elect to have treated as a real estate mortgage investment
conduit ("REMIC") under Sections 860A through 860G (the "REMIC
Provisions") of the Code and (ii) certificates ("Grantor Trust
Certificates") representing certain interests in a Trust Fund
("Grantor Trust Fund") which the Master Servicer or the Trustee
will covenant not to elect to have treated as a REMIC. The
Prospectus Supplement for each series of Certificates will
indicate whether a REMIC election (or elections) will be made for
the related Trust Fund and, if such an election is to be made,
will identify all "regular interests" and the "residual
interests" in the REMIC. For purposes of this tax discussion,
references to a "Certificateholder" or a "holder" are to the
beneficial owner of a Certificate.
The following discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history,
existing and proposed regulations thereunder, rulings and court
decisions, all as in effect and existing on the date hereof and
all of which are subject to change at any time, possibly on a
retroactive basis. The following discussion is based in part
upon the rules governing original issue discount that are set
forth in Sections 1271-1273 and 1275 of the Code and in the
Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID
Regulations do not adequately address certain issues relevant to,
and in some instances provide that they are not applicable to,
securities such as the Certificates.
REMICs
Classification of REMICs
Upon the issuance of each series of REMIC Certificates,
Counsel to the Depositor will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement, the related Trust Fund
(or each applicable portion thereof) will qualify as a REMIC and
the REMIC Certificates offered with respect thereto will be
considered to evidence ownership of "regular interests" ("REMIC
Regular Certificates") or "residual interests" ("REMIC Residual
Certificates") in that REMIC within the meaning of the REMIC
Provisions.
If an entity electing to be treated as a REMIC fails to
comply with one or more of the ongoing requirements of the Code
for such status during any taxable year, the Code provides that
the entity will not be treated as a REMIC for such year or
thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC
Certificates may not be accorded the status or given the tax
treatment described below. Although the Code authorizes the
Treasury Department to issue regulations providing relief in the
event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the Trust Fund's income for the period
in which the requirements for such status are not satisfied. The
Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status
as a REMIC under the REMIC Provisions. It is not anticipated
that the status of any Trust Fund as a REMIC will be terminated.
The following discussion assumes that all requirements for REMIC
qualification will be satisfied by the Trust Fund while there are
any Regular Certificates outstanding.
Qualification as a REMIC
In order for the Trust Fund to qualify as a REMIC, there
must be ongoing compliance on the part of the Trust Fund with the
requirements set forth in the Code. The Trust Fund must fulfill
an asset test, which requires that no more than a de minimis
amount of the assets of the Trust Fund, as of the close of the
third calendar month beginning after the "Startup Day" (which for
purposes of this discussion is the date of issuance of the
Certificates) and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments."
The REMIC Regulations provide a "safe harbor" pursuant to which
the de minimis requirement is met at any time when the aggregate
adjusted basis of the nonqualified assets is less than 1% of the
aggregate adjusted basis of all the Trust Fund's assets. An
entity that fails to meet the safe harbor may nevertheless
demonstrate that it holds no more than a de minimis amount of
nonqualified assets. The Trust Fund must also adopt reasonable
arrangements designed to ensure that "disqualified organizations"
do not hold residual interests and that tax information is
furnished if this restriction is violated.
A qualified mortgage is any obligation (including any
participation or certificate of beneficial ownership therein)
that is principally secured by an interest in real property and,
generally, that is (i) transferred to the Trust Fund on the
Startup Day, (ii) purchased by the Trust Fund within a three-
month period thereafter pursuant to a fixed price contract in
effect on the Startup Day or (iii) received by the REMIC within
such three-month period in replacement for an obligation
transferred to the REMIC on the Startup Day. Qualified mortgages
will also include a regular interest in another REMIC if the
interest is transferred to the Trust Fund on the start-up day in
exchange for regular or residual interests in the Trust Fund. An
obligation is "principally secured by an interest in real
property" if (i) the fair market value of the real property
security is at least 80% of the related Mortgage Loan either at
origination or as of the Startup Day (an original loan-to-value
ratio of not more than 125% with respect to the real property
security) or (ii) substantially all the proceeds of the Mortgage
Loan were used to acquire, improve or protect an interest in real
property that, at the origination date, was the only security for
the Mortgage Loan. In rendering its opinion with respect to
classification of the Trust Fund as a REMIC, Mayer, Brown & Platt
is relying on certain representations in the Agreement and other
documents regarding qualification of the Mortgage Loans as
"qualified mortgages."
Permitted investments include cash flow investments,
qualified reserve assets and foreclosure property. A cash flow
investment is generally an investment of amounts received on or
with respect to qualified mortgages for a temporary period, not
exceeding thirteen months, which investment must earn a return in
the nature of interest. A qualified reserve asset is any
intangible property held for investment that is part of any
reserve reasonably required to be maintained to provide for
payments of expenses or to provide security for payments due on
regular or residual interests that otherwise may be delayed or
defaulted upon because of default (including delinquencies) on
the qualified mortgages or lower than expected reinvestment
returns. Foreclosure property is real property acquired in
connection with the default or imminent default of a qualified
mortgage and generally held for not more than two years, plus
extensions permitted by the Code.
In addition to the foregoing requirements, the various
interests in the Trust Fund also must meet certain requirements.
A REMIC meets the interests test if all of the interests in the
REMIC are either regular interests or residual interests, and
there is one (and only one) class of residual interests (and all
distributions with respect to the residual interests are made pro
rata). A regular interest is an interest in a REMIC that is
issued on the Startup Day with fixed terms, is designated as a
regular interest, unconditionally entitles the holder to receive
a specified principal amount (or other similar amount), and
provides that interest payments (or other similar amounts), if
any, at or before maturity either are payable based on a fixed
rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified
mortgages. A residual interest is an interest in a REMIC other
than a regular interest that is issued on the Startup Day and
that is designated as a residual interest. The REMIC Regulations
provide that an interest in a REMIC may be treated as a regular
interest even if payments with respect to such interest are
subordinated to payments on other interests in the REMIC, and are
dependent on the absence of defaults or delinquencies on
qualified mortgages or permitted investments, lower than
reasonably expected returns on permitted investments, or expenses
incurred by the REMIC. A residual interest is an interest in a
REMIC other than a regular interest that is issued on the Startup
Day and that is designated as a residual interest. The Trust
Fund must also adopt reasonable arrangements designed to ensure
that "disqualified organizations" do not hold residual interests
and that tax information is furnished if this restriction is
violated.
Characterization of Investments in REMIC Certificates
In general, the REMIC Certificates will be "qualifying real
property loans" within the meaning of Section 593(d) of the Code,
"real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code and assets described in Section 7701(a)(19)(C) of the
Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if
95% or more of the assets of the REMIC qualify for any of the
foregoing treatments at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in
their entirety for that calendar year. Interest (including
original issue discount) on the REMIC Regular Certificates and
income allocated to the class of REMIC Residual Certificates will
be interest described in Section 856(c)(3)(B) of the Code to the
extent that such Certificates are treated as "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code. In
addition, the REMIC Regular Certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3) of the Code
if transferred to another REMIC on its startup day in exchange
for a regular or residual interest therein. The determination as
to the percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Code will be made with
respect to each calendar quarter based on the average adjusted
basis of each category of the assets held by the REMIC during
such calendar quarter. The REMIC will report those
determinations to Certificateholders in the manner and at the
times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to
Mortgage Loans, payments on Mortgage Loans held pending
distribution on the REMIC Certificates and may include property
acquired by foreclosure held pending sale, and amounts in reserve
accounts. It is unclear whether property acquired by foreclosure
held pending sale, or amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such
assets (to the extent not invested in assets described in the
foregoing sections) otherwise would receive the same treatment as
the Mortgage Loans for purposes of all the foregoing sections.
In addition, in some instances Mortgage Loans may not be treated
entirely as assets described in the foregoing sections. If so,
the related Prospectus Supplement will describe the Mortgage
Loans that may not be so treated. The REMIC Regulations do
provide, however, that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for
purposes of Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or more
separate elections may be made to treat designated portions of
the related Trust Fund as REMICs ("Tiered REMICs") for federal
income tax purposes. Upon the issuance of any such series of
REMIC Certificates, Counsel to the Depositor will deliver its
opinion generally to the effect that, assuming compliance with
all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs will be considered to
evidence ownership of REMIC regular interests or REMIC residual
interests in the related REMIC within the meaning of the REMIC
Provisions.
Solely for purposes of determining whether the REMIC
Certificates will be "qualifying real property loans" under
Section 593(d) of the Code, "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code, and "loans secured
by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest
described in Section 856(c)(3)(B) of the Code, the Tiered REMICs
will be treated as one REMIC.
Taxation of Owners of REMIC Regular Certificates
General
Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as
debt instruments issued by the REMIC and not as ownership
interests in the REMIC or its assets. Moreover, holders of REMIC
Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount
Certain REMIC Regular Certificates may be issued with
"original issue discount" within the meaning of Section 1273(a)
of the Code. Any holders of REMIC Regular Certificates issued
with original issue discount generally will be required to
include original issue discount in income as it accrues, in
accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable
to REMIC Regular Certificates and certain other debt instruments
issued with original issue discount. Regulations have not been
issued under that section.
The Code requires that a prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the
accrual of original issue discount on REMIC Regular Certificates
issued by that REMIC, and that adjustments be made in the amount
and rate of accrual of such discount to reflect differences
between the actual prepayment rate and the prepayment assumption.
The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those
regulations have not been issued. The Conference Committee
Report (the "Committee Report") accompanying the Tax Reform Act
of 1986 indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular
Certificate must be the same as that used in pricing the initial
offering of such REMIC Regular Certificate. The prepayment
assumption (the "Prepayment Assumption") used in reporting
original issue discount for each series will be consistent with
this standard and will be disclosed in the related Prospectus
Supplement. However, neither the Depositor, any Master Servicer
nor the Trustee will make any representation that the Mortgage
Loans will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular
Certificate will be the excess of its stated redemption price
over its issue price. In general, unless otherwise disclosed in
the applicable Prospectus Supplement, the issue price of a
particular class of REMIC Regular Certificates issued hereunder
will be the first cash price at which a substantial amount of
REMIC Regular Certificates of that class is sold (excluding sales
to bond houses, brokers and underwriters). Under the OID
Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on
such Certificate other than "qualified stated interest."
"Qualified stated interest" generally includes, among other
rates, interest that is unconditionally payable at least annually
at a single fixed rate, at a "qualified floating rate," or a
combination of a single fixed rate and one or more "qualified
floating rates."
In the case of REMIC Regular Certificates bearing adjustable
interest rates, the determination of the total amount of original
issue discount and the timing of the inclusion thereof will vary
according to the characteristics of such REMIC Regular
Certificates. If the original issue discount rules apply to such
Certificates, the related Prospectus Supplement will describe the
manner in which such rules will be applied with respect to those
Certificates in preparing information returns to the
Certificateholders and the Internal Revenue Service (the "IRS").
Certain classes of the REMIC Regular Certificates may
provide for the first interest payment with respect to such
Certificates to be made more than one month after the date of
issuance, a period which is longer than the subsequent monthly
intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each
monthly period that ends on a Distribution Date, in some cases,
as a consequence of this "long first accrual period," all
interest payments may be required to be included in the stated
redemption price of the REMIC Regular Certificate and accounted
for as original discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual
method, applying this analysis would result in only a slight
difference in the timing of the inclusion in income of the yield
on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that
begins prior to the Closing Date, a portion of the purchase price
paid for a REMIC Regular Certificate will reflect such accrued
interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued
with respect to periods prior to the Closing Date is treated as
part of the overall cost of such REMIC Regular Certificate (and
not as a separate asset the cost of which is recovered entirely
out of interest received on the next Distribution Date) and that
the portion of the interest paid on the first Distribution Date
in excess of interest accrued for a number of days corresponding
to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption
price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued
interest may be treated as a separate asset the cost of which is
recovered entirely out of interest paid on the first Distribution
Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue
discount, original issue discount on a REMIC Regular Certificate
will be considered to be de minimis if it is less than 0.25% of
the stated redemption price of the REMIC Regular Certificate
multiplied by its weighted average life. For this purpose, the
weighted average life of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment
included in the stated redemption price of such REMIC Regular
Certificate, by multiplying (i) the number of complete years
(rounding down for partial years) from the issue date until such
payment is expected to be made (presumably taking into account
the Prepayment Assumption) by (ii) a fraction, the numerator of
which is the amount of payment, and the denominator of which is
the stated redemption price at maturity of such REMIC Regular
Certificate. Under the OID Regulations, original issue discount
of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each
payment of stated principal is made, based on the product of the
total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of such principal
payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID
Regulations also would permit a Certificateholder to elect to
accrue de minimis original issue discount into income currently
based on a constant yield method. See "-Taxation of Owners of
REMIC Regular Certificates-Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is
in excess of a de minimis amount, the holder of such Certificate
must include in ordinary gross income the sum of the "daily
portions" of original issue discount for each day during its
taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date.
In the case of an original holder of a REMIC Regular Certificate,
the daily portions of original issue discount will be determined
as follows.
As to each "accrual period," that is, each period that ends
on a date that corresponds to a Distribution Date and begins on
the first day following the immediately preceding accrual period
(or in the case of the first such period, begins on the Closing
Date), a calculation will be made of the portion of the original
issue discount that accrued during such accrual period. The
portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the
present value, as of the end of the accrual period, of all of the
distributions remaining to be made on the REMIC Regular
Certificate, if any, in future periods and (B) the distributions
made on such REMIC Regular Certificate during the accrual period
of amounts included in the stated redemption price, over (ii) the
adjusted issue price of such REMIC Regular Certificate at the
beginning of the accrual period. The present value of the
remaining distributions referred to in the preceding sentence
will be calculated (i) assuming that distributions on the REMIC
Regular Certificate will be received in future periods based on
the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these
purposes, the original yield to maturity of the Certificate will
be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal
to the Prepayment Assumption. The adjusted issue price of a
REMIC Regular Certificate at the beginning of any accrual period
will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with
respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in the
stated redemption price. The original issue discount accruing
during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to
determine the daily portion of original issue discount for such
day.
A subsequent purchaser of a REMIC Regular Certificate that
purchases such Certificate at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) less
than its remaining stated redemption price will also be required
to include in gross income the daily portions of any original
issue discount with respect to such Certificate. However, each
such daily portion will be reduced, if such cost is in excess of
the REMIC Regular Certificate's "adjusted issue price," in
proportion to the ratio such excess bears to the aggregate
original issue discount remaining to be accrued on such REMIC
Regular Certificate. The adjusted issue price of a REMIC Regular
Certificate on any given day equals the sum of (i) the adjusted
issue price (or, in the case of the first accrual period, the
issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of
original issue discount for all days during such accrual period
prior to such day.
Market Discount
A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC
Regular Certificate issued without original issue discount, at a
purchase price less than its remaining stated principal amount,
or in the case of a REMIC Regular Certificate issued with
original issue discount, at a purchase price less than its
adjusted issue price will recognize gain upon receipt of each
distribution representing stated redemption price. In
particular, under Section 1276 of the Code such a
Certificateholder generally will be required to allocate the
portion of each such distribution representing stated redemption
price first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A
Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred
basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable
year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant
yield method. If such an election were made with respect to a
REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all
other debt instruments having market discount that such
Certificateholder acquires during the taxable year of the
election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this
election for a Certificate that is acquired at a premium would be
deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "Taxation of
Owners of REMIC Regular Certificates-Premium." Each of these
elections to accrue interest, discount and premium with respect
to a Certificate on a constant yield method or as interest would
be irrevocable. Investors should consult their own tax advisors
regarding the application of the market discount rules and the
advisability of making any of the elections provided by the Code
relating to the timing of recognition of market discount.
However, market discount with respect to a REMIC Regular
Certificate will be considered to be de minimis for purposes of
Section 1276 of the Code if such market discount is less than
0.25% of the remaining stated redemption price of such REMIC
Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In
interpreting a similar rule with respect to original issue
discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied
with respect to market discount, presumably taking into account
the Prepayment Assumption. If market discount is treated as de
minimis under this rule, it appears that the actual discount
would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount." Such treatment would
result in discount being included in income at a slower rate than
discount would be required to be included in income using the
method described above.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal
of which is payable in more than one installment. Until
regulations are issued by the Treasury Department certain rules
described in the Committee Report will apply. The Committee
Report indicates that in each accrual period market discount on
REMIC Regular Certificates should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued
without original issue discount, in an amount that bears the same
ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total amount of
stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or (iii)
in the case of a REMIC Regular Certificate issued with original
issue discount, in an amount that bears the same ratio to the
total remaining market discount as the original issue discount
accrued in the accrual period bears to the total original issue
discount remaining on the REMIC Regular Certificate at the
beginning of the accrual period. Moreover, the Prepayment
Assumption used in calculating the accrual of original issue
discount is also used in calculating the accrual of market
discount. Because the regulations referred to in this paragraph
have not been issued, it is not possible to predict what effect
such regulations might have on the tax treatment of a REMIC
Regular Certificate purchased at a discount in the secondary
market.
To the extent that REMIC Regular Certificates provide for
monthly or other periodic distributions throughout their term,
the effect of these rules may be to require market discount to be
includible in income at a rate that is not significantly slower
than the rate at which such discount would accrue if it were
original issue discount. Moreover, in any event a holder of a
REMIC Regular Certificate generally will be required to treat a
portion of any gain on the sale or exchange of such Certificate
as ordinary income to the extent of the market discount accrued
to the date of disposition under one of the foregoing methods,
less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC
Regular Certificate may be required to defer a portion of its
interest deductions for the taxable year attributable to any
indebtedness incurred or continued to purchase or carry such
Regular Certificate. For these purposes, the de minimis rule
referred to above applies. Any such deferred interest expense
would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in
income. If such holder elects to include market discount in
income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium
A REMIC Regular Certificate purchased at a cost (excluding
any portion of such cost attributable to accrued qualified stated
interest) greater than its remaining stated redemption price will
be considered to be purchased at a premium. The holder of such a
REMIC Regular Certificate may elect under Section 171 of the Code
to amortize such premium under the constant yield method over the
life of the Certificate. If made, such an election will apply to
all debt instruments having amortizable bond premium that the
holder owns or subsequently acquires. Amortizable premium will
be treated as an offset to interest income on the related debt
instrument rather than as a separate interest deduction. The OID
Regulations also permit Certificateholders to elect to account
for all interest, discount and premium based on a constant yield
method, further treating the Certificateholder as having made the
election to amortize premium generally. See "Taxation of Owners
of REMIC Regular Certificates-Market Discount." The Committee
Report states that the same rules that apply to accrual of market
discount (which rules will require use of a prepayment assumption
in accruing market discount with respect to REMIC Regular
Certificates without regard to whether such Certificates have
original issue discount) will also apply in amortizing bond
premium under Section 171 of the Code.
Effects of Defaults and Delinquencies
Each holder of a REMIC Regular Certificate will be required
to accrue interest and original issue discount with respect to
such Certificates, without giving effect to any reductions in
distributions attributable to defaults or delinquencies on the
Mortgage Loans until it can be established that any such
reduction ultimately will not be recoverable. As a result, the
amount of taxable income reported in any period by the holder of
a REMIC Regular Certificate could exceed the amount of economic
income actually realized by the holder in such period. Although
the holder of a REMIC Regular Certificate eventually will
recognize a loss or reduction in income attributable to
previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or
reduction in income.
Taxation of Owners of REMIC Residual Certificates
General
As residual interests, the REMIC Residual Certificates will
be subject to tax rules that differ significantly from those that
would apply if the REMIC Residual Certificates were treated for
federal income tax purposes as direct ownership interests in the
Mortgage Loans or as debt instruments issued by the REMIC.
Any payments received by a holder of a REMIC Residual
Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining
the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be
includible in income immediately upon its receipt, the IRS might
assert that such payment should be included in income over time
according to an amortization schedule or according to some other
method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will
be required to report (or the tax liability associated with such
income) may exceed the amount of cash distributions received from
the REMIC for the corresponding period. Consequently, REMIC
Residual Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated
deductions against which income may be offset, subject to the
rules relating to "excess inclusions," residual interests without
"significant value" and "noneconomic" residual interests
discussed below. The fact that the tax liability associated with
the income allocated to REMIC Residual Certificateholders may
exceed the cash distributions received by such REMIC Residual
Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders' after-
tax rate of return.
Taxable Income of the REMIC
In general, the taxable income of the REMIC will be
determined in the same manner as if the REMIC were an individual
using the accrual method of accounting, with certain adjustments.
Thus, the taxable income of the REMIC will generally reflect a
netting of (i) the income from the Mortgage Loans and other
assets of the REMIC and (ii) the deductions allowed to the REMIC
for interest (including original issue discount) on the REMIC
Regular Certificates (and any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the Mortgage Loans, bad
debt losses with respect to the Mortgage Loans and, except as
described below, servicing, administrative and other expenses.
The limitation on miscellaneous itemized deductions imposed on
individuals by Code Section 67 will not be applied at the REMIC
level to such expenses. See "Possible Passthrough of
Miscellaneous Itemized Deductions" below.
For purposes of determining its taxable income, the REMIC
will have an initial aggregate basis in its assets equal to the
sum of the issue prices of all REMIC Certificates (or, if a class
of REMIC Certificates is not sold initially, their fair market
values). Such aggregate basis will be allocated among the
Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any
REMIC Certificates offered hereby will be determined in the
manner described above under "-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount." The issue price
of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market
value of such interests in the Mortgage Loans or other property.
Accordingly, if one or more classes of REMIC Certificates are
retained initially rather than sold, the Trustee may be required
to estimate the fair market value of such interests in order to
determine the basis of the REMIC in the Mortgage Loans and other
property held by the REMIC.
Subject to possible application of the de minimis rules, the
method of accrual by the REMIC of original issue discount income
and market discount income with respect to Mortgage Loans that it
holds will be equivalent to the method for accruing original
issue discount income for holders of REMIC Regular Certificates
(that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at
a market discount must include such market discount in income
currently as it accrues, on a constant yield basis. See "-
Taxation of Owners of REMIC Regular Certificates" above, which
describes a method for accruing such discount income that is
analogous to that required to be used by a REMIC as to Mortgage
Loans with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with
discount (or premium) to the extent that the REMIC's basis
therein, determined as described above, is less than (or greater
than) its stated redemption price. Any such discount will be
includible in the income of the REMIC as it accrues, in advance
of the cash attributable to such income, under a method similar
to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated
that the REMIC will elect under Section 171 of the Code to
amortize any premium on the Mortgage Loans. Premium on any
Mortgage Loan to which such election applies may be amortized
under a constant yield method, presumably taking into account the
Prepayment Assumption. Further, such an election would not apply
to any Mortgage Loan originated on or before September 27, 1985.
Instead, premium on such a Mortgage Loan should be allocated
among the principal payments thereon and be deductible by the
REMIC as those payments become due or upon the prepayment of such
Mortgage Loan.
A REMIC will be allowed deductions for interest (including
original issue discount) on the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) equal to the
deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered hereby)
were indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under "-
Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount," except that the de minimis rule and the adjustments
for subsequent holders of REMIC Regular Certificates (including
any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) described therein
will not apply.
If a class of REMIC Regular Certificates is issued at a
price in excess of the stated redemption price of such class
(such excess "Issue Premium"), the net amount of interest
deductions that are allowed the REMIC in each taxable year with
respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium
that is considered to be amortized or repaid in that year.
Although the matter is not entirely certain, it is likely that
Issue Premium would be amortized under a constant yield method in
a manner analogous to the method of accruing original issue
discount described above under "-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount."
As a general rule, the taxable income of a REMIC will be
determined in the same manner as if the REMIC were an individual
having the calendar year as its taxable year and using the
accrual method of accounting. However, no item of income, gain,
loss or deduction allocable to a prohibited transaction will be
taken into account. See "-Prohibited Transactions and Other
Possible REMIC Taxes" below. Further, the limitation on
miscellaneous itemized deductions imposed on individuals by
Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so
that the REMIC will be allowed deductions for servicing,
administrative and other non-interest expenses in determining its
taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to
the limitation of Section 67 of the Code. See "-Possible Pass-
Through of Miscellaneous Itemized Deductions." If the deductions
allowed to the REMIC exceed its gross income for a calendar
quarter, such excess will be the net loss for the REMIC for that
calendar quarter.
Basis Rules, Net Losses and Distributions
The adjusted basis of a REMIC Residual Certificate will be
equal to the amount paid for such Certificate, increased by
amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by
distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder may not take into account
any net loss for any calendar quarter to the extent such net loss
exceeds such REMIC Residual Certificateholder's adjusted basis in
its REMIC Residual Certificate as of the close of such calendar
quarter (determined without regard to such net loss). Any loss
that is not currently deductible by reason of this limitation may
be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income
from the REMIC Residual Certificate. The ability of REMIC
Residual Certificateholders to deduct net losses may be subject
to additional limitations under the Code, as to which REMIC
Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be
treated as a non-taxable return of capital to the extent it does
not exceed the holder's adjusted basis in such Certificate. To
the extent a distribution on a REMIC Residual Certificate exceeds
such adjusted basis, it will be treated as gain from the sale of
such Certificate. Holders of certain REMIC Residual Certificates
may be entitled to distributions early in the term of the related
REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such
distributions will be treated as nontaxable returns of capital.
Their bases in such REMIC Residual Certificates will initially
equal the amount paid for such REMIC Residual Certificates and
will be increased by their allocable shares of the taxable income
of the REMIC. However, such basis increases may not occur until
the end of the calendar quarter, or perhaps the end of the
calendar year, with respect to which such REMIC taxable income is
allocated to the REMIC Residual Certificateholders. To the
extent such REMIC Residual Certificateholders' initial bases are
less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either
occur after such distributions or (together with their initial
bases) are less than the amount of such distributions, gain will
be recognized to such REMIC Residual Certificateholders on such
distributions and will be treated as gain from the sale of their
REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual
Certificateholder 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 or upon the sale of its REMIC Residual Certificate. See "-
Sales of REMIC Certificates," below. For a discussion of
possible modifications of these rules that may require
adjustments to income of a holder of a REMIC Residual Certificate
other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC
Residual Certificateholder and the adjusted basis such REMIC
Residual Certificate would have had in the hands of an original
holder, see "-Taxation of Owners of REMIC Residual Certificates-
General."
Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual
Certificate will, with an exception discussed below for certain
REMIC Residual Certificates held by thrift institutions, be
subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC
Residual Certificate for any calendar quarter will be the excess,
if any, of (i) the daily portions of REMIC taxable income
allocable to such REMIC Residual Certificate over (ii) the sum of
the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by the
REMIC Residual Certificateholder. The daily accruals of a REMIC
Residual Certificateholder will be determined by allocating to
each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For
this purpose, the adjusted issue price of a REMIC Residual
Certificate as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with
respect to such REMIC Residual Certificate before the beginning
of such quarter. The issue price of a REMIC Residual Certificate
is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is
an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published
monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion
(i) will not be permitted to be offset by deductions, losses or
loss carryovers from other activities, (ii) will be treated as
"unrelated business taxable income" to an otherwise tax-exempt
organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with
respect to the 30% United States withholding tax imposed on
distributions to REMIC Residual Certificateholders that are
foreign investors. See, however, "-Foreign Investors in REMIC
Certificates," below.
As an exception to the general rules described above, thrift
institutions are allowed to offset their excess inclusions with
unrelated deductions, losses or loss carryovers, but only if the
REMIC Residual Certificates are considered to have "significant
value." The REMIC Regulations provide that in order to be
treated as having significant value, the REMIC Residual
Certificates must have an aggregate issue price at least equal to
two percent of the aggregate issue prices of all of the related
REMIC's Regular and Residual Certificates. In addition, based on
the Prepayment Assumption, the anticipated weighted average life
of the REMIC Residual Certificates must equal or exceed 20
percent of the anticipated weighted average life of the REMIC,
based on the Prepayment Assumption and on any required or
permitted clean up calls or required qualified liquidation
provided for in the REMIC's organizational documents. Although
it has not done so, the Treasury also has authority to issue
regulations that would treat the entire amount of income accruing
on a REMIC Residual Certificate as an excess inclusion if the
REMIC Residual Certificates are considered not to have
"significant value." The related Prospectus Supplement will
disclose whether offered REMIC Residual Certificates may be
considered to have "significant value" under the REMIC
Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will have "significant value" will be based
upon certain assumptions, and the Depositor will make no
representation that a REMIC Residual Certificate will have
"significant value" for purposes of the above-described rules.
The above described exception for thrift institutions applies
only to those residual interests held directly by, and
deductions, losses and loss carryovers incurred by, such
institutions (and not by other members of an affiliated group of
corporations filing a consolidated income tax return) or by
certain wholly owned direct subsidiaries of such institutions
formed or operated exclusively in connection with the
organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held by a
real estate investment trust, the aggregate excess inclusions
with respect to such Certificates, reduced (but not below zero)
by the real estate investment trust taxable income (within the
meaning of Section 857(b)(2) of the Code, excluding any net
capital gain), will be allocated among the shareholders of such
trust in proportion to the dividends received by such
shareholders from such trust, and any amount so allocated will be
treated as an excess inclusion with respect to a REMIC Residual
Certificate as if held directly by such shareholder. The Code
provides that similar rules will apply to regulated investment
companies, common trust funds and certain cooperatives.
Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, a transfer of a "noneconomic"
REMIC Residual Certificate will be disregarded for all federal
income tax purposes if "a significant purpose of the transfer was
to enable the transferor to impede the assessment or collection
of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual
Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment
Assumption and on any required or permitted clean up calls or
required qualified liquidation provided for in the REMIC's
organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal
rate" for obligations whose term ends on the close of the last
quarter in which excess inclusions are expected to accrue with
respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) on the REMIC Residual
Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor
reasonably expects that the transferee will receive distributions
with respect to the REMIC Residual Certificate at or after the
time the taxes accrue on the anticipated excess inclusions in an
amount sufficient to satisfy the accrued taxes. Accordingly, all
transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing
Agreement that are intended to reduce the possibility of any such
transfer being disregarded. Such restrictions will require each
party to a transfer to provide an affidavit that no purpose of
such transfer is to impede the assessment or collection of tax,
including certain representations as to the financial condition
of the prospective transferee, as to which the transferor will
also be required to make a reasonable investigation to determine
such transferee's historic payments of its debts and ability to
continue to pay its debts as they come due in the future. Prior
to purchasing a REMIC Residual Certificate, prospective
purchasers should consider the possibility that a purported
transfer of such REMIC Residual Certificate by such a purchaser
to another purchaser at some future date might be disregarded in
accordance with the above-described rules, which would result in
the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered
"noneconomic" residual interests under the REMIC Regulations;
provided, however, that any disclosure that a REMIC Residual
Certificate will not be considered "noneconomic" will be based
upon certain assumptions, and the Depositor will make no
representation that a REMIC Residual Certificate will not be
considered "noneconomic" for purposes of the above-described
rules. See "-Foreign Investors In REMIC Certificates-REMIC
Residual Certificates" below for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to
foreign persons.
Mark-to-Market Rules and Non-Availability of Inventory
Accounting
On December 28, 1993, the IRS released temporary regulations
(the "Mark-to-Market Regulations") relating to the requirement
that a securities dealer mark to market securities held for sale
to customers. This Mark-to-Market requirement applies to all
securities owned by a dealer, except to the extent that the
dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for
purposes of this mark-to-market requirement, a "negative value"
REMIC Residual Certificate is not treated as a security and thus
generally may not be marked to market. This exclusion from the
mark-to-market requirement is expanded to include all REMIC
Residual Certificates under proposed Treasury regulations
published January 4, 1995 which provide that any REMIC Residual
Certificate issued after January 4, 1995 will not be treated as a
security and therefore generally may not be marked to market.
Prospective purchasers of a REMIC Residual Certificate should
consult their tax advisors regarding the possible application of
the mark-to-market requirement to REMIC Residual Certificates.
The IRS has recently issued Revenue Ruling 95-81, which
provides that taxpayers may not use an inventory method of
accounting to account for residual interests in a REMIC.
Possible Pass-Through of Miscellaneous Itemized Deductions
Fees and expenses of a REMIC generally will be allocated to
the holders of the REMIC Residual Certificates. The applicable
Treasury regulations indicate, however, that in the case of a
REMIC that is similar to a single class grantor trust, all or a
portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related Prospectus Supplement, such fees
and expenses will be allocated to holders of the related REMIC
Residual Certificates in their entirety and not to the holders of
the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees
and expenses in accordance with the preceding discussion, if any
holder thereof is an individual, estate or trust, or a "pass-
through entity" beneficially owned by one or more individuals,
estates or trusts, (i) an amount equal to such individual's,
estate's or trust's share of such fees and expenses will be added
to the gross income of such holder and (ii) such individual's,
estate's or trust's share of such fees and expenses will be
treated as a miscellaneous itemized deduction allowable subject
to the limitation of Section 67 of the Code, which permits such
deductions only to the extent they exceed in the aggregate two
percent of a taxpayer's adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted
gross income exceeds a specified amount will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount
of additional taxable income reportable by holders of such
Certificates that are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an
individual, estate or trust, or a "pass-through entity"
beneficially owned by one or more individuals, estates or trusts,
no deduction will be allowed for such holder's allocable portion
of servicing fees and other miscellaneous itemized deductions of
the REMIC, even though an amount equal to the amount of such fees
and other deductions will be included in such holder's gross
income. Accordingly, such REMIC Certificates may not be
appropriate investments for individuals, estates or trusts, or
pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors
should carefully consult with their own tax advisors prior to
making an investment in such Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the
difference between the amount realized on the sale and its
adjusted basis in the REMIC Regular Certificate. The adjusted
basis of a REMIC Regular Certificate generally will equal the
cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with
respect to such REMIC Regular Certificate (including original
issue discount and market discount income) and reduced (but not
below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium.
The adjusted basis of a REMIC Residual Certificate will be
determined as described under "-Taxation of Owners of REMIC
Residual Certificates-Basis Rules, Net Losses and Distributions."
Except as provided in the following two paragraphs, any such gain
or loss 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 Section 1221 of the Code.
The Code as of the date of this prospectus provides for a top
marginal tax rate of 39.6% for individuals and a maximum marginal
rate for long-term capital gains of individuals of 28%. No such
rate differential exists for corporations. In addition, the
distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to
the extent such gain does not exceed the excess, if any, of (i)
the amount that would have been includible in the seller's income
with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the
"applicable Federal rate" (generally a rate based on an average
of current yields on Treasury securities having a maturity
comparable to that of the Certificate based on the application of
the Prepayment Assumption to such Certificate, which rate is
computed and published monthly by the IRS), determined as of the
date of purchase of such Certificate, over (ii) the amount of
ordinary income actually includible in the seller's income prior
to such sale. In addition, gain recognized on the sale of a
REMIC Regular Certificate by a seller who purchased such
Certificate at a market discount will be taxable as ordinary
income in an amount not exceeding the portion of such discount
that accrued during the period such REMIC Certificate was held by
such holder, reduced by any market discount included in income
under the rules described above under "-Taxation of Owners of
REMIC Regular Certificates-Market Discount and-Premium."
REMIC Certificates will be "evidences of indebtedness"
within the meaning of Section 582(c)(1) of the Code, so that gain
or loss recognized from the sale of a REMIC Certificate by a bank
or thrift institution to which such section applies will be
ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular
Certificate that might otherwise be capital gain may be treated
as ordinary income to the extent that such Certificate is held as
part of a "conversion transaction" within the meaning of Section
1258 of the Code. A conversion transaction generally is one in
which the taxpayer has taken two or more positions in the same or
similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the
time value of the taxpayer's net investment in such transaction.
The amount of gain so realized in a conversion transaction that
is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's
net investment at 120% of the appropriate "applicable Federal
rate" (which rate is computed and published monthly by the IRS)
at the time the taxpayer enters into the conversion transaction,
subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order
to include such net capital gain in total net investment income
for the taxable year, for purposes of the rule that limits the
deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires
a REMIC Residual Certificate, or acquires any other residual
interest in a REMIC or any similar interest in a "taxable
mortgage pool" (as defined in Section 7701(i) of the Code) during
the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the
"wash sale" rules of Section 1091 of the Code. In that event,
any loss realized by the Residual Certificateholder on the sale
will not be deductible, but instead will be added to such REMIC
Residual Certificateholder's adjusted basis in the newly acquired
asset.
Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net
income derived from "prohibited transactions" (a "Prohibited
Transaction Tax"). In general, subject to certain specified
exceptions, a prohibited transaction means the disposition of a
Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an
asset purchased with the payments on the Mortgage Loans for
temporary investment pending distribution on the REMIC
Certificates. It is not anticipated that any REMIC will engage
in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the
day on which the REMIC issues all of its interests could result
in the imposition of a tax on the REMIC equal to 100% of the
value of the contributed property (a "Contributions Tax"). Each
Pooling and Service Agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject
to such tax.
REMICs also are subject to federal income tax at the highest
corporate rate on "net income from foreclosure property,"
determined by reference to the rules applicable to real estate
investment trusts. "Net income from foreclosure property"
generally means gain from the sale of a foreclosure property that
is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a
real estate investment trust. Unless otherwise disclosed in the
related Prospectus Supplement, it is not anticipated that any
REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any material state or
local income or franchise tax will be imposed on any REMIC.
Unless otherwise stated in the related Prospectus
Supplement, and to the extent permitted by then applicable laws,
any Prohibited Transactions Tax, Contributions Tax, tax on "net
income from foreclosure property" or state or local income or
franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee, in either case out of its
own funds, provided that the Master Servicer or the Trustee, as
the case may be, has sufficient assets to do so, and provided
further that such tax arises out of a breach of the Master
Servicer's or the Trustee's obligations, as the case may be,
under the related Pooling and Servicing Agreement and in respect
of compliance with applicable laws and regulations. Any such tax
not borne by the Master Servicer or the Trustee will be charged
against the related Trust Fund, resulting in a reduction in
amounts payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations.
If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be
imposed in an amount (determined under the REMIC Regulations)
equal to the product of (i) the present value (discounted using
the "applicable Federal rate" for obligations whose term ends on
the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the
IRS) of the total anticipated excess inclusions with respect to
such REMIC Residual Certificate for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable
to corporations. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is
transferred and must be based on events that have occurred up to
the time of such transfer, the Prepayment Assumption and any
required or permitted clean up calls or required qualified
liquidation provided for in the REMIC's organizational documents.
Such a tax would be generally imposed on the transferor of the
REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would
instead be imposed on such agent. However, a transferor of a
REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit that the transferee is not a disqualified
organization, and, as of the time of the transfer, the transferor
did not have actual knowledge that such affidavit was false.
Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual
interests in such entity are not held by disqualified
organizations and (ii) information necessary for the application
of the tax described herein will be made available. Restrictions
on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be
included in the related Pooling and Servicing Agreement, and will
be discussed more fully in any Prospectus Supplement relating to
the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below)
includes in income excess inclusions with respect to a REMIC
Residual Certificate and a disqualified organization is the
record holder of an interest in such entity, then a tax will be
imposed on such entity equal to the product of (i) the amount of
excess inclusions on the REMIC Residual Certificate that are
allocable to the interest in the pass-through entity held by such
disqualified organization and (ii) the highest marginal federal
income tax rate imposed on corporations. A pass-through entity
will not be subject to this tax for any period, however, if each
record holder of an interest in such pass-through entity
furnishes to such pass-through entity (i) such holder's social
security number and a statement under penalty of perjury that
such social security number is that of the record holder or (ii)
a statement under penalty of perjury that such record holder is
not a disqualified organization.
For these purposes, a "disqualified organization" means (i)
the United States, any State or political subdivision thereof,
any foreign government, any international organization, or any
agency or instrumentality of the foregoing (not including
instrumentalities described in Section 168(h)(2)(D) of the Code
or the Federal Home Loan Mortgage Corporation), (ii) any
organization (other than a cooperative described in Section 521
of the Code) that is exempt from federal income tax, unless it is
subject to the tax imposed by Section 511 of the Code or (iii)
any organization described in Section 1381(a)(2)(C) of the Code.
For these purposes, a "pass-through entity" means any regulated
investment company, real estate investment trust, trust,
partnership or certain other entities described in Section
860E(e)(6) of the Code. In addition, a person holding an
interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through
entity.
Termination and Liquidation
A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in
respect of the Mortgage Loans or upon a sale of the REMIC's
assets following the adoption by the REMIC of a plan of complete
liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the
last distribution on such REMIC Residual Certificate is less than
the REMIC Residual Certificateholder's adjusted basis in such
Certificate, such REMIC Residual Certificateholder should be
treated as realizing a loss equal to the amount of such
difference, and such loss may be treated as a capital loss. If
the REMIC adopts a plan of complete liquidation, within the
meaning of Section 86OF(a)(4)(A)(i) of the Code, which may be
accomplished by designating in the REMIC's final tax return a
date on which such adoption is deemed to occur, and sells all of
its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subjected to any "prohibited
transactions taxes" solely on account of such qualified
liquidation, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than
the amounts retained to meet claims) to holders of Regular and
Residual Certificates within the 90-day period.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the
Code, the REMIC will be treated as a partnership and REMIC
Residual Certificateholders will be treated as partners. Unless
otherwise stated in the related Prospectus Supplement, the
Trustee will file REMIC federal income tax returns on behalf of
the REMIC, will generally hold at least a nominal amount of REMIC
Residual Certificates, and will be designated as and will act as
the "tax matters person" with respect to the REMIC in all
respects.
As the tax matters person, the Trustee will, subject to
certain notice requirements and various restrictions and
limitations, generally have the authority to act on behalf of the
REMIC and the REMIC Residual Certificateholders in connection
with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally
be required to report such REMIC items consistently with their
treatment on the related REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the
Trustee, as tax matters person, and the IRS concerning any such
REMIC item. Adjustments made to the REMIC tax return may require
a REMIC Residual Certificateholder to make corresponding
adjustments on its return, and an audit of the REMIC's tax
return, or the adjustments resulting from such an audit, could
result in an audit of a REMIC Residual Certificateholder's
return. No REMIC will be registered as a tax shelter pursuant to
Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable
years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to
furnish to the related REMIC, in a manner to be provided in
Treasury regulations, with the name and address of such person
and other information.
Reporting of interest income, including any original issue
discount, with respect to REMIC Regular Certificates is required
annually, and may be required more frequently under Treasury
regulations. These information reports generally are required to
be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations,
trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income
information and the information set forth in the following
paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the
later of 30 days after the end of the quarter for which the
information was requested, or two weeks after the receipt of the
request. The REMIC must also comply with rules requiring a REMIC
Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and
the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual
Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the
REMIC's assets, will be made as required under the Treasury
regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information
reports will include a statement of the adjusted issue price of
the REMIC Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information
required by regulations with respect to computing the accrual of
any market discount. Because exact computation of the accrual of
market discount on a constant yield method would require
information relating to the holder's purchase price that the
Master Servicer will not have, such regulations only require that
information pertaining to the appropriate proportionate method of
accruing market discount be provided. See "-Taxation of Owners
of REMIC Regular Certificates-Market Discount."
The responsibility for complying with the foregoing
reporting rules will be borne by the Trustee.
Backup Withholding With Respect to REMIC Certificates
Payments of interest and principal, as well as payments of
proceeds from the sale of REMIC Certificates, may be subject to
the "backup withholding tax" under Section 3406 of the Code at a
rate of 31% if recipients of such payments fail to furnish to the
payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not
do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United
States person" (as defined below) and is not subject to federal
income tax as a result of any direct or indirect connection to
the United States in addition to its ownership of a REMIC Regular
Certificate will generally not be subject to United States
federal income or withholding tax in respect of a distribution on
a REMIC Regular Certificate, provided that the holder complies to
the extent necessary with certain identification requirements
(including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that
such Certificateholder is not a United States person and
providing the name and address of such Certificateholder). The
foregoing tax exemption may not apply with respect to a Regular
Certificate held by a Residual Certificateholder, or by a
Certificateholder that owns directly or indirectly a 10 percent
or greater interest in, or is a "controlled foreign corporation"
as defined under the Code related to, a mortgagor or a Residual
Certificateholder. The application of these requirements in the
REMIC context is not entirely clear, and foreign investors
seeking to qualify for this exemption should consult their own
tax advisors. If the holder does not qualify for exemption,
distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to
a tax rate of 30%, subject to reduction under any applicable tax
treaty. For these purposes, "United States person" means a
citizen or resident of the United States, a corporation,
partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof,
or an estate or trust whose income from sources without the
United States is includible in gross income for United States
federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States. In
addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from
taxation on such United States shareholder's allocable portion of
the interest income received by such controlled foreign
corporation.
Residual Certificateholders that are not United States
persons should assume that distributions of income on their
Residual Certificates will be subject to a 30% withholding tax
(or such lesser rate as may be provided under any applicable tax
treaty). In the case of any income on a Residual Certificate
that is an excess inclusion, however, the rate of withholding
will not be subject to reduction under any applicable tax
treaties. See "-Taxation of Owners of Residual Certificates --
Excess Inclusions," above.
Unless otherwise stated in the related Prospectus
Supplement, transfers of REMIC Residual Certificates to investors
that are not United States persons will be prohibited under the
related Pooling and Servicing Agreement. Certain restrictions
relating to transfers of REMIC Residual Certificates to and by
investors who are not "United States persons" (as defined above)
are also imposed by the REMIC Regulations. If such a transfer is
disregarded, the purported transferor of a REMIC Residual
Certificate continues to remain liable for any taxes due with
respect to the income on such Certificate. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers are advised to
review the transferor and transferee affidavits that are required
to be delivered upon a transfer of a REMIC Residual Certificate
(forms of which are attached to the Pooling and Servicing
Agreement as exhibits thereto) and should consider the
possibility that a purported transfer of such REMIC Residual
Certificate by such purchaser to another purchaser at some future
date might be disregarded, which would result in the retention of
tax liability by such purchaser and the possibility that an
amount equal to the total distributions on such REMIC Residual
Certificate might be withheld to satisfy the United States
federal income tax liability thereon.
Purchase of Both Regular and Residual Certificates
Any Certificateholder holding a "regular interest" in a
REMIC and persons related to such Certificateholders should not
acquire any interest identified as a "residual interest" in the
REMIC and any Certificateholders holding a "residual interest" in
the REMIC and persons related to such Certificateholders should
not acquire any interest identified as a "regular interest" in
the REMIC, without consulting their tax advisors as to any
possible adverse tax consequences.
Grantor Trust Funds
Classification of Grantor Trust Funds
With respect to each series of Grantor Trust Certificates,
Counsel to the Depositor will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement, the related Grantor
Trust Fund will be classified as a grantor trust under subpart E,
part I of subchapter J of the Code and not as a partnership or an
association taxable as a corporation. Accordingly, each holder
of a Grantor Trust Certificate generally will be treated as the
owner of the undivided interest specified in its Certificate in
the Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust
Certificate representing an undivided equitable ownership
interest in the principal of the Mortgage Loans constituting the
related Grantor Trust Fund, together with interest thereon at a
pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate
representing ownership of all or a portion of the difference
between interest paid on the Mortgage Loans constituting the
related Grantor Trust Fund (net of normal administration fees and
any Spread) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such
Grantor Trust Fund will be referred to as a "Grantor Trust Strip
Certificate." A Grantor Trust Strip Certificate may also
evidence a nominal ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust
Certificates
Grantor Trust Fractional Interest Certificates
In the case of Grantor Trust Fractional Interest
Certificates, unless otherwise disclosed in the related
Prospectus Supplement, Counsel to the Depositor will deliver an
opinion, in general, that, to the extent the Grantor Trust holds
assets described in the Code sections set forth below, Grantor
Trust Fractional Interest Certificates will represent interests
in (i) "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) "loans . . . secured by an
interest in real property" within the meaning of Section
7701(a)(19)(C) of the Code; (iii) "obligation[s] (including any
participation or certificate of beneficial ownership therein)
which [are] principally secured by an interest in real property"
within the meaning of Section 86OG(a)(3)(A) of the Code; and (iv)
"real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code. In addition, Counsel to the Depositor will deliver
an opinion that interest on Grantor Trust Fractional Interest
Certificates will, to the same extent, be considered "interest on
obligations secured by mortgages on real property or on interests
in real property" within the meaning of Section 856(c)(3)(B) of
the Code.
Grantor Trust Strip Certificates
Even if Grantor Trust Strip Certificates evidence an
interest in a Grantor Trust Fund consisting of Mortgage Loans
that are "loans . . . secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C) of the Code,
"qualifying real property loans" within the meaning of Section
593(d) of the Code, and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code, it is
unclear whether the Grantor Trust Strip Certificates, and the
income therefrom, will be so characterized. Counsel to the
Depositor will not deliver any opinion on these questions, and
prospective purchasers to which such characterization of an
investment in Grantor Trust Strip Certificates is material should
consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so
characterized.
The Grantor Trust Strip Certificates will be "obligation[s]
(including any participation or certificate of beneficial
ownership therein) which [are] principally secured by an interest
in real property" within the meaning of Section 86OG(a)(3)(A) of
the Code.
Taxation of Owners of Grantor Trust Fractional Interest
Certificates
Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on
their federal income tax returns their shares of the entire
income from the Mortgage Loans (including amounts used to pay
reasonable servicing fees and other expenses) and will be
entitled to deduct their shares of any such reasonable servicing
fees and other expenses. Because of stripped interests, market
or original issue discount, or premium, the amount includible in
income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage
Loans. Under Section 67 of the Code, an individual, estate or
trust holding a Grantor Trust Fractional Interest Certificate
directly or through certain pass-through entities will be allowed
a deduction for such reasonable servicing fees and expenses only
to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted
gross income. In addition, Section 68 of the Code provides that
the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount
will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over such amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for the
taxable year. The amount of additional taxable income reportable
by holders of Grantor Trust Fractional Interest Certificates who
are subject to the limitations of either Section 67 or Section 68
of the Code may be substantial. Further, Certificateholders
(other than corporations) subject to the alternative minimum tax
may not deduct miscellaneous itemized deductions in determining
such holders' alternative minimum taxable income. Although it is
not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor
Trust Strip Certificates) are issued, such fees and expenses
should be allocated among the classes of Grantor Trust
Certificates using a method that recognizes that each such class
benefits from the related services. In the absence of statutory
or administrative clarification as to the method to be used, it
currently is intended to base information returns or reports to
the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect
to each period based on the distributions made to each such class
during that period.
The federal income tax treatment of Grantor Trust Fractional
Interest Certificates of any series will depend on whether they
are subject to the "stripped bond" rules of Section 1286 of the
Code. Grantor Trust Fractional Interest Certificates may be
subject to those rules if (i) a class of Grantor Trust Strip
Certificates is issued as part of the same series of Certificates
or (ii) the Depositor or any of its affiliates retains (for its
own account or for purposes of resale) a right to receive a
specified portion of the interest payable on the Mortgage Loans.
Further, the IRS has ruled that an unreasonably high servicing
fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a
stripped coupon. For purposes of determining what constitutes
reasonable servicing fees for various types of mortgages, the IRS
has established certain "safe harbors." The servicing fees paid
with respect to the Mortgage Loans for certain series of Grantor
Trust Certificates may be higher than the "safe harbors" and,
accordingly, may not constitute reasonable servicing
compensation. The related Prospectus Supplement will include
information regarding servicing fees paid to the Master Servicer,
any subservicer or their respective affiliates necessary to
determine whether the preceding "safe harbor" rules apply.
If Stripped Bond Rules Apply
If the stripped bond rules apply, each Grantor Trust
Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of
Section 1273(a) of the Code, subject, however, to the discussion
below regarding the treatment of certain stripped bonds as market
discount bonds and the discussion regarding de minimis market
discount. See "-Taxation of Owners Grantor Trust Fractional
Interest Certificates-Market Discount." Under the stripped bond
rules, the holder of a Grantor Trust Fractional Interest
Certificate (whether a cash or accrual method taxpayer) will be
required to report interest income from its Grantor Trust
Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month
calculated under a constant yield method, in accordance with the
rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional
Interest Certificate will be the excess of such Certificate's
stated redemption price over its issue price. The issue price of
a Grantor Trust Fractional Interest Certificate as to any
purchaser will be equal to the price paid by such purchaser for
the Certificate. The stated redemption price of a Grantor Trust
Fractional Interest Certificate will be the sum of all payments
to be made on such Certificate other than "qualified stated
interest," if any, as well as such Certificate's share of
reasonable servicing fees and other expenses. See "-Taxation of
Owners Grantor Trust Fractional Interest Certificates-If Stripped
Bond Rules Do Not Apply" for a definition of "qualified stated
interest." In general, the amount of such income that accrues in
any month would equal the product of such holder's adjusted basis
in such Grantor Trust Fractional Interest Certificate at the
beginning of such month (See "-Sales of Grantor Trust
Certificates") and the yield of such Certificate to such holder.
Such yield would be computed at the rate (compounded based on the
regular interval between payment dates) that, if used to discount
the holder's share of future payments on the Mortgage Loans,
would cause the present value of those future payments to equal
the price at which the holder purchased such Certificate. In
computing yield under the stripped bond rules, a
Certificateholder's share of future payments on the Mortgage
Loans will not include any payments made in respect of any
ownership interest in the Mortgage Loans retained by the
Depositor, the Master Servicer, any subservicer or their
respective affiliates, but will include such Certificateholder's
share of any reasonable servicing fees and other expenses. There
is considerable uncertainty, however, concerning the application
of Code Section 1272(a)(6) to instruments such as the Grantor
Trust Fractional Interest Certificates. Section 1272(a)(6) of
the Code requires (i) the use of a reasonable prepayment
assumption in accruing original issue discount and (ii)
adjustments in the accrual of original issue discount when
prepayments do not conform to the prepayment assumption, with
respect to certain categories of debt instruments. It is unclear
whether these rules would apply to the Grantor Trust Fractional
Interest Certificates in the absence of Treasury Regulations
providing for the applicability of these rules, although
regulations could be adopted that would apply these provisions to
the Grantor Trust Fractional Interest Certificates. It is also
uncertain, if a prepayment assumption is used, whether the
assumed prepayment rate would be determined based on conditions
at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time
of purchase of the Certificate by that holder.
Certificateholders are advised to consult their own tax advisors
concerning reporting original issue discount in general and, in
particular, whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest
Certificate acquired at a price equal to the principal amount of
the Mortgage Loans allocable to such Certificate, the use or non-
use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of
interest income. In the case, however, of a Grantor Trust
Fractional Interest Certificate acquired at a discount or premium
(that is, at a price less than or greater than such principal
amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage
Loan prepays in full, the holder of a Grantor Trust Fractional
Interest Certificate acquired at a discount or a premium
generally will recognize income or loss equal to the difference
between the portion of the prepaid principal amount of the
Mortgage Loan that is allocable to such Certificate and the
portion of the adjusted basis of such Certificate that is
allocable to such Certificateholder's interest in the Mortgage
Loan. If a prepayment assumption is used, it appears that no
separate item of income or loss should be recognized upon a
prepayment. Instead, a prepayment should be treated as a partial
payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method
similar to that described for taking account of original issue
discount on REMIC Regular Certificates. (See "-REMICs-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount.")
It is unclear whether any other adjustments would be required to
reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
In the absence of statutory or administrative clarification,
it is currently intended to base information reports or returns
to the IRS and Certificateholders in transactions subject to the
stripped bond rules on a prepayment assumption (the "Prepayment
Assumption") that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a
representative initial offering price for each class of
Certificates. However, neither the Depositor, the Master
Servicer nor the Trustee will make any representation that the
Mortgage Loans will in fact prepay at a rate conforming to such
Prepayment Assumption or any other rate and Certificateholders
should bear in mind that the use of a representative initial
offering price will mean that such information returns or
reports, even if otherwise accepted as accurate by the IRS, will
in any event be accurate only as to the initial
Certificateholders who bought at that price.
Under Treasury regulations Section 1.1286-1, certain
stripped bonds are to be treated as market discount bonds and,
accordingly, any purchaser of such a bond is to account for any
discount on the bond as market discount rather than original
issue discount. This treatment only applies, however, if
immediately after the most recent disposition of the bond by a
person stripping one or more coupons from the bond and disposing
of the bond or coupon (i) there is no original issue discount (or
only a de minimis amount of original issue discount) or (ii) the
annual stated rate of interest payable on the stripped bond is no
more than one percentage point lower than the gross interest rate
payable on the original mortgage loan (before subtracting any
servicing fee or any stripped coupon). If the interest payable
on a Grantor Trust Fractional Interest Certificate is more than
one percentage point lower than the gross interest rate payable
on the Mortgage Loans, the related Prospectus Supplement will
disclose that fact. If the original issue discount or market
discount on a Grantor Trust Fractional Interest Certificate
determined under the stripped bond rules is less than 0.25% of
the stated redemption price multiplied by the weighted average
maturity of the Mortgage Loans, then such original issue discount
or market discount will be considered to be de minimis. Original
issue discount or market discount of only a de minimis amount
will be included in income in the same manner as de minimis
original issue and market discount described in "-Taxation of
Owners of Grantor Trust Fractional Interest Certificates-If
Stripped Bond Rules Do Not Apply" and "-Market Discount."
If Stripped Bond Rules Do Not Apply
Subject to the discussion below on original issue discount,
market discount, and premium, if the stripped bond rules do not
apply to a Grantor Trust Fractional Interest Certificate, the
Certificateholder will be required to report its share of the
interest income on the Mortgage Loans in accordance with such
Certificateholder's normal method of accounting. If the rules
relating to original issue discount, market discount, or premium
are applicable, the amount includible in income on account of a
Grantor Trust Fractional Interest Certificate may differ
significantly from the amount payable thereon from payments of
interest on the Mortgage Loans.
The original issue discount rules will apply to a Grantor
Trust Fractional Interest Certificate to the extent it evidences
an interest in Mortgage Loans issued with original issue
discount. The original issue discount, if any, on the Mortgage
Loans will equal the difference between the stated redemption
price of such Mortgage Loans and their issue price. Under the
OID Regulations, the stated redemption price is equal to the
total of all payments to be made on such Mortgage Loan other than
"qualified stated interest." "Qualified stated interest"
includes interest that is unconditionally payable at least
annually at a single fixed rate, at a "qualified floating rate,"
a combination of a single fixed rate and one or more "qualified
floating rates" or one "qualified inverse floating rate," a
combination of "qualified floating rates" or an "objective rate"
that does not operate in a manner that accelerates or defers
interest payments on such Mortgage Loan. In general, the issue
price of a Mortgage Loan will be the amount received by the
borrower from the lender under the terms of the Mortgage Loan,
less any "points" paid by the borrower, and the stated redemption
price of a Mortgage Loan will equal its principal amount, unless
the Mortgage Loan provides for an initial below market rate of
interest or the acceleration or the deferral of interest
payments.
In the case of Mortgage Loans bearing adjustable or variable
interest rates, the related Prospectus will describe the manner
in which such rules will be applied with respect to those
Mortgage Loans by the Trustee in preparing information returns to
the Certificateholders and the IRS.
Notwithstanding the general definition of original issue
discount, original issue discount will be considered to be de
minimis if such original issue discount is less than 0.25% of the
stated redemption price multiplied by the weighted average
maturity of the Mortgage Loan. For this purpose, the weighted
average maturity of the Mortgage Loan will be computed as the sum
of the amounts determined as to each payment included in the
stated redemption price of such Mortgage Loan, by multiplying (i)
the number of complete years (rounding down for partial years)
from the issue date until such payment is expected to be made by
(ii) a fraction, the numerator of which is the amount of payment
and the denominator of which is the stated redemption price of
the Mortgage Loan. Under the OID Regulations, original issue
discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so called "teaser" rate
or initial interest holiday) will be included in income as each
payment of stated principal is made, based on the product of the
total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of each such
payment and the denominator of which is the outstanding stated
Principal amount of the Mortgage Loan. The OID Regulations also
permit a Certificateholder to elect to accrue de minimis original
issue discount into income currently based on a constant yield
method. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-Market Discount" below.
If original issue discount is in excess of a de minimis
amount, all original issue discount with respect to a Mortgage
Loan will be required to be accrued and reported in income each
month, based on a constant yield. The OID Regulations suggest
that no prepayment assumption is appropriate in computing the
yield on prepayable obligations issued with original issue
discount. In the absence of statutory or administrative
clarification, it currently is not intended to base information
reports or returns to the IRS and Certificateholders on the use
of a prepayment assumption in transactions not subject to the
stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield
with respect to all mortgage-backed securities.
Certificateholders are advised to consult their own tax advisors
concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates. Certificateholders should
refer to the related Prospectus Supplement with respect to each
series to determine whether and in what manner the original issue
discount rules will apply to the Mortgage Loans held in the
related Grantor Trust Fund.
A purchaser of a Grantor Trust Fractional Interest
Certificate that purchases such Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining
stated redemption price of the Mortgage Loans held in the related
Grantor Trust Fund will also be required to include in gross
income such Certificate's daily portions of any original issue
discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of
such Certificate's allocable portion of the aggregate "adjusted
issue prices" of the Mortgage Loans held in the related Grantor
Trust Fund, approximately in proportion to the ratio such excess
bears to such Certificate's allocable portion of the aggregate
original issue discount remaining to be accrued on such Mortgage
Loans. The adjusted issue price of a Mortgage Loan on any given
day equals the sum of (i) the adjusted issue price (or, in the
case of the first accrual period, the issue price) of such
Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such
day. The adjusted issue price of a Mortgage Loan at the
beginning of any accrual period will equal the issue price of
such Mortgage Loan, increased by the aggregate amount of original
issue discount with respect to such Mortgage Loan that accrued in
prior accrual periods, and reduced by the amount of any payments
made on such Mortgage Loan in prior accrual periods of amounts
included in its stated redemption price.
The Trustee will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest
Certificates. See "Grantor Trust Reporting" below.
Market Discount
If the stripped bond rules do not apply to the Grantor Trust
Fractional Interest Certificates, a Certificateholder may be
subject to the market discount rules of Sections 1276 through
1278 of the Code to the extent an interest in a Mortgage Loan is
considered to have been purchased at a "market discount," that
is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated
redemption price (as defined above), or in the case of a Mortgage
Loan issued with original issue discount, at a purchase price
less than its adjusted issue price (as defined above). If market
discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in
income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such
month that has not previously been included in income, but
limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated
redemption price on such Mortgage Loan that is received by (or,
in the case of accrual basis Certificateholders, due to) the
Trust Fund in that month. A Certificateholder may elect to
include market discount in income currently as it accrues (under
a constant yield method based on the yield of the Certificate to
such holder) rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply
to all market discount bonds acquired by such Certificateholder
during or after the first taxable year to which such election
applies. In addition, the OID Regulations would permit a
Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and
premium in income as interest, based on a constant yield method.
If such an election were made with respect to a Mortgage Loan
with market discount, the Certificateholder would be deemed to
have made an election to include currently market discount in
income with respect to all other debt instruments having market
discount that such Certificateholder acquires during the taxable
year of the election or thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made
this election for a Certificate acquired at a premium would be
deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "-REMICs
Taxation of Owners of REMIC Regular Certificates-Premium." Each
of these elections to accrue interest, discount and premium with
respect to a Certificate on a constant yield method or as
interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury
Department to issue regulations providing for the method for
accruing market discount on debt instruments, the principal of
which is payable in more than one installment. Until such time
as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those
rules, in each accrual period, market discount on the Mortgage
Loans should accrue, at the Certificateholder's option: (i) on
the basis of a constant yield method, (ii) in the case of a
Mortgage Loan issued without original issue discount, in an
amount that bears the same ratio to the total remaining market
discount as the stated interest paid in the accrual period bears
to the total stated interest remaining to be paid on the Mortgage
Loan as of the beginning of the accrual period, or (iii) in the
case of a Mortgage Loan issued with original issue discount, in
an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual
period bears to the total original issue discount remaining at
the beginning of the accrual period. The prepayment assumption,
if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market
discount. The effect of using a prepayment assumption could be
to accelerate the reporting of such discount income. Because the
regulations referred to in this paragraph have not been issued,
it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a
discount in the secondary market.
Because the Mortgage Loans will provide for periodic
payments of stated redemption price, such market discount may be
required to be included in income at a rate that is not
significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally
will be considered to exceed a de minimis amount if it is greater
than 0.25% of the stated redemption price of the Mortgage Loans
multiplied by the number of complete years to maturity remaining
after the date of its purchase. In interpreting a similar rule
with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will
be applied with respect to market discount, presumably taking
into account the prepayment assumption used, if any. The effect
of using a prepayment assumption could be to accelerate the
reporting of such discount income. If market discount is treated
as de minimis under the foregoing rule, it appears that actual
discount would be treated in a manner similar to original issue
discount of a de minimis amount. See "-Taxation of Owners of
Grantor Trust Fractional Interest Certificates-If Stripped Bond
Rules Do Not Apply."
Further, under the rules described in "-REMICs-Taxation of
Owners of REMIC Regular Certificates-Market Discount" above, any
discount that is not original issue discount and exceeds a de
minimis amount may require the deferral of interest expense
deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report
market discount currently as it accrues. This rule applies
without regard to origination dates of the Mortgage Loans.
Premium
If a Certificateholder is treated as acquiring the
underlying Mortgage Loans at a premium, that is, at a price in
excess of their remaining stated redemption price, such
Certificateholder may elect under Section 171 of the Code to
amortize using a constant yield method, the portion of such
premium allocable to Mortgage Loans originated after September
27, 1985. Amortizable premium is treated as an offset to
interest income on the related debt instrument, rather than as a
separate interest deduction. However, premiums allocable to
Mortgage Loans originated before September 28, 1985 or to
Mortgage Loans for which an amortization election is not made
should be allocated among the payments of stated redemption price
on the Mortgage Loan and be allowed as a deduction as such
payments are made (or, for a Certificateholder using the accrual
method of accounting, when such payments of stated redemption
price are due).
It is unclear whether a prepayment assumption should be used
in computing amortization of premium allowable under Section 171
of the Code. If premium is not subject to amortization using a
prepayment assumption and a Mortgage Loan prepays in full, the
holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to the Certificate and the
portion of the adjusted basis of the Certificate that is
allocable to the Mortgage Loan. If a prepayment assumption is
used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a
prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC
Regular Certificates. See "-REMICs-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect
differences between the prepayment assumption used, if any, and
the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates
Because the "stripped coupon" rules of Section 1286 of the
Code will apply to the Grantor Trust Strip Certificates, income
on the Certificates must be accrued under the original issue
discount provisions of the Code. Except as described above in "-
Taxation of Owners of Grantor Trust Fractional Interest
Certificates-If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates.
Moreover, the OID Regulations do not include rules relating
specifically to "stripped coupons," although they do provide
general guidance as to how the original issue discount sections
of the Code will generally be applied." Accordingly, holders of
Grantor Trust Strip Certificates should consult their own tax
advisors concerning the method to be used in reporting income or
loss with respect to such Certificates. The discussion below
is subject to the discussion under "-Possible Application of
Proposed Contingent Payment Rules" and assumes that the holder of
a Grantor Trust Strip Certificate will not own any Grantor Trust
Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original
issue discount will be required to be accrued in each month on
the Grantor Trust Strip Certificates based on a constant yield
method. In effect, each holder of Grantor Trust Strip
Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in
such Certificate at the beginning of such month and the yield of
such Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate
by its holder and the payments remaining to be made thereon at
the time of the purchase, plus an allocable portion of the
servicing fees and expenses to be paid with respect to the
Mortgage Loans. See "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Apply"
above.
As noted above, Section 1272(a)(6) of the Code requires that
a prepayment assumption be used in computing the accrual of
original issue discount with respect to certain categories of
debt instruments, and that adjustments be made in the amount and
rate of accrual of such discount when prepayments do not conform
to such prepayment assumption. Regulations could be adopted
applying those provisions to the Grantor Trust Strip
Certificates. It is unclear whether those provisions would be
applicable to the Grantor Trust Strip Certificates or whether use
of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment
rate would be determined based on conditions at the time of the
first sale of the Grantor Trust Strip Certificate or, with
respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip
Certificates will be significantly slower if a prepayment
assumption is permitted to be made than if yield is computed
assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base
information returns or reports to the IRS and Certificateholders
on the Prepayment Assumption disclosed in the related Prospectus
Supplement and on a constant yield computed using a
representative initial offering price for each class of
Certificates. However, neither the Depositor nor the Trustee
will make any representation that the Mortgage Loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at
any other rate and Certificateholders should bear in mind that
the use of a representative initial offering price will mean that
such information returns or reports, even if otherwise accepted
as accurate by the IRS, will in any event be accurate only as to
the initial Certificateholders of each series who bought at that
price. Prospective purchasers of the Grantor Trust Strip
Certificates should consult their own tax advisors regarding the
use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the
prepayment of a Mortgage Loan will give rise to a loss to the
holder of a Grantor Trust Strip Certificate. If a Grantor Trust
Strip Certificate is treated as a single instrument (rather than
an interest in discrete mortgage loans) and the effect of
prepayments is taken into account in computing yield with respect
to such Certificate, it appears that no loss may be available as
a result of any particular prepayment unless prepayments occur at
a rate faster than the Prepayment Assumption. However, if a
Grantor Trust Strip Certificate is treated as an interest in
discrete Mortgage Loans, or if the Prepayment Assumption is not
used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a
loss equal to the portion of the adjusted issue price of the
Grantor Trust Strip Certificate that is allocable to such
Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules
The coupon stripping rules' general treatment of stripped
coupons is to regard them as newly issued debt instruments in the
hands of each purchaser. To the extent that payments on the
Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates
could be considered to be debt instruments providing for
contingent payments. Under the OID Regulations, debt instruments
providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments,
but no final regulations have been promulgated with respect to
contingent payment debt instruments. Proposed regulations were
promulgated on December 16, 1994 regarding contingent payment
debt instruments. Although the proposed regulations are proposed
to be effective for debt instruments issued on or after the date
that is 60 days after final regulations are published in the
Federal Register, the proposed regulations currently represent
the best available guidance regarding the position of the
Internal Revenue Service as to the appropriate treatment of debt
instruments providing for contingent payments. As in the case of
the OID Regulations, such proposed regulations do not
specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of
Section 1286 of the Code.
If the contingent payment rules under the proposed
regulations were to apply, the holder of a Grantor Trust Strip
Certificate would be required to apply a "noncontingent bond
method." Under that method, the issuer of a Grantor Trust Strip
Certificate would determine a projected payment schedule with
respect to such Grantor Trust Strip Certificate. Holders of
Grantor Trust Strip Certificates would be bound by the issuer's
projected payment schedule, which would consist of all
noncontingent payments and a projected amount for each contingent
payment based on the projected yield (as described below) of the
Grantor Trust Strip Certificate. The projected amount of each
payment would be determined so that the projected payment
schedule reflected the projected yield reasonably expected to be
received by the holder of a Grantor Trust Strip Certificate. The
projected yield referred to above would be a reasonable rate, not
less than the "applicable Federal rate" that, as of the issue
date, reflected general market conditions, the credit quality of
the issuer, and the terms and conditions of the Mortgage Loans.
The holder of a Grantor Trust Strip Certificate would be required
to include as interest income in each month the adjusted issue
price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield, and would add to,
or subtract from, such income any variation between the payment
actually received in such month and the payment originally
projected to be made in such month.
In the absence of final Treasury Regulations relating to
debt instruments providing for contingent payments, the Trust
will not, except as disclosed in a prospectus supplement, provide
to Certificateholders a projected payment schedule under the
"noncontingent bond method." Accordingly, Certificateholders
should consult their tax advisors concerning the possible
application of the contingent payment rules to the Grantor Trust
Strip Certificates.
Sales of Grantor Trust Certificates
Any gain or loss equal to the difference between the amount
realized on the sale or exchange of a Grantor Trust Certificate
and its adjusted basis, recognized on the sale or exchange of a
Grantor Trust Certificate by an investor who holds such
Certificate as a capital asset, will be capital gain or loss,
except to the extent of accrued and unrecognized market discount,
which will be treated as ordinary income, and (in the case of
banks and other financial institutions) except as provided in
Section 582(c) of the Code. The adjusted basis of a Grantor
Trust Certificate generally will equal its cost, increased by any
income reported by the Depositor (including original issue
discount and market discount income) and reduced (but not below
zero) by any previously reported losses, any amortized premium
and by any distributions with respect to such Grantor Trust
Certificate. If the Certificateholder has held the Certificate
for more than 12 months, any such gain will be long term capital
gain. The Code as of the date of this Prospectus provides a top
marginal tax rate of 39.6% for individuals and a maximum marginal
rate for the long-term capital gains of individuals of 28%. No
such rate differential exists for corporations. In addition, the
distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate
may be partially or wholly ordinary and not capital in certain
circumstances. Gain attributable to accrued and unrecognized
market discount will be treated as ordinary income, as will gain
or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as
ordinary income to the extent that the Grantor Trust Certificate
is held as part of a "conversion transaction" within the meaning
of Section 1258 of the Code. A conversion transaction generally
is one in which the taxpayer has taken two or more positions in
the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net investment
in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally
will not exceed the amount of interest that would have accrued on
the taxpayer's net investment at 120% of the appropriate
"applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order
to include such net capital gain in total net investment income
for that taxable year, for purposes of the rule that limits on
the deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting
The Trustee will furnish to each holder of a Grantor Trust
Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the
underlying Mortgage Loans and to interest thereon at the related
Certificate Rate. In addition, within a reasonable time after
the end of each calendar year, based on information provided by
the Master Servicer, the Trustee will furnish to each
Certificateholder during such year such customary factual
information as the Trustee deems necessary or desirable to enable
holders of Grantor Trust Certificates to prepare their tax
returns and will furnish comparable information to the IRS as and
when required by law to do so. Additional guidance is required
from the Internal Revenue Service before it is possible to
determine definitively the proper methods for accruing income on
the Certificates. In the absence of additional guidance, the
Trustee intends to compute and report income on the Certificates
for tax purposes in a manner that it believes to be consistent
with the principles of the Code and the OID Regulations described
above. The Trustee intends in reporting information relating to
original issue discount to holders of Certificates to provide
such information on an aggregate pool-wide basis. Although there
are provisions in the OID Regulations that suggest that the
computation of original issue discount on such a basis is either
appropriate or required, it is possible that investors may be
required to compute original issue discount on a Mortgage Loan-
by-Mortgage Loan 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. Investors should be aware
that it may not be possible to reconstruct after the fact
sufficient Mortgage Loan-by-Mortgage Loan information should the
Internal Revenue Service require computation on that basis.
Because the rules for accruing discount and amortizing premium
with respect to the Grantor Trust Certificates are uncertain in
various respects, there is no assurance the IRS will agree with
the Trustee's information reports of such items of income and
expense. Accordingly, holders of Certificates should consult
their own tax advisors regarding the method for reporting the
amounts received or accrued with respect to the Certificates.
Moreover, such information reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the
representative initial offering price used in preparing such
reports.
Backup Withholding
In general, the rules described in "-REMICs-Backup
Withholding" will also apply to Grantor Trust Certificates.
Foreign Investors
In general, the discussion with respect to REMIC Regular
Certificates in "-REMICs-Foreign Investors in REMIC Certificates"
applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related
Prospectus Supplement, be eligible for exemption from U.S.
withholding tax, subject to the conditions described in such
discussion, only to the extent the related Mortgage Loans were
originated after July 18, 1984.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described
in "Certain Federal Income Tax Consequences," potential investors
should consider the state and local tax consequences of the
acquisition, ownership, and disposition of the Certificates
offered hereunder. State tax law may differ substantially from
the corresponding federal tax law, and this discussion does not
purport to describe any aspect of the tax laws of any state or
other jurisdiction. Therefore, prospective investors should
consult their own tax advisors with respect to the various tax
consequences of investments in the Certificates offered
hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA") imposes certain restrictions on employee
benefit plans ("Plans") subject to ERISA and persons who have
certain specified relationships to such Plans ("Parties in
Interest"). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain
transactions between a Plan and Parties in Interest with respect
to such Plans ("Prohibited Transactions"). Under ERISA, any
person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered
to be a fiduciary of such Plan (subject to certain exceptions not
here relevant). Similar restrictions also apply to Plans that
are subject to the Code.
The issuer of any Series of Certificates (the "Issuer"), the
Master Servicer, if any, the Servicer, the Trustee or the
provider of any credit support, if any, because of their
activities or the activities of their respective affiliates, may
be considered to be Parties in Interest with respect to certain
Plans. If the Certificates are acquired by a Plan with respect
to which the Issuer, the Master Servicer, if any, the Servicer,
the Trustee or the provider of any credit support, if any, is a
Party in Interest, such transaction would violate the Prohibited
Transaction rules of ERISA and the Code unless such transaction
were subject to one or more statutory or administrative
exemptions such as Prohibited Transaction Class Exemption
("PTCE") 75-1, which exempts certain transactions involving
employee benefit plans and certain broker-dealers, reporting
dealers and banks; PTCE 90-1, which exempts certain transactions
between insurance company pooled separate accounts and Parties in
Interest; PTCE 95-60, which exempts certain transactions entered
into by an insurance company general account; PTCE 91-38, which
exempts certain transactions between bank collective investment
funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified
professional asset manager"; PTCE 96-23, which exempts certain
transactions effected on behalf of a plan by an in-house asset
manager; or any other available exemption. Accordingly, prior to
making an investment in the Securities, an investing Plan should
determine whether the Issuer is a Party in Interest with respect
to such Plan and, if so, whether such transaction is subject to
one or more of statutory or administrative exemptions.
The Certificates of a Series will be treated as "equity" for
purposes of ERISA. Under regulations issued by the Department of
Labor ("DOL") (the "Plan Asset Regulation"), if a Plan makes an
"equity" investment in a corporation, partnership, trust or
certain other entities, the underlying assets and properties of
such entity will be deemed for purposes of ERISA to be assets of
the investing Plan unless certain exceptions set forth in the
regulation apply. One such exception applies if the class of
"equity" interests in question is (i) held by 100 or more
investors who are independent of the Issuer and each other, (ii)
freely transferable, and (iii) sold as part of an offering
pursuant to (a) an effective registration statement under the
Securities Act of 1933, and then subsequently registered under
the Securities Exchange Act of 1934 or (b) an effective
registration statement under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 ("Publicly Offered Securities").
The related Prospectus Supplement for each Series will indicate
whether it is likely that such Series will constitute Publicly
Offered Securities.
If a particular Series is treated as "equity" for purposes
of the Plan Asset Regulation the underlying assets of the Issuer
could be treated as assets of a Plan purchasing Certificates of
such Series. In that case, if the Mortgage Assets securing such
Series include single Mortgage Loans with respect to which the
obligors are Parties in Interest, such transaction would violate
the Prohibited Transaction rules of ERISA and the Code unless
such transaction were subject to one or more statutory or
administrative exemptions such as those described above or any
other available exemption. Accordingly, prior to making an
investment in Certificates of such Series, a Plan investor should
determine whether its investment may result in a Prohibited
Transaction and, if so, whether such transaction is subject to
one or more of the statutory or administrative exemptions.
Furthermore, if the Issuer were deemed to hold plan assets
by reason of a Plan's investment in a Certificate, the persons
providing services with respect to the assets of the Issuer,
including the Mortgage Loans, may be subject to the fiduciary
responsibility provisions of Title I of ERISA and be subject to
the prohibited transactions provisions of ERISA and Section 4975
of the Code with respect to transactions involving such assets
unless such transactions are subject to a statutory or
administrative exemption, such as those described above.
The DOL has granted to certain firms that may be retained as
an underwriter for a Series an administrative exemption (the
"Exemption") from certain of the prohibited transaction rules of
ERISA with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates representing interests
in asset-backed pass through trusts that consist of certain
receivables, loans and other obligations that meet the conditions
and requirements of the Exemption. The obligations covered by
the Exemption include mortgages and interests therein. The
Exemption will apply to the acquisition, holding and resale of
the Securities by a Plan, only if certain conditions (certain of
which are described below) are met.
Among the conditions which must be satisfied for the
Exemption to apply are the following:
1. The acquisition of the Securities by a Plan is on terms
(including the price for the Securities) 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 Securities
acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the Issuer;
3. The Securities acquired by the Plan have received a
rating at the time of such acquisition that is in one of the
three highest generic rating categories from Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc.
or Fitch Investors Service, Inc. (each, a "Rating Agency");
4. The sum of all payments made to the underwriter in
connection with the distribution of the Securities represents not
more than reasonable compensation for underwriting the
Securities. The sum of all payments made to and retained by, the
seller pursuant to the sale of the obligations to the trust
represents not more than the fair market value of such
obligations. The sum of all payments made to and retained by the
servicer represents not more than reasonable compensation for the
servicer's services under the related servicing agreement and
reimbursement of the servicer's reasonable expenses in connection
therewith;
5. The Trustee must not be an affiliate of any other
member of the Restricted Group (as defined below); and
6. The Plan investing in the Securities 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 also must meet the following requirements:
(i) the corpus of the trust must consist solely of assets
of the type which 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 a
Rating Agency 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 any Plan's acquisition of
Securities.
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 Securities, at least
fifty (50) percent of each class of Securities in which Plans
have invested is acquired by persons independent of the
Restricted Group and at least fifty (50) 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 (5) percent or less of the fair
market value of the obligations contained in the trust and is not
otherwise a member of a Restricted Group; (iii) the Plan's
investment in Securities does not exceed twenty-five (25) percent
of all of the Securities outstanding after the acquisition, and
(iv) no more than twenty-five (25) percent of the assets of the
Plan with respect to which the obligor is the 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 fiduciaries acting on behalf of
Plans sponsored by the Issuer, the Underwriter, the Trustee, the
Servicer, the Master Servicer, if any, the Special Servicer, if
any, any obligor with respect to obligations included in a Trust
constituting more than five (5) percent of the aggregate
unamortized principal balance of the assets in a Trust, or any
affiliate of such parties (the "Restricted Group"). The
Prospectus Supplement for each Series will indicate whether the
Underwriter for that Series has been granted an Exemption.
There can be no assurance that the Securities will not be
treated as equity interests in the Issuer for purposes of the
Plan Asset Regulation. Moreover, if the Certificates are treated
as equity interests for purposes of ERISA, there can be no
assurance that any of the exceptions set forth in the Plan Asset
Regulations will apply to the purchase of Certificates offered
hereby. As a result, Certificates may not be purchased with plan
assets of any Plan unless the Certificates are either Publicly
Offered Certificates or meet the requirements of the Exemption,
or unless the purchaser is an insurance company purchasing
Certificates with assets of its general account and the exemptive
relief afforded under Section III of PTE 95-60 will apply to such
purchaser's purchase and holding of the Certificates. EACH
PURCHASER OF CERTIFICATES THAT ARE NOT EITHER PUBLICLY OFFERED
SECURITIES OR COVERED BY THE EXEMPTION SHALL BE DEEMED TO
REPRESENT AND WARRANT THAT SUCH CERTIFICATES ARE NOT BEING
PURCHASED WITH PLAN ASSETS OF ANY PLAN OR ARE BEING PURCHASED
WITH THE ASSETS OF AN INSURANCE COMPANY GENERAL ACCOUNT AND THE
PURCHASE AND HOLDING OF THE CERTIFICATES IS EXEMPT UNDER SECTION
III OF PTE 95-60.
Prospective Plan investors should consult with their legal
advisors concerning the impact of ERISA and the Code and the
potential consequences to their specific circumstances, prior to
making an investment in the Certificates. Moreover, each Plan
fiduciary should determine whether under the general fiduciary
standards of investment procedure 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.
Purchasers that are insurance companies should consult with
their counsel with respect to the recent United States Supreme
Court case, John Hancock Mutual Life Insurance Co. v. Harris Bank
and Trust, 114 S.Ct. 517 (1993). In Hancock, the Supreme Court
held that assets held in an insurance company's general account
may be deemed to be "plan assets" under certain circumstances.
Therefore, purchasers that are insurance companies should analyze
whether the Hancock decision may have an impact with respect to
their purchase of Certificates.
LEGAL INVESTMENT
The related Prospectus Supplement will specify the Classes
of Certificates, if any, of the related Series that will consti-
tute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"). Such
"mortgage related securities" 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 of
any State (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to State regulation to
the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States
or any agency or instrumentality thereof constitute legal
investments for such entities.
Under SMMEA, if a State enacted legislation prior to October
4, 1991 specifically limiting the legal investment authority of
any such entities with respect to "mortgage related securities,"
the Certificates will constitute legal investments for entities
subject to such legislation only to the extent provided in such
legislation. Certain States have enacted legislation which
overrides the preemption provisions of SMMEA. SMMEA provides,
however, that in no event will the enactment of any such
legislation affect the validity of any contractual commitment to
purchase, hold or invest in "mortgage related securities," or
require the sale or other disposition of such securities so long
as such contractual commitment was made or such securities
acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of
federally chartered depository institutions as follows: federal
savings and loan associations and federal savings banks may
invest in, sell or otherwise deal with mortgage-related
securities without limitations 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. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may
prescribe.
The Federal Financial Institution Examination Council has
adopted a supervisory policy statement (the "Policy Statement"),
applicable to all depository institutions, setting forth
guidelines for and significant restrictions on investments in
"high-risk mortgage securities." The Policy Statement has been
adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift
Supervision with an effective date of February 10, 1992. The
Policy Statement generally indicates that a mortgage derivative
product will be deemed to be high risk if it exhibits greater
price volatility than a standard fixed rate thirty-year mortgage
security. According to the Policy Statement, prior to purchase,
a depository institution will be required to determine whether a
mortgage derivative product that it is considering acquiring is
high-risk, and if so that the proposed acquisition would reduce
the institution's overall interest rate risk. Reliance on
analysis and documentation obtained from a securities dealer or
other outside party without internal analysis by the institution
would be unacceptable. There can be no assurance as to which
Classes of the Certificates of any Series will be treated as
high-risk under the Policy Statement. In addition, the National
Credit Union Administration has issued regulations governing
federal credit union investments which prohibit investment in
certain specified types of securities, which may include certain
Classes of Certificates. Similar policy statements have been
issued by regulators having jurisdiction over other types of
depository institutions.
There may be other restrictions on the ability of certain
investors either to purchase certain Classes of Certificates or
to purchase any Class of Certificates representing more than a
specified percentage of the investors' assets. The Depositor
will make no representations as to the proper characterization of
any Class of Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any
Class of Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the
liquidity of any Class of Certificates. Accordingly, all
investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements
or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the
Certificates of any Class constitute legal investments under
SMMEA or are subject to investment, capital or other
restrictions, and whether SMMEA has been overridden in any
jurisdiction applicable to such investor.
LEGAL MATTERS
Certain legal matters in connection with the Certificates
offered hereby will be passed upon for the Depositor by Mayer,
Brown & Platt, Los Angeles, California.
THE DEPOSITOR
Quality Mortgage Acceptance Corp., a California corporation
(the "Depositor"), was incorporated in May 1996. The principal
executive offices of the Depositor are located at 16800 Aston
Street, Irvine, California 92714 and its telephone number is
(714) 440-1000. The Depositor's only obligations with respect to
the Certificates will be pursuant to certain representations and
warranties described herein under "THE POOLING AND SERVICING
AGREEMENTS." Neither the Depositor nor any affiliate of the
Depositor will guarantee the Certificates or the assets included
in the Trust Fund for a Series. See "RISK FACTORS" and "THE
DEPOSITOR."
As described herein, the only obligations of the Depositor
will be pursuant to certain representations and warranties with
respect to the Mortgage Assets. See "LOAN UNDERWRITING
STANDARDS-Representations and Warranties" and "THE POOLING AND
SERVICING AGREEMENTS-Assignment of Mortgage Assets." No person
other than the Depositor is obligated with respect to the
representations and warranties respecting the Mortgage Loans and
the remedies for any breach thereof that are assigned to the
Trustee for the benefit of the Certificateholders. Moreover, as
discussed above, the Depositor has only limited assets available
to perform its repurchase obligations in respect of any breach of
such representations and warranties, relative to the potential
amount of repurchase liability, and the total potential amount of
repurchase liability is expected to increase over time as the
Depositor continues to originate, acquire and sell mortgage
loans. There can be no assurance that the Depositor will
continue to generate operating earnings, or that it will be
successful under its current business plan. Therefore,
prospective investors in the Offered Certificates should consider
the possibility that the Depositor will not have sufficient
assets with which to satisfy its repurchase obligations in the
event that a substantial amount of the mortgage loans are
required to be repurchased due to breaches of representations and
warranties. See "RISK FACTORS" herein.
USE OF PROCEEDS
It is expected that the Depositor will apply all or
substantially all of the net proceeds from the sale of each
Series offered hereby and by the related Prospectus Supplement to
purchase the Mortgage Assets, to repay indebtedness which has
been incurred to obtain funds to acquire the Mortgage Assets, to
establish the reserve funds, if any, for the Series and to pay
costs of structuring, guaranteeing and issuing the Certificates.
Any other material use of proceeds will be specified in the
related Prospectus Supplement. Certificates may be exchanged by
the Depositor for Mortgage Assets.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of
the related Prospectus Supplements may be sold directly by the
Depositor or may be offered through one or more underwriters, or
through an underwriting syndicate (the "Underwriters"). The
Prospectus Supplement with respect to each such Series of
Certificates will set forth the terms of the offering of such
Series of Certificates and each Class within such Series,
including the name or names of the Underwriters, the proceeds to
the Depositor, and including either the initial public offering
price, the discounts and commissions to the Underwriters and any
discounts or commissions allowed or reallowed to certain dealers,
or the method by which the prices at which the Underwriters will
sell the Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the
Underwriters will be obligated to purchase all of the
Certificates of a Series offered by the related Prospectus
Supplement if any such Certificates are purchased. The
Certificates 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.
If so indicated in the related Prospectus Supplement, the
Depositor will authorize Underwriters or other persons acting as
the Depositor's agents to solicit offers by certain institutions
to purchase the Certificates from the Depositor pursuant to
contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and
others, but in all cases such institutions must be approved by
the Depositor. The obligation of any purchaser under any such
contract will be subject to the condition that the purchase of
the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such
purchaser is subject. The Underwriters and such other agents
will not have any responsibility in respect of the validity or
performance of such contracts.
The Depositor may also sell the Certificates offered hereby
and by means of the related Prospectus Supplements from time to
time in negotiated transactions or otherwise, at prices
determined at the time of sale. The Depositor may effect such
transactions by selling Certificates to or through dealers and
such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any
purchasers of Certificates for whom they may act as agents.
The place and time for delivery of each Series of
Certificates offered hereby and by means of the related
Prospectus Supplement will be set forth in the Prospectus
Supplement with respect to such Series.
GLOSSARY
The following are abbreviated definitions of certain
capitalized terms used in this Prospectus. Unless otherwise
provided in a "Supplemental Glossary" in the Prospectus
Supplement for a Series, such definitions will apply to
capitalized terms used in such Prospectus Supplement. The
definitions may vary from those in the Pooling and Servicing
Agreement and the Pooling and Servicing Agreement generally
provides a more complete definition of certain of the terms.
Reference should be made to the Pooling and Servicing Agreement
for a more complete definition of such terms.
"Accrual Distribution Amount" means, with respect to any
Distribution Date for a Series that occurs prior to or on the
Accrual Termination Date, the aggregate amount of interest which
has accrued on the Compound Interest Certificates of such Series
during the Interest Accrual Period ending on or prior to such
Distribution Date but which is not then required to be paid.
"Accrual Termination Date" means, with respect to a Class of
Compound Interest Certificates, the Distribution Date on which
all Certificates of the related Series with Stated Maturities
earlier than that of such Class of Compound Interest Certificates
have been fully paid, or such other date or period as may be
specified in the related Prospectus Supplement.
"Advance" means a cash advance by the Master Servicer or a
Servicer in respect of delinquent payments of principal of and
interest on a Loan, and for the other purposes specified herein
and in the related Prospectus Supplement.
"Agency Securities" means mortgage pass-through securities
issued or guaranteed by GNMA, FNMA, FHLMC or other government
agencies or government-sponsored agencies.
"Appraised Value" means, with respect to a property securing
a Loan, the lesser of the appraised value determined in an
appraisal obtained at origination of the Loan or the sales price
of such mortgaged property.
"ARM" or "Adjustable Rate Mortgage" means a Mortgage Loan as
to which the related Mortgage Note provides for periodic
adjustments in the interest rate component of the Scheduled
Payment pursuant to an Index as described in the related
Prospectus Supplement.
"Asset Group" means a group of individual Mortgage Assets
which share similar characteristics and are aggregated into one
group for purposes of assigning a single aggregate Asset Value.
"Asset Value" means, if specified in the related Prospectus
Supplement for a Series, with respect to Mortgage Assets
comprising the Trust Fund for such Series, an amount equal to, as
of the date of such determination, the lesser of (a) the present
value of the stream of remaining regularly Scheduled Payments of
principal and interest on the Mortgage Assets (less any Retained
Interest) through the earlier of (1) the Final Scheduled
Distribution Date of the Class of such Series having the latest
Final Scheduled Distribution Date or (2) the Distribution Date
next succeeding the latest maturity date of such Mortgage Assets
(after taking into account applicable withdrawals from any funds
or accounts and charges for servicing, insurance and related
matters, as specified in the related Prospectus Supplement),
together with Reinvestment Income thereon at the Assumed
Reinvestment Rate for such Series, from the Assumed Deposit Date
to the next succeeding Distribution Date, discounted from such
Distribution Date to the date for which such determination is
made with the same frequency as payments are made on the
Certificates of such Series at the weighted average Certificate
Rate for such Series; provided that if any Class pays more
frequently than another Class, such determination shall be made
as provided in the related Series Supplement and (b) the maximum
Asset Value specified in the related Prospectus Supplement.
"Assumed Deposit Date" means the date specified therefor in
the Prospectus Supplement for a Series, upon which distributions
on the Mortgage Assets are assumed to be received for purposes of
calculating Reinvestment Income thereon.
"Assumed Reinvestment Rate" means, with respect to a Series,
the per annum rate or rates specified in the related Prospectus
Supplement for a particular period or periods as the "Assumed
Reinvestment Rate" for funds held in any fund or account for the
Series.
"Available Distribution Amount" means the amount in the
Certificate Account (including amounts deposited therein from any
reserve fund or other fund or account) eligible for distribution
to certificateholders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11
United States Code 101 et seq., and regulations promulgated
thereunder.
"Bi-Weekly Loan" means a Mortgage Loan which provides for
payments of principal and interest by the borrower once every two
weeks.
"Business Day" means a day that, in the City of New York or
in the city or cities in which the corporate trust office of the
Trustee are located, is neither a legal holiday nor a day on
which banking institutions are authorized or obligated by law,
regulation or executive order to be closed.
"Buy-Down Fund" means a custodial account, established by
the Master Servicer or the Servicer for a Buy-Down Loan, that
meets the requirements set forth herein.
"Buy-Down Loan" means a level payment Mortgage Loan for
which funds have been provided by a Person other than the
mortgagor to reduce the mortgagor's Scheduled Payment during the
early years of such Mortgage Loan.
"Certificate Account" means, with respect to a Series, the
account established in the name of the Trustee for the deposit of
remittances received from the Master Servicer in respect of the
Mortgage Assets in a Trust Fund.
"Certificate Guarantee Insurance" means an insurance policy
issued by one or more insurance companies which will guarantee
timely distributions of interest and full distributions of
principal of a Series on the basis of a schedule of principal
distributions set forth in or determined in the manner specified
in the related Prospectus Supplement for the Series.
"Certificateholder" or "Holder" means the Person in whose
name a Certificate is registered in the Certificate register.
"Certificate Rate" means, with respect to any Series, the
per annum rate at which interest accrues on the principal balance
of the Certificates of such Series or a Class of such Series,
which rate may be fixed or variable, as specified in the related
Prospectus Supplement.
"Certificates" means the Mortgage Loan Asset-Backed
Certificates.
"Class" means a Class of Certificates of a Series.
"Closing Date" means, with respect to a Series, the date
specified in the related Prospectus Supplement as the date on
which Certificates of such Series are first issued.
"Code" means the Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder.
"Collection Account" means, with respect to a Series, the
account established in the name of the Master Servicer for the
deposit by the Master Servicer of payments received from the
Mortgage Assets in a Trust Fund (or from the Servicers, if any).
"Compound Interest Certificate" means any Certificate on
which interest accrues and is added to the principal balance of
such Certificate periodically, but with respect to which no
interest or principal will be payable except during the period or
periods specified in the related Prospectus
"Compound Value" means, with respect to a Class of Compound
Interest Certificates, as of any Determination Date, the original
principal balance of such Class, plus all accrued and unpaid
interest, if any, previously added to the principal balance
thereof and reduced by any payments of principal previously made
on such Class of Compound Interest Certificates.
"Condominium" means 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.
"Condominium Association" means the person(s) appointed or
elected by the Condominium Unit owners to govern the affairs of
the Condominium.
"Condominium Building" means a multi-unit building or
buildings, or a group of buildings whether or not attached to
each other, located on property subject to Condominium ownership.
"Condominium Loan" means a Loan secured by a Mortgage on a
condominium Unit (together with its appurtenant interest in the
common elements).
"Condominium Unit" means an individual housing unit in a
condominium Building.
"Conventional Loan" means a Loan that is not insured or
guaranteed by the FHA or the VA.
"Cut-off Date" means the date designated in the Pooling and
Servicing Agreement for a Series on or before which amounts due
and payable with respect to a Mortgage Asset will not inure to
the benefit of Certificateholders of the Series.
"Deferred Interest" means excess interest resulting when the
amount of interest paid by a Mortgagor on a Negatively Amortizing
ARM in any month is less than the amount of interest accrued on
the Stated Principal Balance thereof.
"Deficiency Event" means, if applicable with respect to a
Series (as specified in the related Prospectus Supplement), the
inability of the Trustee to distribute to Holders of one or more
Classes of Certificates of the Series (other than any Class of
Subordinate Certificates prior to the time that the Available
Subordination Amount is reduced to zero), in accordance with the
terms thereof and the related Pooling and Servicing Agreement,
any distribution of principal or interest thereon when and as
distributable due to insufficient funds for such purpose then
held in the related Trust Fund.
"Depositor" means Quality Mortgage Acceptance Corp.
"Determination Date" means the day specified in the related
Prospectus Supplement as the day on which the Master Servicer
calculates the amounts to be distributed to Certificateholders on
the next succeeding Distribution Date.
"Distribution Date" means, with respect to a Series or
Class, each date specified as a distribution date for such Series
or Class in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related
Prospectus Supplement for a Series, on which any payment of
principal or interest is due and payable to the Trustee or its
nominee on any Mortgage Asset.
"Eligible Investments" means any one or more of the
obligations or securities described as such at "THE POOLING AND
SERVICING AGREEMENTS-Investment of Funds."
"Eligible Reserve Fund Investments" means Eligible
Investments and any other obligations or securities described as
Eligible Reserve Fund Investments in the Applicable Pooling and
Servicing Agreement, as described in the related Prospectus
Supplement for a Series.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Account" means an account, established and
maintained by the Master Servicer or the Servicer for a Loan,
into which payments by borrowers to pay taxes, assessments,
mortgage and hazard insurance premium and other comparable items
that are required to be paid to the mortgagee are deposited.
"Excess Cash Flow" means, if applicable with respect to a
Series (as specified in the related Prospectus Supplement), the
amount, if any, by which (a) the cash flow received from the
Mortgage Assets in the related Trust Fund and deposited in the
related Certificate Account (excluding any Retained Interest but
including transfers from any applicable Reserve Fund), net of
applicable servicing fees, guarantee fees, insurance premiums and
other administrative expenses, on the relevant determination date
exceeds (b) the sum of (1) the Minimum Principal Distribution
Amount for such Series on such Distribution Date and (2) the
Accrual Distribution Amount, if any, on such Distribution Date.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration, a division
of HUD.
"FHA Loan" means a fixed-rate housing loan insured by the
FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a
Class of a Series, the date after which no Certificates of such
Class will remain outstanding assuming timely payments or
distributions are made on the Mortgage Assets in the related
Trust Fund.
"Floating Interest Certificate" means any Certificate which
accrues interest at a Floating Rate.
"Floating Interest Period" means the period of time during
which a given Certificate Rate applies to a Class of Floating
Interest Certificates.
"Floating Rate" means a Certificate Rate which is subject to
change from time to time.
"FNMA" means the Federal National Mortgage Association.
"GEM Loan" means, unless specified otherwise in the related
Prospectus Supplement for a Series, a fixed rate, fully
amortizing mortgage loan providing for monthly payments based on
a 10-to 30-year amortization schedule, with further provisions
for scheduled annual payment increases for a number of years with
the full amount of such increases being applied to principal, and
with further provision for level payments thereafter.
"GNMA" means the Government National Mortgage Association.
"GPM Certificate" means a Certificate backed by GPM Loans.
"GPM Loan" means a mortgage loan providing for graduated
payments, having an amortization schedule (a) requiring the
mortgagor's monthly installments of principal and interest to
increase at a predetermined rate annually for a predetermined
period of time after which the monthly installments became fixed
for the remainder of the mortgage term, (b) providing for
deferred payment of a portion of the interest due monthly during
such period of time and (c) providing for recoupment of the
interest deferred through negative amortization whereby the
difference between the scheduled payment of interest on the
mortgage note and the amount of interest actually accrued is
added monthly to the outstanding principal balance of the
mortgage note.
"Guaranteed Investment Contract" means a guaranteed
investment contract or reinvestment agreement providing for the
investment of funds held in a fund or account, guaranteeing a
minimum or a fixed rate of return on the investment of moneys
deposited therein.
"HUD" means the United States Department of Housing and
Urban Development.
"Index" means the index applicable to any adjustments in the
Mortgage Rates of any ARMs included in the Mortgage Assets.
"Insurance Policies" means certain mortgage insurance,
hazard insurance, and other insurance policies required to be
maintained with respect to Loans.
"Insurance Proceeds" means amounts paid by the insurer under
any of the Insurance Policies covering any Loan or Mortgaged
Property.
"Interest Accrual Period" means the period, if any,
specified in the related Prospectus Supplement for a Series,
during which interest accrues on the Certificates or a Class of
Certificates of such Series with respect to any Distribution Date
or Special Distribution Date.
"Interest Weighted Certificates" means Certificates entitled
to a greater percentage of interest on the Loans underlying or
comprising the Mortgage Assets for the Series than the percentage
of principal, if any, on such Loans to which it is entitled.
"IRS" means the Internal Revenue Service.
"L/C Bank" means the issuer of a letter of credit.
"Letter of Credit" means an irrevocable letter of credit
issued by the L/C Bank to provide limited protection against
certain losses relating to Loans, as described in the related
Prospectus Supplement for a Series.
"LIBOR" means the average of the interbank offered rates for
United States dollar deposits in the London interbank market
based on quotations of major banks.
"Lifetime Mortgage Rate Cap" means the maximum permissible
Mortgage Rate during the life of each ARM.
"Liquidation Proceeds" means amounts received by the Master
Servicer or Servicer in connection with the liquidation of a
mortgage, net of liquidation expenses.
"Loan" means a Mortgage Loan (including an interest therein)
or a Manufactured Home Loan (including an interest therein) that
is deposited by the Depositor into the Trust Fund for a Series.
"Loan-to-Value Ratio" means the ratio, expressed as a
percentage, of the principal amount of a Loan at the date of
determination to the Appraised Value.
"Manufactured Home" means a manufactured home within the
meaning of 42 United States Code, Section 5402(6), which defines
a "manufactured home" as "a structure, transportable in one or
more sections, which in the traveling mode, is eight body feet or
more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and
which is built on a permanent chassis and designed to be used as
a dwelling with or without a permanent foundation when connected
to the required utilities, and includes the plumbing, heating,
air-conditioning, and electrical systems contained therein except
that such term shall include any structure which meets all the
requirements of [this] paragraph except the size requirements and
with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban
Development and complies with the standards established under
[this] chapter."
"Manufactured Home Loan" means a loan secured by a
Manufactured Home.
"Master Servicer" means, with respect to a Series secured by
Loans, the Person, if any, designated in the related Prospectus
Supplement to manage and supervise the administration and
servicing by the Servicers of the Loans comprising or underlying
the Mortgage Assets for that Series, or the successors or assigns
of such Person.
"Maximum Floating Rate" means, as to any Series, the per
annum interest rate cap specified for any Floating Rate
Certificates of such Series in the related Prospectus Supplement.
"Minimum Floating Rate" means, as to any Series, the per
annum interest rate floor specified for any Floating Rate
Certificate of such Series in the related Prospectus Supplement.
"Minimum Principal Distribution Amount" means, if applicable
with respect to a Distribution Date for a Series (as specified in
the related Prospectus Supplement), the amount, if any, by which
(a) the outstanding principal balance of the Certificates of such
Series (before giving effect to any payment of principal on that
Distribution Date) exceeds (b) the aggregate Asset Value of the
Mortgage Assets for the Series as of that Distribution Date.
"Minimum Mortgage Rate" means the lifetime minimum Mortgage
Rate during the life of each ARM.
"Mortgage" means the mortgage, deed of trust or other
instrument securing a Mortgage Note.
"Mortgage Assets" means the Private Mortgage-Backed
Securities or Loans, as the case may be, which are included in
the Trust Fund for such Series. A Mortgage Asset refers to a
specific Private Mortgage-Backed Security or Loan, as the case
may be.
"Mortgage Loan" means a mortgage loan (including an interest
therein) secured by Mortgaged Property including Condominium
Loans.
"Mortgage Note" means the note or other evidence of
indebtedness of a Mortgagor under the Mortgage Loan.
"Mortgage Rate" means, unless otherwise indicated herein or
in the Prospectus Supplement, the interest rate borne by each
Loan.
"Mortgaged Property" means the real property securing a
Mortgage.
"Negatively Amortizing ARMS" means ARMs which provide for
limitations on changes in the Scheduled Payment which can result
in Scheduled Payments which are greater or less than the amount
necessary to amortize such ARM by its stated maturity at the
Mortgage Rate in effect in any particular month.
"Participation Certificate" means a certificate evidencing a
participation interest in a pool of Loans.
"Percentage Interest" means, with respect to a Certificate,
the proportion (expressed as a percentage) of the percentage
amounts of all of the Certificates in the related Class
represented by such Certificate, as specified in the related
Prospectus Supplement.
"Person" means any individual, corporation, partnership,
joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization, or
government or any agency or political subdivision thereof.
"PMBS Agreement" means the pooling and servicing agreement,
indenture, trust agreement or similar agreement pursuant to which
a Private Mortgaged-Backed Security is issued.
"PMBS Issuer" means, with respect to Private Mortgage-Backed
Securities, the depositor or seller/servicer under a PMBS
Agreement.
"PMBS Servicer" means the servicer of the housing loans
underlying a Private Mortgage-Backed Security.
"PMBS Trustee" means the trustee designated under a PMBS
Agreement.
"Pooling and Servicing Agreement" means the agreement
relating to a Series among the Depositor, the Master Servicer and
the Trustee.
"Principal Distribution Amount" means, if applicable with
respect to a Series (as specified in the related Prospectus
Supplement), the sum of (a) the Accrual Distribution Amount, if
any, (b) the Minimum Principal Distribution Amount and (c) the
percentage, if any, of Excess Cash Flow specified in the related
Prospectus Supplement.
"Principal Weighted Certificates" means Certificates
entitled to a greater percentage of principal on the Loans
underlying or comprising the Mortgage Assets in the Trust Fund
for the related Series than the percentage of interest to which
it is entitled.
"Private Mortgage-Backed Security" means a mortgage
participation or pass-through certificate representing a
fractional, undivided interest in (i) Loans, (ii) collateralized
mortgage obligations secured by Loans or (iii) Agency Securities.
"Qualified Insurer" means a mortgage guarantee or insurance
company duly qualified as such under the laws of the states in
which the Mortgaged Properties are located, duly authorized and
licensed in such states to transact the applicable insurance
business and to write the insurance provided.
"Rating Agency" means a nationally recognized statistical
rating organization.
"Reduced Volatility Certificates" means a Class of
Certificates on which minimum payments of principal are made in
accordance with a schedule specified in the Prospectus
Supplement, the date specified in the related Prospectus
Supplement or the date on which the principal of all Certificates
of the Series having an earlier Final Scheduled Distribution Date
have been paid in full.
"Regular Interest" means a regular interest in a REMIC as
described herein under "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS-Tax Status as a REMIC."
"Reinvestment Income" means any interest or other earnings
on funds or accounts that are part of the Trust Fund for a
Series.
"REMIC" means a real estate mortgage investment conduit
under Section 860D of the Code.
"REMIC Administrator" means the Person, if any, specified in
the related Prospectus Supplement for a Series for which a REMIC
election is made, to serve as administrator of the Series.
"REO Property" means real property which secured a defaulted
Loan which has been acquired upon foreclosure, deed in lieu of
foreclosure or repossession.
"Reserve Fund" means, with respect to a Series, any Reserve
Fund established pursuant to the Pooling and Servicing Agreement.
"Residual Interest" means a residual interest in a REMIC as
described herein under "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS-Tax Status as a REMIC."
"Retained Interest" means, with respect to a Mortgage Asset,
the amount or percentage specified in the related Prospectus
Supplement which is not sold by the Depositor or seller of the
Mortgage Asset and, therefore, is not included in the Trust Fund
for the related Series.
"Scheduled Payments" means the scheduled payments of
principal and interest to be made by the borrower on a Mortgage
Loan in accordance with the terms of the related Mortgage Note.
"Senior Certificateholder" means the Holder of a Senior
Certificate.
"Senior Certificates" means a Class of Certificates as to
which the Holders' rights to receive distributions of principal
and interest are senior to the rights of Holders of Subordinate
Certificates, to the extent specified in the related Prospectus
Supplement.
"Servicer" means the entity which has primary liability for
servicing Loans if other than the Master Servicer.
"Servicer Account" means an account established by a
Servicer (other than the Master Servicer) who is directly
servicing Loans, into which such Servicer will be required to
deposit all receipts received by it with respect to the Mortgage
Assets serviced by such Servicer.
"Servicer Remittance Date" means the calendar day or days of
each month, as specified in the related Prospectus Supplement for
a Series, on which the Servicer is required to withdraw funds
from the related Servicer Account for remittance to the Master
Servicer.
"Single Family Property" means property securing a Loan
consisting of one-to four-family attached or detached residential
housing.
"Special Distribution" means, if applicable with respect to
a Series (as specified in the related Prospectus Supplement), a
distribution (other than a regular distribution on a Distribution
Date) made on account of particular circumstances specified
herein.
"Special Distribution Date" means, if applicable with
respect to a Series (as specified in the related Prospectus
Supplement), the date each month (other than any month in which a
Distribution Date occurs) on which Special Distributions may be
made on Certificates of that Series pursuant to the related
Pooling and Servicing Agreement; such date shall be the same day
of the month as the day on which Distribution Dates for the
Certificates of that Series occur.
"Subordinate Certificateholder" means a Holder of a
Subordinate Certificate.
"Subordinate Certificates" means a Class of Certificates as
to which the rights of Holders to receive distributions of
principal and interest are subordinated to the rights of Holders
of Senior Certificates, to the extent and under the circumstances
specified in the related Prospectus Supplement.
"Subordinated Amount" means the amount, if any, specified in
the related Prospectus Supplement for a Series with a Class of
Subordinated Certificates, that the Subordinate Certificates are
subordinated to the Senior Certificates of the same Series.
"Subordination Reserve Fund" means the subordination reserve
fund, if any, for a Series with a Class of Subordinate
Certificates, established pursuant to the related Pooling and
Servicing Agreement.
"Trustee" means the trustee under a Pooling and Servicing
Agreement, and its successors.
"Trust Fund" means all property and assets held for the
benefit of the Certificateholders by the Trustee under the
Pooling and Servicing Agreement for a Series of Certificates
including, without limitation, the Mortgage Assets (except any
Retained Interest), all amounts in the Certificate Account,
Collection Account or Servicer Accounts, distributions on the
Mortgage Assets (net of servicing fees), and reinvestment
earnings on such net distributions and amounts deposited in any
reserve fund and the proceeds of any insurance policies required
to be maintained with respect to the Loans.
"UCC" means the Uniform Commercial Code.
"VA" means the Department of Veterans Affairs.
"VA Loans" means housing loans partially guaranteed by the VA.
[BACK COVER PAGE OF PROSPECTUS]
<PAGE>
[SINGLE FAMILY]
SUBJECT TO COMPLETION - DATED MAY 17, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated May __, 1996)
$___,___,___
Quality Mortgage Acceptance Corp.
Depositor
Mortgage Loan Asset-Backed Certificates, Series 1996-_
$ 0 Class S Certificates, Variable Rate*
$__,___,___ Class A-1 Certificates, Adjustable Rate
$__,___,___ Class A-2 Certificates, Adjustable Rate
$__,___,___ Class B-1 Certificates, Adjustable Rate
*Based on the Notional Amount as described herein.
The Series 1996-_ Mortgage Loan Asset-Backed Certificates
(the "Certificates") will consist of the following seven Classes: (i)
Class S Certificates (the "Variable Strip Certificates"), (ii) Class
A-1 Certificates and Class A-2 Certificates (collectively, with the
Variable Strip Certificates, the "Senior Certificates"), (iii) Class
B-1 Certificates, Class B-2 Certificates and Class B-3 Certificates
(collectively, the "Subordinate Certificates") and (iv) Class R
Certificates (the "Residual Certificates"). Only the Senior
Certificates and the Class B-1 Certificates (collectively, the
"Offered Certificates") are offered hereby.
The Certificates will, in the aggregate, evidence the entire
beneficial ownership interest in a trust fund (the "Trust Fund")
consisting primarily of a pool of certain conventional,
adjustable-rate, fully-amortizing, one- to four-family, [first]
[second] lien mortgage loans (the "Mortgage Loans") to be deposited by
Quality Mortgage Acceptance Corp. (the "Depositor") into the Trust
Fund for the benefit of the Certificateholders. The Mortgage Loans
will have an aggregate principal balance as of __________ 1, 1996 (the
"Cut-off Date") of approximately $___,___,___ and have original terms
to maturity from the due dates of their first scheduled monthly
payment of interest and principal of not more than approximately 30
years. All of the Mortgage Loans were originated or acquired by
[Quality Mortgage USA, Inc.] [and/or name of other or additional
sellers] (the "Seller") and have been sold by the Seller to the
Depositor prior to the date of initial issuance of the Certificates
(the "Delivery Date"). The Mortgage Loans will be serviced by
__________ (the "Master Servicer"). The interest rate (the "Mortgage
Rate") on each Mortgage Loan will be subject to adjustment, commencing
approximately six months after the date of origination and
semi-annually thereafter based on the sum of the Index (as defined
herein) and the related Gross Margin (as defined herein), subject to
certain periodic and lifetime rate limitations (as described herein)[;
provided, however, that with respect to GPARM Loans (as defined
herein) such Mortgage Rate adjustments will be made monthly with no
periodic rate limitation and the amount of the monthly payment will
generally adjust semi-annually subject to certain limitations.
Accordingly, under certain circumstances described more fully herein,
the GPARM Loans and certain of the Certificates from time to time may
be subject to reduced amortization, negative amortization or
accelerated amortization]. The Index will be based on six-month
London interbank offered rates for United States dollar deposits
("Six-Month LIBOR") [or, with respect to the GPARM Loans, the
one-month London interbank offered rates for United States dollars
deposits ("One-Month LIBOR"),] as described herein. Certain
characteristics of the Mortgage Loans are described herein under
"DESCRIPTION OF THE MORTGAGE POOL," and certain matters related to the
servicing of the Mortgage Loans are described herein under "POOLING
AND SERVICING AGREEMENT" and in the Prospectus under "SERVICING OF
LOANS" and "THE POOLING AND SERVICING AGREEMENTS."
The rights of the holders of the Class B-2 Certificates and
the Class B-3 Certificates to receive distributions with respect to
the Mortgage Loans will be subordinate to the rights of the holders of
the Class B-1 Certificates and the Senior Certificates, the rights of
the holders of the Class B-1 Certificates to receive distributions
with respect to the Mortgage Loans will be subordinate to the rights
of the holders of the Senior Certificates, and the rights of the
holders of the Class A-2 Certificates to receive distributions with
respect to the Mortgage Loans will be subordinate to the rights of the
holders of the Variable Strip Certificates and the Class A-1
Certificates, in each case as and to the extent described herein.
______________________________
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION
OF THE DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY
OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE
DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________________
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
______________________________
Prospective investors should consider the factors set forth under
"RISK FACTORS," which begins on Page S-__ of this Prospectus
Supplement, and on Page __ of the Prospectus.
___________
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission. These
Securities may not be sold nor may offers to buy be accepted prior to
the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities in
any State in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of
any such State.
The Offered Certificates are being offered by the
Underwriter from time to time to the public in negotiated transactions
or otherwise at varying prices to be determined at the time of sale.
Proceeds to the Depositor are expected to be approximately $_,___,___
plus accrued interest, before deducting issuance expenses payable by
the Depositor.
The Offered Certificates are offered when, as and if
delivered to, and accepted by, the Underwriter, and subject to various
conditions, including the Underwriter's right to reject orders in
whole or in part. It is expected that the Variable Strip Certificates
and the Class A-1 Certificates will be delivered in book-entry form
through the Same Day Funds Settlement System of The Depository Trust
Company as further discussed herein, and that all other Offered
Certificates will be delivered in registered and certificated form at
the office of [Underwriter], New York, New York, on or about
__________, 1996, against payment therefor in immediately available
funds.
[Underwriter]
The date of this Prospectus Supplement is __________, 1996.
Distributions on the Offered Certificates will be made on
the 25th day of each month or, if such day is not a business day, then
on the next succeeding business day, commencing in __________ 1996
(each, a "Distribution Date"). As more fully described herein,
interest distributions on the Offered Certificates will be based on
the Certificate Principal Balances thereof (or the Notional Amount (as
defined herein) in the case of the Variable Strip Certificates) and
the related Certificate Rates. Except as described herein, the
Certificate Rates on the Certificates (other than the Variable Strip
Certificates) will be equal to One-Month LIBOR (as defined herein)
plus _____%. The Certificate Rate on the Variable Strip Certificates
will be equal to the excess, if any, of (i) the Net Mortgage Rate Cap
(as defined herein) over (ii) the Certificate Rate on the Certificates
(other than the Variable Strip Certificates). The Certificate Rate
with respect to the first Distribution Date for the Variable Strip
Certificates will be approximately _____% per annum and for the Class
A-1 Certificates, Class A-2 Certificates and Class B-1 Certificates
will be _____% per annum. [Due to the fact that the Mortgage Rates on
the GPARM Loans adjust monthly and the monthly payments thereon adjust
semi-annually, subject to certain limitations, a portion of the
interest that would otherwise be payable on the GPARM Loans and on the
Certificates may constitute Deferred Interest (as described herein)
which will be added to the principal balance of the GPARM Loans and to
the Certificate Principal Balances of certain of the Certificates, as
more fully described herein. Deferred Interest will generally be
allocated to the various classes of Certificates in the same order in
which Realized Losses are allocated as further described herein.]
Distributions in respect of principal will be allocated
among the various Classes of Certificates (other than the Variable
Strip Certificates), as described herein. No principal prepayments on
the Mortgage Loans will be distributed to holders of the Class B-1
Certificates prior to the Distribution Date occurring in __________
20__ and no principal prepayments on the Mortgage Loans will be
distributed to the holders of the Class B-1 Certificates thereafter if
certain criteria relating to the delinquency and loss performance of
the Mortgage Loans described herein are not satisfied, unless the
Class A-1 Certificates and the Class A-2 Certificates have been
retired. However, as described herein, because holders of the Class
B-3 Certificates will not be entitled to receive any interest or
principal distributions until the Classes of Subordinate Certificates
senior thereto have been retired, holders of the Class B-1
Certificates will be entitled to receive principal distributions that
include amounts otherwise distributable to holders of the Class B-3
Certificates.
The yield to maturity on the Offered Certificates will
depend on, among other things, the rate and timing of principal
payments (including prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans,which may vary significantly over
time. The yield to maturity on the Class B-1 Certificates and, to a
lesser extent, the Class A-2 Certificates, will be extremely sensitive
to losses on the Mortgage Loans (and the timing thereof) to the extent
that such losses are not covered by the Classes of Certificates
subordinate thereto, as described herein. The Mortgage Loans generally
may be prepaid in full or in part at any time; however, prepayment may
subject the mortgagor to a prepayment charge. The yield to investors
on the Offered Certificates will be adversely affected by any
shortfalls in interest collected on the Mortgage Loans due to
prepayments, liquidations or otherwise to the extent that such
shortfalls are not otherwise covered, as described herein. The yield
to investors on the Variable Strip Certificates will be extremely
sensitive to the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations) on the Mortgage
Loans which may vary significantly over time. A rapid rate of
principal payments (including prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans could result in the failure of
investors in the Variable Strip Certificates to recover their initial
investment. See "THE SELLER-Loan Delinquency, Forbearance,
Foreclosure, Bankruptcy and REO Property Status" and "-REO Property
Liquidation Experience" herein for important information regarding the
delinquency, forbearance, foreclosure, bankruptcy and REO property
status and loss experience of certain mortgage loans previously
originated or acquired by the Seller under substantially the same
underwriting criteria pursuant to which the Mortgage Loans were
originated or acquired. In addition, the yield to investors on the
Offered Certificates (other than the Variable Strip Certificates) will
be sensitive to fluctuations in the level of One-Month LIBOR (as
defined herein), which may vary significantly over time. Furthermore,
the yield to investors on the Variable Strip Certificates will be
extremely sensitive to fluctuations in the difference between the Net
Mortgage Rate Cap on the Mortgage Loans and in the level of One-Month
LIBOR plus _____%, which may vary significantly over time. See
"SUMMARY OF PROSPECTUS SUPPLEMENT-Special Prepayment Considerations"
and "-Special Yield Considerations" and "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" herein, and "RISK FACTORS" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS" in the Prospectus.
It is a condition to the issuance of the Offered
Certificates that the Variable Strip Certificates and the Class A-1
Certificates be rated "___" by [Rating Agency I] ("[Rating Agency I]")
and "___" by [Rating Agency II] ("[Rating Agency II]"), the Class A-2
Certificates be rated "___" by [Rating Agency I] and "___" by [Rating
Agency II] and the Class B-1 Certificates be rated "___" by [Rating
Agency I] and "___" by [Rating Agency II].
As described herein, a "real estate mortgage investment
conduit" ("REMIC") election will be made in connection with the Trust
Fund for federal income tax purposes. Each Class of the Offered
Certificates will constitute a "regular interest" in the REMIC. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" herein and in the
Prospectus.
There is currently no secondary market for the Offered
Certificates. [Underwriter] (the "Underwriter") intends to make a
secondary market in the Offered Certificates but has no obligation to
do so. There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it will
continue or will provide investors with a sufficient level of
liquidity. The Offered Certificates will not be listed on any
securities exchange. See "RISK FACTORS" in the Prospectus.
The information set forth herein under "SUMMARY OF
PROSPECTUS SUPPLEMENT-The Mortgage Pool," "DESCRIPTION OF THE MORTGAGE
POOL" and "THE SELLER" (other than the information set forth herein
under "THE SELLER-Loan Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status" and, to the extent provided by
[Servicer] as described herein, the information set forth herein under
"THE SELLER-REO Property Liquidation Experience") has been provided by
the Seller. No representation is made by the Depositor, the
Underwriter, the Master Servicer, the Trustee or any of their
respective affiliates as to the accuracy or completeness of the
information provided by the Seller. The information set forth herein
under "THE SELLER -Loan Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status" and, other than to the extent
provided by the Seller, the information set forth herein under "THE
SELLER-REO Property Liquidation Experience" has been provided by
[Servicer] in its capacity as servicer during the periods indicated.
No representation is made by the Depositor, the Underwriter, the
Master Servicer, the Seller, the Trustee or any of their respective
affiliates as to the accuracy or completeness of the information
provided by [Servicer].
____________________________________
No person is authorized in connection with this offering to
give any information or to make any representation about the
Depositor, the Seller, the Master Servicer, the Trustee, the Offered
Certificates or any other matter referred to herein, other than those
contained in this Prospectus Supplement or the Prospectus. If any
other information or representation is given or made, such information
or representation may not be relied upon as having been authorized by
the Depositor, the Seller, the Master Servicer or the Trustee. This
Prospectus Supplement and the Prospectus do not constitute an offer to
sell or a solicitation of an offer to buy securities other than the
Offered Certificates, or an offer to sell or a solicitation of an
offer to buy securities in any jurisdiction or to any person to whom
it is unlawful to make such offer in such jurisdiction. Neither the
delivery of this Prospectus Supplement or the Prospectus nor any sale
hereunder or thereunder shall, under any circumstances, create any
implication that the information contained herein or therein is
correct as of any time subsequent to their respective dates.
____________________________________
The Offered Certificates offered by this Prospectus
Supplement will be part of a separate series of Certificates being
offered by the Depositor pursuant to its Prospectus dated __________,
1996, of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering that is not contained
herein, and prospective investors are urged to read the Prospectus and
this Prospectus Supplement in full.
____________________________________
Until 90 days after the date of this Prospectus Supplement,
all dealers effecting transactions in the Offered Certificates,
whether or not participating in this distribution, may be required to
deliver a Prospectus Supplement and the Prospectus to which it
relates. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
Prospectus Supplement
Page
SUMMARY OF PROSPECTUS SUPPLEMENT..............................S-8
RISK FACTORS.................................................S-27
DESCRIPTION OF THE MORTGAGE POOL.............................S-28
ADDITIONAL INFORMATION.......................................S-42
THE DEPOSITOR................................................S-42
DESCRIPTION OF THE CERTIFICATES..............................S-48
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS..................S-63
POOLING AND SERVICING AGREEMENT..............................S-71
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................S-77
METHOD OF DISTRIBUTION.......................................S-79
USE OF PROCEEDS..............................................S-80
LEGAL OPINIONS...............................................S-80
RATINGS......................................................S-80
LEGAL INVESTMENT.............................................S-81
ERISA CONSIDERATIONS.........................................S-82
Prospectus
Prospectus Supplement...........................................3
Additional Information..........................................3
Reports to Certificateholders...................................3
Incorporation of Certain Documents by Reference.................4
Summary of Terms of the Certificates............................5
Risk Factors...................................................17
Description of the Certificates................................24
Yield, Prepayment and Maturity Considerations..................29
The Trust Funds................................................33
Loan Underwriting Procedures and Standards.....................40
Servicing of Loans.............................................44
Credit Support.................................................54
Description of Mortgage and Other Insurance....................58
The Pooling and Servicing Agreements...........................60
Certain Legal Aspects of Loans.................................71
Certain Federal Income Tax Consequences........................80
State and Other Tax Consequences..............................113
ERISA Considerations..........................................113
Legal Investment..............................................116
Legal Matters.................................................117
The Depositor.................................................118
Use of Proceeds...............................................118
Plan of Distribution..........................................118
Glossary......................................................119
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference
to the detailed information appearing elsewhere herein and in the
Prospectus. Capitalized terms used herein and not otherwise defined
herein have the meanings assigned in the Prospectus.
Title of Securities.......Mortgage Loan Asset-Backed Certificates,
Series 1996-_.
Depositor.................Quality Mortgage Acceptance Corp. (the "Depositor").
See "THE DEPOSITOR" in the Prospectus.
Master Servicer...........__________ (the "Master Servicer"). See "POOLING
AND SERVICING AGREEMENT-The Master Servicer"
herein.
Seller....................[Quality Mortgage USA, Inc.] [and/or
name of other or additional sellers].
See "Seller" herein.
Trustee...................[Trustee] (the "Trustee"). See "POOLING AND
SERVICING AGREEMENT-The Trustee" herein.
Cut-off Date..............__________, 1996.
Delivery Date.............On or about __________, 1996.
Denominations.............The Variable Strip Certificates will be issued,
maintained and transferred on the book-entry records
of the Depository Trust Company ("DTC") and its
Participants in minimum initial Notional
Amounts (as defined herein) of $1.00 and
integral multiples of $1.00 in excess
thereof. The Class A-1 Certificates will be
issued, maintained and transferred on the
book-entry records of DTC and its
Participants in minimum denominations of
$1.00 and integral multiples of $1.00 in
excess thereof. The Class A-2 Certificates
will be issued in minimum denominations of
$25,000 and integral multiples of $1,000 in
excess thereof, and the Class B-1
Certificates will be issued in minimum
denominations of $250,000 and integral
multiples of $1,000 in excess thereof;
provided, however, that one Certificate of
each such Class may be issued evidencing the
sum of an authorized denomination thereof
and the remainder of the aggregate initial
Certificate Principal Balance of such Class.
Registration..............The Variable Strip Certificates and the Class A-1
Certificates (collectively, the "DTC Registered
Certificates") will be represented by one or
more Certificates registered in the name of
Cede & Co., as nominee of DTC. No person
acquiring a beneficial interest in a Class
of DTC Registered Certificates (each, a
"Beneficial Owner") will be entitled to
receive a Certificate of such Class in
certificated form, except under the limited
circumstances described herein. For each
Certificate held by DTC, DTC will effect
payments to and transfers of the related DTC
Registered Certificates among the respective
Beneficial Owners by means of its electronic
recordkeeping services, acting through
organizations that participate in DTC. This
arrangement may result in certain delays in
receipt of distributions by Beneficial
Owners and may restrict a Beneficial Owner's
ability to pledge the Certificates
beneficially owned by it. All references in
this Prospectus Supplement to the DTC
Registered Certificates reflect the rights
of Beneficial Owners of such Certificates
only as such rights may be exercised through
DTC and its participating organizations so
long as such Certificates are held by DTC.
The Offered Certificates (other than the DTC
Registered Certificates) will be offered in
registered and certificated form. See
"DESCRIPTION OF THE CERTIFICATES-Book-Entry
Registration" in the Prospectus.
The Mortgage Pool.........Based solely upon information provided by the Seller,
the Mortgage Loans will have the characteristics
described herein. Trust Fund (as defined herein) will
consist primarily of a pool (the "Mortgage Pool")
of conventional, adjustable-rate, fully-amortizing,
mortgage loans (the "Mortgage Loans") with an
aggregate principal balance as of the
Cut-off Date of $___,___,___. The Mortgage Loans
are secured by [first][second] liens on fee simple
and leasehold interests in one- to four-family
residential real properties (each, a "Mortgaged
Property") and have original terms to maturity from
the due dates of their first scheduled monthly
payment of interest and principal (each such
payment, a "Monthly Payment") of not more than 30
years. All of the Mortgage Loans have Monthly
Payments due on the first day of each month.
The Mortgage Rate on each Mortgage Loan will
be subject to adjustment, commencing
approximately six months after the date of
origination and semi-annually thereafter,
on the adjustment date applicable thereto
(each such date, an "Adjustment Date") to
equal the sum, rounded to the nearest
0.125%, of the Index (as defined herein)
and a fixed percentage amount (the "Gross
Margin"), subject to periodic rate caps
and maximum and minimum Mortgage Rates as
described herein. Approximately _____% of
the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were
originated with a Mortgage Rate below the
sum of the applicable Index and Gross
Margin, rounded as described herein. No
Mortgage Loan had an initial Adjustment
Date prior to __________, 1996. [None of
the Mortgage Loans include provisions for
negative amortization or deferred
interest.]
[Approximately _____% of the Mortgage
Loans are graduated payment adjustable rate
mortgage loans (the "GPARM Loans"), as to
which the Mortgage Rate will adjust monthly,
subject to maximum and minimum Mortgage
Rates as described herein but with no
periodic rate limitation. The amount of the
monthly payment of principal and interest on
each such GPARM Loan will adjust
semi-annually commencing on the first
anniversary of the first Due Date to a fully
amortizing payment, provided that, except as
described herein, any increase in the amount
of the monthly payment on any Payment
Adjustment Date is limited to an amount not
greater than _____% of the monthly payment
due on the immediately preceding Due Date
(the "Payment Cap"). Because the Mortgage
Rates on the GPARM Loans adjust on a monthly
basis and monthly payments adjust only
semi-annually, and because the application
of Payment Caps may limit the amount by
which the monthly payments may adjust, the
GPARM Loans will be subject to reduced
amortization, negative amortization or
accelerated amortization from time to time.
For a further description of GPARM Loans,
see "DESCRIPTION OF THE MORTGAGE POOL"
herein.
To the extent that accrued interest on any
GPARM Loan for any month exceeds the related
monthly payment, such excess ("Deferred
Interest") is added to the principal balance
of such GPARM Loan and thereafter accrues
interest at the related Mortgage Rate.
Deferred Interest will not be distributed to
the holders of the Certificates as it
accrues, but will be added to the
Certificate Principal Balances of certain of
the Certificates as further described
herein.]
Approximately _____% of the Mortgage Loans
(by aggregate principal balance as of the
Cut-off Date) were thirty days or more but
less than sixty days delinquent in their
Monthly Payments as of the Cut-off Date
(such Mortgage Loans, "Thirty-Day Delinquent
Mortgage Loans"). Approximately _____% of
the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were sixty
days or more but less than ninety days
delinquent in their Monthly Payments as of
the Cut-off Date (such Mortgage Loans,
"Sixty-Day Delinquent Mortgage Loans").
Approximately _____% of the Mortgage Loans
(by aggregate principal balance as of the
Cut-off Date) were Thirty-Day Delinquent
Mortgage Loans as of the Cut-off Date, and
approximately _____% of the Mortgage Loans
were Sixty-Day Delinquent Mortgage Loans as
of the Cut-off Date. Prospective investors
in the Offered Certificates should be aware,
however, that approximately _____% of the
Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) had a first
monthly payment due on or before __________,
1996, and that approximately _____% of the
Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) had a first
monthly payment due on or before __________,
1996, and therefore, the remaining Mortgage
Loans could not have been Thirty-Day
Delinquent Mortgage Loans or Sixty-Day
Delinquent Mortgage Loans as of the Cut-off
Date. In addition to the foregoing,
approximately _____% of the Mortgage Loans
(by aggregate principal balance as of the
Cut-off Date) will have been thirty days or
more delinquent in their Monthly Payments
more than once during the twelve months
preceding the Delivery Date. None of the
other Mortgage Loans will have been thirty
days or more delinquent in its Monthly
Payments more than once during such period.
All of the Mortgage Loans were
originated or acquired under the Seller's
[regular][equity] lending program, as
described herein. Mortgage loans
originated or acquired under the
[regular][equity] lending program are
likely to experience rates of delinquency,
foreclosure, bankruptcy and loss that are
higher, and that may be substantially
higher, than those of mortgage loans
originated in a more traditional manner.
See "RISK FACTORS-Underwriting Standards
and Potential Delinquencies" and
"DESCRIPTION OF THE MORTGAGE POOL
-Underwriting Standards" herein. In
addition, see "THE SELLER-Loan
Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status" and
"-REO Property Liquidation Experience"
herein for important information regarding
the delinquency, forbearance, foreclosure,
bankruptcy and REO property status and
loss experience of certain mortgage loans
previously originated or acquired by the
Seller under substantially the same
underwriting criteria pursuant to which
the Mortgage Loans were originated or
acquired.
Indexes...................As of any Adjustment Date, the Index applicable to
the determination of the Mortgage Rate on each
Mortgage Loan will be the average of the
interbank offered rates for [(i)]
six-month United States dollar deposits in
the London interbank market based on
quotations of major banks ("Six-Month
LIBOR"), [or (ii) with respect to the
GPARM Loans, one-month United States
dollar deposits in the London interbank
market based on quotations of major banks
("One-Month LIBOR"), in each case] as
published in the Western Edition of The
Wall Street Journal, as most recently
available as of the date 45 days prior to
such Adjustment Date. See "DESCRIPTION OF
THE MORTGAGE POOL" herein.
The Offered Certificates..The Offered Certificates will be issued pursuant to
a Pooling and Servicing Agreement, to be dated as of
__________ 1, 1996, among the Depositor, the
Master Servicer and the Trustee (the
"Pooling and Servicing Agreement"). The
Class A-1 Certificates, the Class A-2
Certificates and the Class B-1 Certificates
will evidence initial undivided beneficial
ownership interests of approximately _____%,
_____% and _____%, respectively, in a trust
fund (the "Trust Fund") consisting primarily
of the Mortgage Pool. The Offered
Certificates (other than the Variable Strip
Certificates) will have the following
approximate Certificate Principal Balances
as of the Cut-off Date:
Class A-1 Certificates $ __,___,___
Class A-2 Certificates $ __,___,___
Class B-1 Certificates $ __,___,___
The Variable Strip Certificates have no
Certificate Principal Balance and will
accrue interest on the Notional Amount (as
defined herein).
On the first Distribution Date, the
Certificate Rate on the Certificates (other
than the Variable Strip Certificates) will
be _____% per annum. Thereafter, on the
second business day preceding each
Distribution Date (each such date, an
"Interest Determination Date"), the Trustee
will determine the "One-Month LIBOR" for
the Distribution Date in the following
month for the Offered Certificates (other
than the Variable Strip Certificates) on
the basis of the offered rates of the
Reference Banks for one-month United Stated
dollar deposits, as such rates appear on
the Reuters Screen LIBO Page, as of 11:00
a.m. (London time) on such Interest
Determination Date. See "DESCRIPTION OF
THE CERTIFICATES-Calculation of One-Month
LIBOR" herein. The Certificate Rate on the
Certificates (other than the Variable Strip
Certificates) for each Distribution Date
after the initial Distribution Date will be
equal to One-Month LIBOR (as defined
herein) plus _____%; provided, however,
that the Certificate Rate on each such
Class of Certificates will be subject to a
maximum rate as of any Distribution Date
equal to the lesser of (i) _____% per annum
and (ii) the Net Mortgage Rate Cap. The
Net Mortgage Rate Cap is a per annum rate
equal to the weighted average of the Net
Mortgage Rates on the then-outstanding
Mortgage Loans. The Certificate Rate on
the Variable Strip Certificates on each
Distribution Date will be equal to the
excess, if any, of (i) the Net Mortgage
Rate Cap over (ii) the Certificate Rate on
the Certificates (other than the Variable
Strip Certificates). The Certificate Rate
will be approximately _____% per annum with
respect to the first Distribution Date for
the Variable Strip Certificates. The Net
Mortgage Rate on each Mortgage Loan will be
equal to the Mortgage Rate thereon minus
_____% per annum, the annual rate at which
the related servicing fee accrues (the
"Servicing Fee Rate").
Interest Distributions.....Holders of the Variable Strip Certificates and the
Class A-1 Certificates will be entitled to
receive interest distributions in an amount equal
to the Accrued Certificate Interest (as
defined herein) on such Class on each
Distribution Date (the "Priority Interest
Distribution Amount"), to the extent of the
Available Distribution Amount for such
Distribution Date. Holders of the Class A-2
Certificates will be entitled to receive
interest distributions in an amount equal
to the Accrued Certificate Interest on such
Class on each Distribution Date, to the
extent of the portion of the Available
Distribution Amount for such Distribution
Date remaining after distributions of
interest to the holders of the Variable
Strip Certificates and interest and
principal to the holders of the Class A-1
Certificates and, if the Certificate
Principal Balances of the Subordinate
Certificates (as defined herein) have been
reduced to zero, reimbursement for certain
Advances to the Master Servicer, as
described herein.
Holders of the Class B-1 Certificates will
be entitled to receive interest
distributions in an amount equal to the
Accrued Certificate Interest on such Class
on each Distribution Date, to the extent of
the portion of the Available Distribution
Amount for such Distribution Date remaining
after distributions of interest and
principal (as applicable) to the holders of
the Classes of Senior Certificates and, if
the Certificate Principal Balances of the
Subordinate Certificates subordinate
thereto have been reduced to zero,
reimbursement for certain Advances to the
Master Servicer, as described herein.
With respect to any Distribution Date,
Accrued Certificate Interest will be equal
to (a) in the case of the Offered
Certificates (other than the Variable Strip
Certificates), interest accrued for the
Accrual Period (as defined herein) on the
Certificate Principal Balance of the
Certificates of such Class at the related
Certificate Rate, and (b) in the case of
the Variable Strip Certificates, interest
accrued for the Accrual Period on the
Notional Amount for such Class of
Certificates at the related Certificate
Rate, in each case less any interest
shortfalls not covered with respect to such
Class of Certificates by Subordination (as
defined herein and allocated as described
herein), including any Prepayment Interest
Shortfall (as defined herein) for such
Distribution Date to the extent not covered
by payments by the Master Servicer as
described herein and the interest portions
of any Realized Losses (as defined herein)
allocated thereto. The Accrual Period for
each Distribution Date will be from the
25th day of the month preceding such
Distribution Date to the 24th day of the
month of such Distribution Date, provided,
however, that the Accrual Period will be
treated as a 30-day period regardless of
the number of days from the 25th day of the
preceding month to the 24th day of such
month. See "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions"
herein.
The notional amount (the "Notional
Amount") of the Variable Strip
Certificates, as of any date of
determination, is equal to the aggregate
Certificate Principal Balance of all
Classes of Certificates (including such
Classes of Certificates not offered hereby)
as of such date; provided that the initial
Notional Amount for the Variable Strip
Certificates shall be rounded down to the
nearest dollar increment. The Notional
Amount of the Variable Strip Certificates
will be equal to $___,___,___ as of the
Cut-off Date. See "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions"
herein.
[On each Distribution Date, the aggregate
amount of Deferred Interest, if any, that
is added to the principal balance of the
GPARM Loans on the Due Date occurring in
the month in which such Distribution Date
occurs will be allocated by operation of
the payment provisions described herein as
follows: first, to the Class R
Certificates, second, to the Class B
Certificates, third, to the Class A-2
Certificates and fourth, to the Class A-1
Certificates, in each case to the extent of
the Accrued Certificate Interest thereon as
calculated under the provisions described
herein without regard to the allocation of
Deferred Interest thereto. Deferred
Interest allocated to a Class of
Certificates on any Distribution Date will
be added to the Certificate Principal
Balance thereof on such Distribution Date
and will thereafter bear interest at the
then applicable Certificate Rate.]
References herein to the Notional Amount
of the Variable Strip Certificates are used
solely for certain calculations and do not
represent the right of the holders of the
Variable Strip Certificates to receive
distributions of such amount.
Principal Distributions....Holders of the Class A-1 Certificates will be
entitled to receive on each Distribution Date to
the extent of the portion of the Available
Distribution Amount remaining after the
Priority Interest Distribution Amount is
distributed, a distribution allocable to
principal that will, as more fully
described herein, include (i) the Class A-1
Percentage (as defined herein) of scheduled
principal payments due on the Mortgage
Loans and of certain unscheduled
collections of principal on the Mortgage
Loans as described herein, (ii) the Class
A-1 Percentage divided by the Senior
Percentage (as defined herein) multiplied
by the then-applicable Senior Prepayment
Percentage (as defined herein) of all
principal prepayments made by the
mortgagors during the related Prepayment
Period and (iii) in connection with a
Mortgage Loan for which a Cash Liquidation
or an REO Disposition (each as defined
herein) occurred during the related
Prepayment Period and did not result in any
Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses (each as defined
herein), an amount equal to the lesser of
(A) the then-applicable Class A-1
Percentage of the Stated Principal Balance
(as defined herein) of such Mortgage Loan
and (B)(1) the Class A-1 Percentage for
such Distribution Date divided by the
Senior Percentage for such Distribution
Date multiplied by (2) the Senior
Prepayment Percentage for such Distribution
Date, multiplied by the amount of the
related collections, to the extent applied
as recoveries of principal of such Mortgage
Loan.
Holders of the Class A-2 Certificates will
be entitled to receive on each Distribution
Date, to the extent of the portion of the
Available Distribution Amount remaining
after the Priority Interest Distribution
Amount is distributed and distributions in
respect of principal to the holders of the
Class A-1 Certificates and, if the
Certificate Principal Balances of the
Subordinate Certificates have been reduced
to zero, after reimbursement for certain
Advances to the Master Servicer described
below under "-Advances," and after
distributions in respect of interest on
such Class, a distribution allocable to
principal that will, as more fully
described herein, include (i) the Class A-2
Percentage (as defined herein) of scheduled
principal payments due on the Mortgage
Loans and of certain unscheduled
collections of principal on the Mortgage
Loans as described herein, (ii) the Class
A-2 Percentage divided by the Senior
Percentage multiplied by the
then-applicable Senior Prepayment
Percentage of all principal prepayments
made by the mortgagors during the related
Prepayment Period and (iii) in connection
with a Mortgage Loan for which a Cash
Liquidation or an REO Disposition occurred
during the related Prepayment Period and
did not result in any Excess Special Hazard
Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses,
an amount equal to the lesser of (A) the
then-applicable Class A-2 Percentage of the
Stated Principal Balance of such Mortgage
Loan and (B)(1) the Class A-2 Percentage
for such Distribution Date divided by the
Senior Percentage for such Distribution
Date multiplied by (2) the Senior
Prepayment Percentage for such Distribution
Date, multiplied by the amount of the
related collections, to the extent applied
as recoveries of principal of such Mortgage
Loan.
The Senior Percentage, the Class A-1
Percentage and the Class A-2 Percentage
initially will be equal to approximately
_____%, _____% and _____%, respectively,
and each will be recalculated, as more
fully described herein, after each
Distribution Date to reflect the
entitlement of the holders of the Senior
Certificates (other than the Variable Strip
Certificates) to subsequent distributions
allocable to principal of the Mortgage
Loans. For each Distribution Date occurring
prior to the Distribution Date in December
20__, the Senior Prepayment Percentage will
be equal to 100% and all principal
prepayments will be distributed to the
Class A-1 Certificates and the Class A-2
Certificates on a pro rata basis as
described herein. Thereafter, during
certain periods, subject to certain loss
and delinquency criteria described herein,
the Senior Prepayment Percentage may be
100% or otherwise disproportionately large
(relative to the Senior Percentage) and the
percentage of principal prepayments
distributable in respect of the Class A-1
Certificates and the Class A-2 Certificates
may be disproportionately large (relative
to the Senior Percentage).
Holders of the Class B-1 Certificates will
be entitled to receive on each Distribution
Date, to the extent of the portion of the
Available Distribution Amount remaining
after distributions of interest and
principal, as applicable, to the Senior
Certificates, and, if the Certificate
Principal Balances of the Subordinate
Certificates subordinate thereto have been
reduced to zero, reimbursement is made to
the Master Servicer for certain Advances as
described herein, and after distributions
in respect of interest on such Class, a
distribution allocable to principal that
will, as more fully described herein,
include (i) the Class B-1 Percentage (as
defined below) of scheduled principal
payments due on the Mortgage Loans and of
certain unscheduled collections of
principal on the Mortgage Loans as
described herein, (ii) the Class B-1
Prepayment Percentage (as defined herein)
of all principal prepayments that were made
by the mortgagors during the related
Prepayment Period and (iii) such Class' pro
rata share, based on the Certificate
Principal Balance of each Class of
Subordinate Certificates, of all amounts
received in connection with a Cash
Liquidation or an REO Disposition that
occurred during the related Prepayment
Period and that did not result in any
Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses, to the extent applied
as recoveries of principal of the related
Mortgage Loan and to the extent not
otherwise payable to the holders of the
Senior Certificates. In addition, the
holders of the Class B-1 Certificates will
be entitled to receive on each Distribution
Date a further distribution in respect of
principal equal to the portion of the
Available Distribution Amount remaining
after the distributions described above,
after reimbursement to the Master Servicer
for certain Advances as described below
under "-Advances" and after required
distributions in respect of interest and
principal on the Class B-2 Certificates
have been made as described herein.
The Class B-1 Prepayment Percentage with
respect to any Distribution Date will equal
the product of (a) 100% minus the Senior
Prepayment Percentage for such Distribution
Date multiplied by (b) a fraction, the
numerator of which is the Class B-1
Percentage and the denominator of which is
the sum of (i) the Class B-1 Percentage,
(ii) the Class B-2 Percentage and (iii) the
Class B-3 Percentage (each as defined
herein). The Class B-1 Percentage initially
will be equal to approximately _____%, and
will be recalculated, as more fully
described herein, after each Distribution
Date to reflect the entitlement of the
holders of such Classes of Certificates to
subsequent distributions allocable to
principal. For each Distribution Date
occurring prior to the Distribution Date in
December 20__, the Class B-1 Prepayment
Percentage will be equal to 0% and no
principal prepayments will be distributed
to the Class B-1 Certificates. Thereafter,
during certain periods, subject to certain
loss and delinquency criteria described
herein, the Senior Prepayment Percentage
may be 100% or otherwise disproportionately
large (relative to the Senior Percentage)
and the percentage of principal prepayments
distributable in respect of the Class B-1
Certificates may be disproportionately
small or large (relative to the Class B-1
Percentage).
Holders of the Variable Strip Certificates
will not be entitled to receive any
principal distributions.
See "DESCRIPTION OF THE CERTIFICATES-Principal
Distributions on the Class A-1 Certificates,"
"-Principal Distributions on the Class A-2
Certificates" and "-Principal Distributions
on the Class B-1 Certificates" herein.
Advances...................The Master Servicer is required to make advances
("Advances") in respect of delinquent payments of
principal and interest (net of the related
Servicing Fees) on the Mortgage Loans, subject to
the limitations described herein. The Trustee
will be obligated to make any such Advance
if the Master Servicer fails in its
obligation to do so, to the extent provided
in the Pooling and Servicing Agreement. See
"DESCRIPTION OF THE CERTIFICATES-Advances"
herein.
Allocation of Losses;
Subordination............Neither the Offered Certificates nor the Mortgage
Loans are insured or guaranteed by any governmental
agency or instrumentality or by the
Depositor, the Seller, the Master Servicer,
the Trustee or any of their respective
affiliates. Subject to the limitations
described below, Realized Losses on the
Mortgage Loans will be allocated first to
the Class B-3 Certificates, then to the
Class B-2 Certificates, then to the Class
B-1 Certificates, then to the Class A-2
Certificates, in each case until the
Certificate Principal Balance thereof is
reduced to zero, and thereafter the
principal portion thereof to the Class A-1
Certificates and the interest portion
thereof to the Variable Strip Certificates
and the Class A-1 Certificates on a pro
rata basis. The Subordination provided to
the Certificates by the Certificates
subordinate thereto will cover Realized
Losses on the Mortgage Loans resulting from
defaults on the Mortgage Loans and from
Special Hazard Losses, Fraud Losses and
Bankruptcy Losses (each as defined herein).
However, the aggregate amounts of Realized
Losses which may be allocated through
Subordination to cover Special Hazard
Losses, Fraud Losses and Bankruptcy Losses
on the Mortgage Loans initially are limited
to $_,___,___, $_,___,___ and $___,___,
respectively.
All of the foregoing amounts are subject to
periodic reduction as described herein. In
the event that the Certificate Principal
Balances of the Class A-2 Certificates and
the Subordinate Certificates are reduced to
zero, all additional losses (including,
without limitation, all Realized Losses,
Special Hazard Losses, Fraud Losses and
Bankruptcy Losses) will be allocated to the
Variable Strip Certificates and the Class
A-1 Certificates. Any Excess Special Hazard
Losses, Excess Fraud Losses and Excess
Bankruptcy Losses and any Extraordinary
Losses (each, as defined herein) will be
borne by the holders of all of the
Certificates on a pro rata basis as
described herein. See "DESCRIPTION OF THE
CERTIFICATES-Allocation of Losses;
Subordination" herein.
Subordinate Certificates and
Residual Certificates
Not Offered Hereby.......The Class B-2 Certificates and the Class B-3
Certificates will have aggregate initial
Certificate Principal Balances of approximately
$_,___,___ and $_,___,___, respectively,
evidencing an initial Class B-2 Percentage
of approximately _____% and an initial
Class B-3 Percentage of approximately
____%. The Residual Certificates have no
Certificate Principal Balance and no
Certificate Rate. The Class B-2
Certificates, Class B-3 Certificates and
the Residual Certificates are not being
offered hereby.
Optional Termination.......At its option, the Master Servicer may purchase
from the Trust Fund all remaining Mortgage Loans
and other assets thereof, and thereby effect
early retirement of the Certificates, on any
Distribution Date when the aggregate
principal balance of the Mortgage Loans is
less than _____% of the aggregate principal
balance of such Mortgage Loans as of the
Cut-off Date. See "POOLING AND SERVICING
AGREEMENT-Termination" herein and "THE
POOLING AND SERVICING
AGREEMENTS-Termination" in the Prospectus.
Special Prepayment
Considerations...........General: The rate of principal payments on the
Offered Certificates (other than the Variable
Strip Certificates) will depend on, among other
things, the rate and timing of principal
payments (including prepayments,
repurchases, defaults and liquidations) on
the Mortgage Loans. As is the case with
mortgage-backed securities generally, the
Offered Certificates are subject to
substantial inherent cash-flow
uncertainties because the Mortgage Loans
may be prepaid at any time. Generally, when
prevailing interest rates increase,
prepayment rates on mortgage loans tend to
decrease in subsequent periods, resulting
in a reduced return of principal to
investors at a time when reinvestment at
such higher prevailing rates would be
desirable. Conversely, when prevailing
interest rates decline, prepayment rates on
mortgage loans tend to increase in
subsequent periods, resulting in an
accelerated return of principal to
investors at a time when reinvestment at
comparable yields may not be possible. In
addition, approximately _____% of the
Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) provide for
payment of a prepayment charge. A majority
of the Mortgage Loans with a prepayment
charge provision provide for a prepayment
charge for partial prepayments and full
prepayments made within approximately five
years after the dates of origination of
such Mortgage Loans. Such prepayment
charges (which will not be distributable to
the Certificates) may reduce the rate of
prepayment on the Mortgage Loans.
Variable Strip Certificates: The Notional Amount, and therefore
the amount of interest distributions on
the Variable Strip Certificates will be
highly sensitive to the rate and timing
of principal payments (including
prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans. See
"-Special Yield Considerations" below and
"CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" herein.
Classes With Subordination Features:
As described herein, during certain periods
all or a disproportionately large
percentage of principal prepayments on the
Mortgage Loans will be allocated among the
Class A-1 Certificates and the Class A-2
Certificates, and therefore, during certain
periods none or a disproportionately small
percentage of such prepayments will be
distributed on the Subordinate
Certificates, including the Class B-1
Certificates. As a result, the weighted
average life of the Subordinate
Certificates will be extended and, as a
relative matter, the Subordination afforded
the Senior Certificates by the Subordinate
Certificates will be increased (to the
extent not otherwise offset by Realized
Losses on the Mortgage Loans). However, as
described herein, because holders of the
Class B-3 Certificates will not be entitled
to receive any interest or principal
distributions until the Class B-1
Certificates and the Class B-2 Certificates
have been retired, holders of the Class B-1
Certificates will be entitled to principal
distributions that include all amounts, to
the extent received or advanced, that would
otherwise be distributable to holders of
the Class B-3 Certificates, which will have
the effect of shortening the weighted
average life of the Class B-1 Certificates.
See "DESCRIPTION OF THE CERTIFICATES-Principal
Distributions on the Class A-1
Certificates," "-Principal Distributions on
the Class A-2 Certificates" and "-Principal
Distributions on the Class B-1
Certificates" and "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" herein, and
"YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" in the Prospectus.
Special Yield Considerations
General: The yield to maturity on each Class of Offered
Certificates will depend on, among other
things, the rate and timing of principal
payments (including prepayments,
repurchases, defaults and liquidations) on
the Mortgage Loans and the allocation
thereof to reduce the Certificate Principal
Balance (or the Notional Amount) of such
Class of Certificates. The yield to
maturity on each Class of Offered
Certificates will also depend on other
factors such as the Certificate Rate and
any adjustments thereto and the purchase
price for such Certificates. The yield to
investors on any Class of Offered
Certificates will be adversely affected by
any allocation thereto of any Prepayment
Interest Shortfalls on the Mortgage Loans
to the extent not covered by payments by
the Master Servicer as described herein.
Furthermore, the yield to investors on the
Offered Certificates will be sensitive to
fluctuations in the level of One-Month
LIBOR, which may vary significantly over
time.
In general, if a Class of Offered
Certificates is purchased at a premium and
principal payments on the Mortgage Loans
occur at a rate faster than anticipated at
the time of purchase, the investor's actual
yield to maturity will be lower than that
originally anticipated. Conversely, if a
Class of Offered Certificates is purchased
at a discount and principal payments on the
Mortgage Loans occur at a rate slower than
that assumed at the time of purchase, the
investor's actual yield to maturity will be
lower than that originally anticipated.
Variable Strip Certificates: The yield to investors on the
Variable Strip Certificates will be
extremely sensitive to the rate and timing
of principal payments on the Mortgage Loans
(including prepayments, repurchases,
defaults and liquidations), which may
fluctuate significantly over time. A rapid
rate of principal payments on the Mortgage
Loans could result in the failure of
investors in the Variable Strip
Certificates to recover their initial
investment. The yield on the Variable Strip
Certificates will also be materially and
adversely affected if the Mortgage Loans
experience a high rate of defaults and
liquidations. In addition to the foregoing,
the yield on the Variable Strip
Certificates will be materially and
adversely affected to a greater extent than
the yields on the other Classes of Senior
Certificates if the Mortgage Loans with
higher Gross Margins prepay faster than the
Mortgage Loans with lower Gross Margins,
because holders of the Variable Strip
Certificates generally have rights to
relatively larger portions of interest
payments on the Mortgage Loans with higher
Gross Margins than on Mortgage Loans with
lower Gross Margins.
In addition, the yield to investors on the
Variable Strip Certificates will be
extremely sensitive to fluctuations in the
difference between the Net Mortgage Rate
Cap on the Mortgage Loans and in the level
of One-Month LIBOR plus _____%, which may
vary significantly over time.
Classes With Subordination Features:
The yield to maturity on the Class A-2
Certificates will be extremely sensitive to
certain losses on the Mortgage Loans (and
the timing thereof) to the extent such
losses are not covered by the Subordinate
Certificates, because the entire amount of
such losses (rather than a pro rata portion
thereof) will be allocable to the Class A-2
Certificates, as and to the extent
described herein. The yield to maturity on
the Class B-1 Certificates will be
extremely sensitive to certain losses on
the Mortgage Loans (and the timing thereof)
to the extent such losses are not covered
by Subordinate Certificates subordinate
thereto because the entire amount of such
losses (rather than a pro rata portion
thereof) will be allocable to the Class B-1
Certificates, as and to the extent
described herein.
See "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" herein and "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS" in
the Prospectus.
Certain Federal Income
Tax Consequences......... A real estate mortgage investment conduit
("REMIC") election will be made with respect to
the Trust Fund for federal income tax purposes.
Upon the issuance of the Offered Certificates,
Mayer, Brown & Platt, counsel to the Depositor,
will deliver its opinion generally to the effect
that, assuming compliance with all provisions of
the Pooling and Servicing Agreement, for federal
income tax purposes, the Trust Fund will qualify
as a REMIC within the meaning of Sections 860A
through 860G of the Internal Revenue Code of 1986
(the "Code"). For federal income tax purposes,
the Class R Certificates will be the sole Class of
"residual interests" in the REMIC and the Senior
Certificates and the Subordinate Certificates will
constitute the "regular interests" in the REMIC
and will be treated as debt instruments of the
REMIC.
For federal income tax reporting purposes,
the Class A-1 Certificates will not, and
the remaining Classes of Offered
Certificates will, be treated as having
been issued with original issue discount.
The prepayment assumption that will be used
in determining the rate of accrual of
original issue discount, market discount
and premium, if any, for federal income tax
purposes will be a CPR percentage (as
defined herein) equal to _____%. No
representation is made that the Mortgage
Loans will prepay at such rate or at any
other rate.
If the method for computing original issue
discount described in the Prospectus
results in a negative amount for any
period, a holder of a Variable Strip
Certificate will be permitted to offset
such amount only against the future income,
if any, from such Certificate. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" herein and
in the Prospectus.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates see
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES"
herein and in the Prospectus.
Ratings....................It is a condition to the issuance of the
Offered Certificates that the Variable
Strip Certificates and the Class A-1
Certificates be rated "___" by [Rating
Agency I] ("[Rating Agency I]") and "___"
by [Rating Agency II] ("[Rating Agency
II]"), the Class A-2 Certificates be rated
"___" by [Rating Agency I] and "___" by
[Rating Agency II] and the Class B-1
Certificates be rated "___" by [Rating
Agency I] and "___" by [Rating Agency II].
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.
A security rating does not address the
frequency of principal prepayments or the
corresponding effect on yield to investors.
The ratings of the Variable Strip
Certificates do not address the possibility
that the holders of such Certificates may
fail to fully recover their initial
investment. See "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" and "RATINGS"
herein and "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" in the Prospectus.
Legal Investment...........The Offered Certificates (other than the Class ___
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 as described herein and, as such,
will be legal investments for certain entities to
the extent provided in SMMEA. SMMEA, however,
provides for state limitation on the authority of
such entities to invest in "mortgage related
securities," provided that such restricting
legislation was enacted on or prior to October 3,
1991. The Class ___ Certificates will not
constitute "mortgage related securities" for
purposes of SMMEA.
The Depositor makes no representations as
to the proper characterization of any Class
of Offered Certificates for legal
investment or other purposes, or as to the
ability of particular investors to purchase
any Class of Offered Certificates under
applicable legal investment restrictions.
These uncertainties may adversely affect
the liquidity of such Class of Offered
Certificates. Accordingly, all institutions
whose investment activities are subject to
legal investment laws and regulations,
regulatory capital requirements or review
by regulatory authorities should consult
with their own legal advisors in
determining whether and to what extent any
Class of Offered Certificates, and in
particular, the Class B-1 Certificates
constitutes a legal investment or is
subject to investment, capital or other
restrictions. See "LEGAL INVESTMENT" and
"ERISA CONSIDERATIONS" herein and in the
Prospectus. [A reference will be made here
to any applicable underwriter's exemption.]
RISK FACTORS
In addition to the matters described elsewhere in this Prospectus
Supplement and the Prospectus, prospective investors should carefully
consider the following factors before deciding to invest in the
Offered Certificates.
Repurchase Obligations of the Seller
No person other than the Seller is obligated with respect to the
representations and warranties respecting the Mortgage Loans and the
remedies for any breach thereof that are assigned to the Trustee for
the benefit of the Certificateholders, and the Seller has only limited
assets available to perform its repurchase obligations in respect of
any breach of such representations and warranties. Therefore,
prospective investors in the Offered Certificates should consider the
possibility that the Seller will not have sufficient assets with which
to satisfy its repurchase obligations in the event that a substantial
amount of Mortgage Loans are required to be repurchased due to
breaches of representations and warranties.
Underwriting Standards and Potential Delinquencies
The Seller's underwriting standards are primarily intended to
assess the value of the mortgaged property and to evaluate the
adequacy of such property as collateral for the mortgage loan. While
one of the Seller's primary considerations in underwriting a mortgage
loan is the value of the mortgaged property, the Seller also
considers, among other things, a mortgagor's credit history, repayment
ability and debt service-to-income ratio, as well as the type and use
of the mortgaged property.
As a result of the Seller's underwriting standards, the Mortgage
Loans are likely to experience rates of delinquency, foreclosure,
bankruptcy and loss that are higher, and that may be substantially
higher, than those experienced by mortgage loans underwritten in a
more traditional manner. See "THE SELLER-Loan Delinquency,
Forbearance, Foreclosure, Bankruptcy and REO Property Status" and
"-REO Property Liquidation Experience" herein for important
information regarding the delinquency, forbearance, foreclosure,
bankruptcy and REO property status and loss experience of certain
mortgage loans previously originated or acquired by the Seller under
substantially the same underwriting criteria pursuant to which the
Mortgage Loans were originated or acquired.
Furthermore, changes in the values of Mortgaged Properties may
have a greater effect on the delinquency, foreclosure, bankruptcy and
loss experience of the Mortgage Loans than on mortgage loans
originated in a more traditional manner. No assurance can be given
that the values of the Mortgaged Properties have remained or will
remain at the levels in effect on the dates of origination of the
Mortgage Loans. Approximately _____% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date) are secured by
Mortgaged Properties located in the State of California. Property
values of residential real estate in California have declined in
recent years. If the California residential real estate market should
continue to experience a decline in property values after the dates of
origination of the Mortgage Loans, the rates of delinquency,
foreclosure, bankruptcy and loss on the Mortgage Loans may be expected
to increase, and may increase substantially, as compared to such rates
in a stable or improving real estate market. See "DESCRIPTION OF THE
MORTGAGE POOL-Underwriting Standards" herein.
[Junior Mortgage Loans
Approximately ___% of the aggregate principal amount of the
Mortgage Loans as of the Cut-off Date will be junior mortgage loans.
The primary risks to holders of Mortgage Loans secured by junior liens
is the possibility that adequate funds will not be received in
connection with a foreclosure of a related senior lien to satisfy the
junior Mortgage Loan after satisfaction of all related senior liens.
See "RISK FACTORS-Nature of Mortgages; Properties" and "CERTAIN LEGAL
ASPECTS OF MORTGAGE LOANS-Junior Liens; Rights of Senior Lienholders"
in the Prospectus.]
Certificate Rate Risk
The Certificate Rate on the Offered Certificates (other than the
Variable Strip Certificates) is based upon, among other factors, as
described herein under "DESCRIPTION OF THE CERTIFICATES-Interest
Distributions" the value of an index (One-Month LIBOR (as defined
herein)) which is different from the value of the index applicable to
the Mortgage Loans, as described under "DESCRIPTION OF THE MORTGAGE
POOL" herein. Each Mortgage Loan adjusts semi-annually commencing
approximately six months after the date of origination based upon
Six-Month LIBOR (as defined herein) whereas the Certificate Rate on
the Offered Certificates (other than the Variable Strip Certificates)
adjusts monthly based upon One-Month LIBOR, limited by the Net
Mortgage Rate Cap (as defined herein) or _____% per annum. In
addition, One-Month LIBOR and the Index may respond differently to
economic and market factors, and there is not necessarily any
correlation between them. Moreover, the Mortgage Loans are subject to
Periodic Rate Caps, Maximum Mortgage Rates and Minimum Mortgage Rates
(each as defined herein). Thus, it is possible, for example, that
One-Month LIBOR may rise during periods in which the Index is stable
or falling or that, even if both One-Month LIBOR and the Index rise
during the same period, One-Month LIBOR may rise much more rapidly
than the Index. See "DESCRIPTION OF THE CERTIFICATES-Interest
Distributions."
The Certificate Rate on the Variable Strip Certificates is based
upon, among other factors, as described herein under "DESCRIPTION OF
THE CERTIFICATES-Interest Distributions," the excess, if any of (i)
the Net Mortgage Rate Cap over (ii) the Certificate Rate on the
Certificates (other than the Variable Strip Certificates). The Net
Mortgage Rate Cap is primarily based upon the value of Six-Month
LIBOR, which is generally different from the value of One-Month LIBOR,
as described herein. The yield to maturity of investors in the
Variable Strip Certificates will be extremely sensitive to differences
between One-Month LIBOR and Six-Month LIBOR, and as a result of such
differences, investors in the Variable Strip Certificates may not
receive distributions of interest under certain circumstances. As
described in the preceding paragraph, the difference between One-Month
LIBOR and the Index may vary considerably. See "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions."
See also, "RISK FACTORS" in the Prospectus.
[Other special risk factors applicable to specific Series and not
covered by the Prospectus will be added here if applicable.]
DESCRIPTION OF THE MORTGAGE POOL
The information set forth in the following paragraphs has been
provided by the Seller. Neither the Depositor, the Underwriter, the
Master Servicer, the Trustee nor any of their respective affiliates
have made or will make any representation as to the accuracy or
completeness of such information.
General
The Trust Fund (as defined herein) will consist primarily of a
pool (the "Mortgage Pool") of mortgage loans (the "Mortgage Loans")
with an aggregate principal balance as of the Cut-off Date of
$___,___,___. The Mortgage Loans will be conventional,
adjustable-rate, fully-amortizing mortgage loans secured by
[first][second] liens on fee simple and leasehold interests in one- to
four-family residential real properties (each, a "Mortgaged
Property"). The Mortgage Loans will have original terms to maturity
from the due dates of their first scheduled monthly payment of
interest and principal (each such payment, a "Monthly Payment") of not
more than 30 years and will have Monthly Payments due on the first day
of each month. All of the Mortgage Loans were originated or acquired
by the Depositor in accordance with the underwriting criteria under
its [regular][equity] lending program, as described herein. [___% of
the Mortgage Loans are secured by first liens and ___% of the Mortgage
Loans are secured by second liens.]
The Mortgage Loans have been sold to the Depositor by the Seller
on or prior to the Delivery Date pursuant to certain mortgage loan
purchase agreements between the Depositor and the Seller (each, a
"Purchase Agreement"). The representations and warranties made by the
Seller in each Purchase Agreement and the remedies provided therein or
pursuant thereto for any breaches of such representations and
warranties as described herein under "POOLING AND SERVICING
AGREEMENT-Assignment of Mortgage Loans," will be assigned by the
Depositor to the Trustee for the benefit of the holders of the
Certificates pursuant to the Pooling and Servicing Agreement (as
defined herein).
The Mortgage Rate on each Mortgage Loan [(other than a GPARM
Loan)] will be subject to adjustment, commencing approximately six
months after the date of origination and semi-annually thereafter on
the first day of the months specified in the related Mortgage Note
(each such date, an "Adjustment Date") to equal the sum, rounded to
the nearest 0.125%, of (i) the average of the interbank offered rates
for six-month United States dollar deposits in the London interbank
market based on quotations of major banks ("Six-Month LIBOR"), as
published in the Western Edition of The Wall Street Journal (the
"Index"), as most recently available as of the date 45 days prior to
such Adjustment Date, and (ii) a fixed percentage amount specified in
the related Mortgage Note (the "Gross Margin") (such sum as rounded
based on the Index at the date of any determination, the "Fully
Indexed Rate"); provided, however, that the Mortgage Rate will not
increase or decrease by more than _____% on any Adjustment Date with
respect to _____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) or _____% on any Adjustment Date with
respect to _____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) (each, the related "Periodic Rate
Cap"), will in no event be greater than the initial Mortgage Rate plus
_____% with respect to _____% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date), _____% with respect to
_____% of the Mortgage Loans (by aggregate principal balance as of the
Cut-off Date) or _____% with respect to _____% of the Mortgage Loans
(by aggregate principal balance as of the Cut-off Date) (each, the
related "Maximum Rate"), and will in no event be less than the amount
set forth in the Mortgage Note as the minimum Mortgage Rate thereunder
(the "Minimum Rate"). Effective with the first payment due on a
Mortgage Loan [(other than a GPARM Loan)] after each related
Adjustment Date, the Monthly Payment will be adjusted to an amount
which will fully amortize the outstanding principal balance of the
Mortgage Loan over its remaining term, and pay interest at the
Mortgage Rate as so adjusted. Approximately _____% of the Mortgage
Loans (by aggregate principal balance as of the Cut-off Date), were
originated with a Mortgage Rate below the Fully Indexed Rate. Due to
the application of the Periodic Rate Cap (even assuming no increase in
the applicable Index from the date of origination to the applicable
Adjustment Date) or the Maximum Rate, the Mortgage Rate on any
Mortgage Loan, as adjusted on any Adjustment Date, may be less than
the Fully Indexed Rate. See "-The Index" herein.
[The Mortgage Rate on each GPARM Loan will be subject to monthly
adjustment commencing on the first day of the month specified in the
related Mortgage Note (each date of adjustment, a "Rate Adjustment
Date") to a per annum rate equal to the sum, rounded to the nearest
0.125%, of (i) the average of the interbank offered rates for
one-month United States dollar deposits in the London interbank market
based on quotations of major banks ("One-Month LIBOR"), as most
recently available as of the date 45 days prior to such Rate
Adjustment Date (the related "Index"), and (ii) a fixed percentage
amount specified in the related Mortgage Note (the "Gross Margin")
ranging from _____% to _____%; provided, however, that the Mortgage
Rate will in no event be greater than the initial Mortgage Rate plus
_____% (the "Maximum Rate"), which Maximum Rates range from _____% to
_____%, or, less than the minimum Mortgage Rate stated in the Mortgage
Note (the "Minimum Rate"), which Minimum Rates range from _____% to
_____%. No GPARM Loan provides for a period rate cap on any Rate
Adjustment Date. Due to the application of the Maximum Rate, the
Mortgage Rate on any GPARM Loan, as adjusted on any Rate Adjustment
Date, may be less than the Fully Indexed Rate. See "-The Indexes"
herein.
The amount of the monthly payment on each GPARM Loan is set at a
fixed amount for the first _____ months of the loan (the "Initial
Teaser Period") and set at a different fixed amount for the next _____
months following the Initial Teaser Period (the "Second Teaser
Period"). During the Initial Teaser Period and the Second Teaser
Period, the amount of the monthly payment on each GPARM Loan is set at
a level resulting in a payment that may be less than one month's
interest at the Mortgage Rate thereon, resulting in negative
amortization during the early months of the loan. As of the Cut-Off
Date, all of the GPARM Loans have finished their Initial Teaser Period
and are now in the Second Teaser Period.
In addition, the amount of the monthly payment on each GPARM Loan
adjusts semi-annually on each "Payment Adjustment Date" commencing on
the first anniversary of the first Due Date, to an amount which would
amortize fully the outstanding principal balance of the GPARM Loan
over its remaining term, and pay interest at the Mortgage Rate as
adjusted on the immediately preceding Rate Adjustment Date, subject to
a payment cap (the "Payment Cap") that limits any increase in the
amount of the monthly payment on any Payment Adjustment Date to an
amount not greater than _____% of the amount of the monthly payment
not limited by the Payment Cap. The Payment Cap shall not be in
effect on the fifth anniversary of the first Due Date and on each
fifth anniversary thereafter (each such anniversary, a "Recast Date").
The weighted average first Recast Date of the GPARM Loans, rounded to
the nearest Due Date, is __________, 20__. If on any Due Date, due to
the addition of Deferred Interest, the principal balance of any GPARM
Loan would exceed 110% of the original principal balance thereof (such
limitation, a "Negative Amortization Cap"), the related monthly
payment will be recalculated, without regard to the Payment Cap, to
equal an amount sufficient to amortize such GPARM Loan over its
remaining term at the Mortgage Rate as adjusted on the immediately
preceding Rate Adjustment Date. Any monthly payment so recalculated
will remain in effect until the earlier of the next Payment Adjustment
Date. Any monthly payment so recalculated will remain in effect until
the earlier of the next Payment Adjustment Date, the next Recast Date
or the next Due Date on which the principal balance of the related
GPARM Loan would exceed the Negative Amortization Cap.
The Mortgage Notes provide that on each Payment Adjustment Date
the monthly payment will be adjusted to be the lesser of (i) the
monthly payment that would be sufficient to amortize fully the then
outstanding principal balance of the related GPARM Loan over its
remaining term (the "Full Payment") and (ii) the monthly payment that
would be equal to the above amount subject to the Payment Cap (the
"Limited Payment"). However, upon timely notice, a Mortgagor may
elect to pay the Full Payment.
On any Rate Adjustment Date an increase in the Mortgage Rate on a
GPARM Loan will result in a larger portion of each subsequent monthly
payment being allocated to interest and a smaller portion being
allocated to principal, and conversely, a decrease in the Mortgage
Rate on a GPARM Loan will result in a larger portion of each
subsequent monthly payment being allocated to principal and a smaller
portion being allocated to interest. However, because Mortgage Rates
on the GPARM Loans adjust on a monthly basis but monthly payments due
on the GPARM Loans adjust only semi-annually, and because the
application of Payment Caps may limit the amount by which the monthly
payments may increase, the amount of a monthly payment may be more or
less than the amount necessary to fully amortize the principal balance
of the GPARM Loan over its then remaining term at the applicable
Mortgage Rate. Accordingly, GPARM Loans may be subject to reduced
amortization (if the monthly payment due on a Due Date is sufficient
to pay interest accrued during the related accrual period at the
applicable Mortgage Rate but is not sufficient to reduce principal in
accordance with a fully amortizing schedule); negative amortization
(if interest accrued during the related accrual period at the
applicable Mortgage Rate is greater than the entire monthly payment
due on the related Due Date (such excess accrued interest, "Deferred
Interest")); or accelerated amortization (if the monthly payment due
on a Due Date is greater than the amount necessary to pay interest
accrued during the related accrual period at the applicable Mortgage
Rate and to reduce principal in according with a fully amortizing
schedule). In addition, subsequent to the final Recast Date and the
final Payment Adjustment Date, the addition of any Deferred Interest
to the principal balance of any GPARM Loan that is not offset by
subsequent accelerated amortization will result in a final lump sum
payment at maturity greater than, and potentially substantially
greater than, the monthly payment due on the immediately preceding Due
Date.
The maximum increase in the principal balance of a GPARM Loan due
to the addition of Deferred Interest to the principal balance of such
GPARM Loan and the resulting Loan-to-Value Ratio on such GPARM Loan
will depend on the relationships between the Payment Cap, the Maximum
Mortgage Rate, the Negative Amortization Cap and the Index. If the
outstanding principal balance of a GPARM Loan having a Loan-to-Value
Ratio of 80% were to increase to an amount equal to the Negative
Amortization Cap, the Loan-to-Value Ratio, as based on the then
outstanding principal balance) thereof, would in no event exceed
approximately 88%.]
Each Mortgage Loan will contain a customary "due-on-sale" clause.
Approximately ____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were thirty days or more but less than
sixty days delinquent in their Monthly Payments as of the Cut-off Date
(such Mortgage Loans, "Thirty-Day Delinquent Mortgage Loans").
Approximately ____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were sixty days or more but less than
ninety days delinquent in their Monthly Payments as of the Cut-off
Date (such Mortgage Loans, "Sixty-Day Delinquent Mortgage Loans").
Approximately ____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were Thirty-Day Delinquent Mortgage
Loans as of the Cut-off Date, and none of the Mortgage Loans were
Sixty-Day Delinquent Mortgage Loans as of the Cut-off Date.
Prospective investors in the Offered Certificates should be aware,
however, that only approximately _____% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date) had a first
monthly payment due on or before __________, 1996, and that
approximately _____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) had a first monthly payment due on or
before __________ 1, 1996, and therefore, the remaining Mortgage Loans
could not have been Thirty-Day Delinquent Mortgage Loans or Sixty-Day
Delinquent Mortgage Loans as of the Cut-off Date. In addition to the
foregoing, approximately _____% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) will have been thirty days
or more delinquent in their Monthly Payments more than once during the
twelve months preceding the Delivery Date. None of the other Mortgage
Loans will have been thirty days or more delinquent in its Monthly
Payments more than once during such period. Also, none of the Mortgage
Loans will be sixty days or more delinquent in its Monthly Payments as
of the Delivery Date.
Approximately _____% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) provide for payment of a
prepayment charge. As to each such Mortgage Loan, the prepayment
charge generally is the maximum amount permitted under applicable
state law (or, if no maximum prepayment charge is specified, the
prepayment charge generally is calculated as set forth in the
following sentence). A majority of the Mortgage Loans with a
prepayment charge provision provide for payment of a prepayment charge
for partial prepayments and full prepayments made within approximately
five years of the origination of the related Mortgage Loan, in an
amount equal to six months' advance interest on the amount of the
prepayment that, when added to all other amounts prepaid during the
twelve-month period immediately preceding the date of the prepayment,
exceeds twenty percent (20%) of the original principal balance of such
Mortgage Loan. With respect to the remainder of the Mortgage Loans
with a prepayment charge provision, the prepayment charge is
calculated in a different manner. The Seller will retain the right to
all prepayment charges and late payment charges received on the
Mortgage Loans and such amounts will not be available for distribution
on the Certificates.
Pursuant to its terms, each Mortgage Loan is required to be
covered by a standard hazard insurance policy in an amount equal to
the lower of the original principal loan amount or the replacement
value of the improvements on the Mortgaged Property. None of the
Mortgage Loans will be covered by a primary mortgage insurance policy.
See "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-Hazard Insurance on
the Loans-Standard Hazard Insurance Policies" in the Prospectus.
The Mortgage Loans will have the following approximate
characteristics as of the Cut-off Date:
Number of Mortgage Loans...................................._____
Initial Mortgage Rates:
Weighted Average......................................_____%
Range..........................................._____%-____%
Gross Margins:
Weighted Average......................................_____%
Range..........................................._____%-____%
Maximum Mortgage Rates:
Weighted Average....................................._____%
Range..........................................._____%-____%
Maximum Net Mortgage Rates:
Weighted Average......................................_____%
Range............................................_____%-___%
Minimum Net Mortgage Rates:
Weighted Average......................................_____%
Range............................................_____%-___%
The Mortgage Loans will have the following approximate
characteristics as of the Cut-off Date (expressed as a percentage of
the aggregate principal balance of the Mortgage Loans having such
characteristics relative to the aggregate principal balance of the
Mortgage Loans specified, provided, that the sum of the percentages in
certain of the following paragraphs may not equal 100% due to
rounding):
Each Mortgage Loan will have been originated or acquired by the
Seller on or before __________, 1996.
The next Adjustment Dates for the Mortgage Loans will occur in
the following months: __________ 1996, _____%; __________ 1996,
_____%; __________ 1996, _____%; __________ 1996, _____%; __________
1996, _____%; __________ 1996, _____%; and __________ 1996, _____%.
The weighted average remaining term to maturity of the Mortgage
Loans will be approximately __ years and __ months. All of the
Mortgage Loans had original terms to maturity from the due date of the
first monthly payment of not more than 30 years. None of the Mortgage
Loans had a first payment date prior to __________, 1996 and none of
the Mortgage Loans will have a remaining term to maturity of less than
approximately __ years and __ months. The latest maturity date of any
of the Mortgage Loans is __________, 20__.
The Mortgage Loans will each have an outstanding principal
balance of not less than $__________ or more than $__________. The
Mortgage Loans will have an average outstanding principal balance of
$__________.
The weighted average Loan-to-Value Ratio at origination of the
Mortgage Loans will be approximately ____%, no Mortgage Loan will have
a Loan-to-Value Ratio at origination exceeding ____%, and no Mortgage
Loan will have a combined Loan-to-Value Ratio at origination,
including any then existing second mortgage subordinate to the lien of
the Mortgage, in excess of _____%, except for one Mortgage Loan,
representing approximately _____%, with a combined Loan-to-Value Ratio
of _____%.
At origination, approximately _____% of the Mortgage Loans were
secured by a Mortgaged Property that was subject to a then-existing
lien subordinate to that of the related Mortgage.
[Approximately _____% of the Mortgage Loans are GPARM Loans
(expressed as a percentage of the aggregate principal balance of the
GPARM Loans as of the Cut-off Date) approximately _____%, _____%,
_____%, _____% and _____% have a Second Teaser Period ending in
__________, 19__, __________, 19__, __________, 19__, __________,
19__, __________, 19__ and __________, 19__ respectively.]
With respect to approximately _____% of the Mortgage Loans, the
proceeds were used to purchase the related Mortgaged Properties.
Approximately _____% of the Mortgage Loans were rate and term
refinancings and approximately _____% of the Mortgage Loans were
equity take-out refinancings.
No more than approximately _____% of the Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code area.
Approximately _____%, _____%, _____%, _____%, _____%, _____%,
_____%, _____%, _____% and _____ of the Mortgage Loans had their first
Monthly Payments due in __________ 1996, __________ 1996, __________
1996, __________ 1996, __________ 1996, __________ 1996, __________
1996, __________ 1996, __________ 1996 and __________ 1996,
respectively. Approximately ____% of the Mortgage Loans will have
their first Monthly Payments due in __________ 1996.
Approximately _____%, _____%, _____% and _____% of the Mortgage
Loans will be secured by detached one-family dwelling units, by units
in condominiums, by units in planned unit developments and by two- to
four-family dwelling units, respectively. Approximately _____% of the
Mortgage Loans will be secured by leasehold interests. Approximately
_____% and _____% of the Mortgage Loans will be secured by investor
properties and by secondary residences, respectively, and with respect
to all of the other Mortgage Loans, the mortgagor represented in the
documents submitted by such mortgagor for the closing of the related
Mortgage Loan that the Mortgaged Property initially would be
owner-occupied as the mortgagor's primary residence.
Approximately _____%, _____% and _____% of the Mortgage Loans
were underwritten under the Seller's Full Documentation Program, Quick
Qualifier Program and Quick Qualifier Plus Program, respectively. See
"-Underwriting Standards" below.
The table below sets forth as of the Cut-off Date the number,
aggregate principal balance and percentage of the Mortgage Loans (by
aggregate principal balance of such Mortgage Loans relative to the
aggregate principal balance of all of the Mortgage Loans) having
Loan-to-Value Ratios at origination in each given range. (The sum of
the amounts and the percentages in the table below may not equal the
totals due to rounding.)
Loan-to-Value Ratios
Percentage of
Number of Mortgage
Loan-To-Value Ratios Mortgage Aggregate Loans by Aggregate
At Origination (%) Loans Principal Balance Principal Balance
0.1 - 60.0....... $ %
60.1 - 65.0......
65.1 - 70.0......
70.1 - 75.0......
75.1 - 80.0......
80.1 - 85.0 ___ _______ _______
Total.......... $ 100.00%
--- ------- -------
The table below sets forth as of the Cut-off Date the number,
aggregate principal balance and percentage of the Mortgage Loans (by
aggregate principal balance of such Mortgage Loans relative to the
aggregate principal balance of all of the Mortgage Loans) having the
Gross Margins in each given range. (The sum of the amounts and the
percentages in the table below may not equal the totals due to
rounding.)
Gross Margins
Number of Percentage of Mortgage
Mortgage Aggregate Loans by Aggregate
Gross Margins(%) Loans Principal Balance Principal Balance
3.501 - 3.750....... $ %
3.751 - 4.000.......
4.001 - 4.250.......
4.251 - 4.500.......
4.501 - 4.750.......
4.751 - 5.000.......
5.001 - 5.250.......
5.251 - 5.500.......
5.501 - 5.750.......
5.751 - 6.000.......
6.001 - 6.250.......
6.251 - 6.500.......
6.501 - 6.750.......
6.751 - 7.000.......
7.001 - 7.250.......
7.251 - 7.500.......
7.501 - 7.750.......
7.751 - 8.000.......
8.001 - 8.250.......
8.751 - 9.000.......
9.251 - 9.500.......
9.751 - 10.000......
Over 10.000......... ___ _____ _______
Total............. $ 100.00%
--- ----- -------
The table below sets forth as of the Cut-off Date the number,
aggregate principal balance and percentage of the Mortgage Loans (by
aggregate principal balance of such Mortgage Loans relative to the
aggregate principal balance of all of the Mortgage Loans) secured by
Mortgaged Properties located in each given state and in the District
of Columbia. (The sum of the amounts and the percentages in the table
below may not equal the totals due to rounding.)
Geographic Distribution
Number of Percentage of Mortgage
Mortgage Aggregate Loans by Aggregate
State Loans Principal Balance Principal Balance
Alabama $ %
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming _______ ________
Total $ 100.00%
======== ======= ========
Underwriting Standards
[Note: The following language is illustrative and will be
modified and/or supplemented to reflect to actual underwriting
standards applied with respect to the mortgage loans included in the
particular transaction.]
[General Description of the Seller's Equity Lending and Regular
Lending Program
The Seller's underwriting standards are primarily intended to
assess the value of the mortgaged property and to evaluate the
adequacy of such property as collateral for the mortgage loan. It is
contemplated that all of the mortgage loans originated or acquired by
the Seller will also be underwritten with a view toward the resale
thereof in the secondary mortgage market. While one of the Seller's
primary considerations in underwriting a mortgage loan is the value of
the mortgaged property, the Seller also considers, among other things,
a mortgagor's credit history (placing primary emphasis on the
mortgagor's mortgage credit history), repayment ability and debt
service-to-income ratio, as well as the type and use of the mortgaged
property. The maximum Loan-to-Value Ratio permitted under the Seller's
equity lending program is 75%. As used herein, "Loan-to-Value Ratio"
shall mean as of any date, the fraction, expressed as a percentage,
the numerator of which is the principal balance of the related
Mortgage Loan as of the date of determination, and the denominator of
which is the Collateral Value of the related Mortgage Property. The
maximum Loan-to-Value Ratio permitted under the Seller's regular
lending program is 100%. Second lien financing of the Mortgaged
Properties may be provided by lenders other than the Seller at any
time (including at origination), in which case the combined
Loan-to-Value Ratio may exceed 75% with respect to the equity lending
program and may be as high as 100% with respect to the regular lending
program. However, the Seller will not provide second lien financing
on any Mortgaged Property securing a Mortgage Loan included in the
Trust Fund other than Mortgage Loans secured by a second lien on the
related Mortgage Property already in the Mortgage Pool. Under each
underwriting category within which a mortgage loan is graded under the
equity lending program or under the regular lending program, the
maximum combined Loan-to-Value Ratio at origination, including any
then-existing deeds of trust subordinate to the Seller's first or
second lien, is 100%. All of the Mortgage Loans included in the Trust
Fund will be first or second lien mortgage loans. All of the Mortgage
Loans generally bear higher rates of interest than mortgage loans that
are originated in accordance with FNMA and FHLMC standards. The
combination of these factors is likely to result in rates of
delinquency, foreclosure, bankruptcy and loss that are higher, and
(especially with respect to the mortgage loans underwritten under the
equity lending program) that may be substantially higher, than those
experienced by other mortgage loans underwritten in a more traditional
manner. See "THE SELLER-Loan Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status" and "-REO Property Liquidation
Experience" below for important information regarding the delinquency,
forbearance, foreclosure, bankruptcy and REO property status and loss
experience of certain mortgage loans previously originated or acquired
by the Seller under substantially the same underwriting criteria
pursuant to which the Mortgage Loans were originated or acquired.
As a result of the Seller's underwriting criteria, changes in the
values of Mortgaged Properties may have a greater effect on the
delinquency, foreclosure, bankruptcy and loss experience on the
Mortgage Loans than on mortgage loans originated in a more traditional
manner. No assurance can be given that the values of the Mortgaged
Properties have remained or will remain at the levels in effect on the
dates of origination of the related Mortgage Loans. Approximately
_____% of the Mortgage Loans (by aggregate principal balance as of the
Cut-off Date) are secured by Mortgaged Properties located in the State
of California. Property values of residential real estate in
California have declined in recent years. If the California
residential real estate market should continue to experience a decline
in property values after the dates of origination of the Mortgage
Loans, the rates of delinquency, foreclosure, bankruptcy and loss on
the Mortgage Loans may be expected to increase substantially as
compared with such rates in a stable or improving real estate market.
Most of the Seller's current single family first lien mortgage
loan volume is originated or acquired primarily based on loan
application packages submitted through mortgage brokerage companies
(the "Wholesale Program"). Such loan application packages, which
generally contain relevant credit, property and underwriting
information on the loan request, are compiled by the applicable
mortgage brokerage company and submitted to the Seller for approval
and funding. The mortgage brokerage companies receive all or a portion
of the loan origination fee charged to the borrower at the time the
loan is made. As part of its quality control procedures, the Seller
maintains a file with respect to each broker including reports of any
complaints received by the Seller with respect to such broker. _____%
of the Mortgage Loans (by aggregate principal balance as of the
Cut-off Date) were originated under the Wholesale Program. In
addition, the Seller purchases mortgage loans from mortgage brokerage
companies and a variety of other mortgage loan originators (the
"Conduit Program"). Mortgage loans acquired under the Conduit Program
are generally not reviewed by the Seller prior to origination, and are
not originated on loan document forms provided by the Seller.
However, such mortgage loans are reviewed by the Seller prior to
purchase by the Seller to determine that such mortgage loans are in
compliance with the Seller's underwriting guidelines. ___% of the
Mortgage Loans were originated under the Conduit Program. The
remaining ___% of the Mortgage Loans were originated directly through
the Seller's retail loan origination program. No more than ___% of
the Mortgage Loans were originated based on loan application packages
submitted through any single mortgage brokerage company.
Each prospective mortgagor completes an application which
includes information with respect to the applicant's liabilities,
income, credit history, employment history and personal information.
The Seller requires a credit report on each applicant from a credit
reporting company. The report typically contains information relating
to such matters as credit history with local and national merchants
and lenders, installment debt payments and any record of defaults,
bankruptcies, repossessions or judgments.
One- to four-family (sometimes referred to herein as "single
family") properties that are to secure mortgage loans are appraised by
qualified independent appraisers who are approved by the Seller's
internal chief appraiser. Such appraisers inspect and appraise the
subject property and verify that such property is in acceptable
condition. Following each appraisal, the appraiser prepares a report
which includes a market value analysis based on recent sales of
comparable homes in the area and, when deemed appropriate, replacement
cost analysis based on the current cost of constructing a similar
home. All appraisals are required to conform to the Uniform Standards
of Professional Appraisal Practice adopted by the Appraisal Standards
Board of the Appraisal Foundation and must be on forms acceptable to
FNMA and FHLMC. Every independent appraisal is reviewed by either a
Seller staff appraiser who is supervised by the Seller's chief
appraiser, or by another independent appraiser approved by the
Seller's chief appraiser, to confirm the adequacy of the property as
collateral, and substantially all independent appraisals are reviewed
before or after the mortgage loan is made. If the value of the subject
property as determined by the Seller's review appraisal is more than
either 5% or 10% (depending upon the original appraisal value and the
state in which the subject property is located) below the original
appraisal value, then the Seller's review appraisal value is used for
purposes of establishing the maximum permissible Loan-to-Value Ratio
of the mortgage loan. In all other cases, the value of the subject
property as determined by the original appraisal is used for purposes
of establishing the maximum permissible Loan-to-Value Ratio of the
mortgage loan.
The Seller's underwriting guidelines permit mortgage loans
secured by mortgaged properties consisting of real property together
with a mobile home, manufactured home or modular housing unit located
thereon, provided that such improvements have been permanently affixed
to the real property with a foundation and that all such improvements
are legally classified and taxed as part of the real property under
local law (such mortgage loans, "Manufactured Home Loans"). The
maximum Loan-to-Value Ratio for a Manufactured Home Loan is ___%, with
a ___% reduction in the maximum Loan-to-Value Ratio otherwise allowed
under the applicable lending program (or a ___% reduction for single
wide units or for units with less than 600 square feet of living
area), and an additional ___% reduction in the maximum Loan-to-Value
Ratio (as well as a maximum loan term of 15 years) for units more than
10 years old.
Equity Lending Program Features
The equity lending program's underwriting guidelines generally
place more emphasis on the value of the mortgaged property and less
emphasis on the mortgagor's credit history than do either the Seller's
regular lending program or more traditional mortgage loan origination
programs. The maximum loan amount for loans originated or acquired
under the Seller's equity lending program is generally $300,000 for
loans secured by owner-occupied mortgaged properties and $250,000 for
loans secured by non-owner-occupied properties. Greater mortgage loan
amounts may be approved on a case-by-case basis. Based on the
applicable underwriting guidelines, Mortgage Loans originated or
acquired under the equity lending program are likely to experience
rates of delinquency, foreclosure, bankruptcy and loss that are
higher, and that may be substantially higher, than those of Mortgage
Loans originated or acquired under the Seller's regular lending
program and, especially, mortgage loans originated in a more
traditional manner.
All of the loans originated or acquired under the Seller's equity
lending program were underwritten under the Seller's "Documented
Income" or "Stated Income" residential loan programs. Under each of
these residential loan programs, the Seller reviews the loan
applicant's source of income, calculates the amount of income from
sources indicated on the loan application or similar documentation,
reviews the credit history of the applicant (placing primary emphasis
on the applicant's previous mortgage credit history), calculates the
debt service-to-income ratio to determine the applicant's ability to
repay the loan, reviews the type and use of the property being
financed and reviews the property for compliance with the equity
lending program's standards. In determining the ability of the
applicant to repay the loan, the Seller uses a rate (the "Qualifying
Rate") equal to the lesser of the Fully Indexed Rate on the loan being
applied for or the initial interest rate on such loan plus an amount
equal to the periodic rate cap applicable to the loan, but in no event
less than the initial mortgage rate. The Seller verifies the income of
each borrower as follows. Under the Documented Income program, a
borrower is generally required to submit one form of verification of
stable monthly income. Under the Stated Income program, the income
stated on the loan application signed by the borrower is generally
acceptable without further documentary verification. Under either
program, the Seller generally performs a telephone verification of the
borrower's employment. No verification is required with respect to the
source of funds (if any) required to be deposited by the applicant
with the closing agent.
[Risk categories for the equity lending program will be described
here.]
Regular Lending Program Features
All of the Mortgage Loans originated or acquired under the
Seller's regular lending program were underwritten by the Seller
pursuant to its "Full Documentation," "Quick Qualifier" and "Quick
Qualifier Plus" residential loan programs. Under each of these
residential loan programs, the Seller reviews the loan applicant's
source of income, calculates the amount of income from sources
indicated on the loan application or similar documentation, reviews
the credit history of the applicant, calculates the debt
service-to-income ratio to determine the applicant's ability to repay
the loan, reviews the type and use of the property being financed and
reviews the property for compliance with the regular lending program's
standards. In determining the ability of the applicant to repay a
loan of the type included in the Mortgage Pool, the Seller uses a rate
(the "Qualifying Rate") equal to the lesser of the fully indexed rate
or the initial rate plus the Periodic Rate Cap but not less than the
initial interest rate. The Seller's underwriting standards are
applied in a standardized procedure which complies with applicable
federal and state laws and regulations. The Seller requires its
underwriters to be satisfied that the value of the property being
financed, as indicated by an appraisal and a review appraisal,
currently supports and is anticipated to support in the future the
outstanding loan balance. In general, the maximum loan amount for
mortgage loans originated under the regular lending program is
$350,000; however, the Seller approves mortgage loans in excess of
such amount on a case-by-case basis. The discussion set forth under
the heading "-Regular Lending Program Features" exclude mortgage loans
originated under the Seller's equity lending program, and mortgage
loans originated by the Seller under its REO lending program. The
Seller underwrites single-family loans with Loan-to-Value Ratios at
origination of up to 100%, depending on, among other things, a
mortgagor's credit history, repayment ability and debt
service-to-income ratio, as well as the type and use of the property.
Under each risk category of underwriting criteria described below, the
maximum combined Loan-to-Value Ratio at origination, including any
then-existing second mortgages subordinate to the Seller's first
mortgage, is 100%.
The Seller verifies the income of each borrower (except as
described below) and a portion of the source of founds required to be
deposited by the applicant with the appropriate closing agent or into
escrow under its various residential loan programs as follows: under
the Full Documentation program, borrowers are generally required to
submit two forms of verification of stable monthly income for the last
24 months (or if the Loan-to-Value Ratio is less than or equal to 70%,
for the last 12 months); provided that as an alternative, bank
statements for the appropriate time period alone may be accepted as
adequate verification of stable monthly income. Under the Quick
Qualifier and Quick Qualifier Plus programs, one such form of
verification is generally required for the last six months and for any
period of less than six months, respectively, except that borrowers
may be qualified based upon monthly income as stated on the mortgage
loan application, without verification, if the borrower and the
mortgaged property meet certain criteria. Under all of the foregoing
programs, the Seller generally performs a telephone verification of
the borrower's employment. Verification of a portion of the source of
funds (if any) required to be deposited by the applicant with the
appropriate closing agent or into escrow is required under the Full
Documentation program if the Loan-to-Value Ratio is greater than 70%;
however, no such verification is required under the other programs.
[Risk categories for the regular lending program will be described
here.]
[Graduated Payment Adjustable Rate Mortgage Loan Program. All of
the GPARM Loans in the Trust Fund were originated under the Seller's
"Graduated Payment Adjustable Rate Mortgage Loan" program ("GPARM"),
which is part of the Seller's regular lending program. The
underwriting guidelines for this loan program differ from those
generally applicable under the Seller's [regular] [equity] lending
program in that the Qualifying Rate equals a hypothetical interest
rate corresponding to the monthly payment amount during the Initial
Teaser Period, plus 3.00%. In addition, the GPARM underwriting
guidelines require a maximum Loan-to-Value Ratio that is generally 5%
lower than the maximum loan-to-value ratio permitted for a comparable
under each risk category in the [regular] [equity] lending program.]
The Index
The Index used to determine the Mortgage Rate for the Mortgage
Loans [(other than the GPARM Loans)] is the average of the interbank
offered rates for six month United States dollar deposits in the
London interbank market based on quotations of major banks ("Six-Month
LIBOR"), as published in the Western Edition of The Wall Street
Journal. The Index applicable on any Adjustment Date is the most
recent Index figure available as of the date 45 days before such
Adjustment Date. Listed below are some historical average values for
the months indicated of Six-Month LIBOR (as made available from
Reuters and published by Data Resources, Inc.), which values may
differ from those published in the Western Edition of The Wall Street
Journal:
Year
Month 1996 1995 1994 1993 1992 1991
January....... 5.40% 6.80% 3.41% 3.47% 4.23% 7.35%
February...... 5.21 6.63 3.66 3.35 4.29 6.71
March......... 5.40 6.44 4.15 3.35 4.58 6.68
April......... 6.44 4.43 3.33 4.32 6.36
May........... 6.13 4.99 3.32 4.12 6.21
June.......... 5.90 4.96 3.49 4.14 6.44
July.......... 5.85 5.27 3.48 3.64 6.43
August........ 5.93 5.29 3.46 3.54 5.93
September..... 5.87 5.49 3.36 3.31 5.75
October....... 5.88 5.90 3.39 3.42 5.48
November...... 5.74 6.21 3.53 3.79 5.06
December...... 5.61 6.86 3.49 3.69 4.58
[The Index used to determine the Mortgage Rate for the GPARM
Loans is the average of the interbank offered rates for one month
United States dollar deposits in the London interbank market based on
quotations of major banks ("One-Month LIBOR"), as published in the
Western Edition of The Wall Street Journal. The Index applicable on
any Rate Adjustment Date is the most recent Index Figure available as
of the date 45 days before such Rate Adjustment Date.] Listed below
are some historical average values for the months indicated of
One-Month LIBOR (as made available from Reuters and published by Data
Resources, Inc.), which values may differ from those published in the
Western Edition of The Wall Street Journal:
Year
Month 1996 1995 1994 1993 1992 1991
January....... 5.58% 5.93% 3.15% 3.22% 4.19% 7.21%
February...... 5.53 6.12 3.38 3.15 4.16 6.60
March......... 5.38 6.13 3.62 3.19 4.34 6.59
April......... 6.11 3.82 3.17 4.09 6.17
May........... 6.07 4.32 3.15 3.89 5.97
June.......... 6.06 4.38 3.21 3.94 6.08
July.......... 5.91 4.55 3.17 3.31 6.02
August........ 5.89 4.50 3.19 3.41 5.75
September..... 5.85 4.93 3.17 3.27 5.58
October....... 5.87 5.07 3.19 3.23 5.33
November...... 5.83 5.48 3.21 3.33 4.94
December...... 5.86 6.09 3.32 3.68 4.94
If [either] Index becomes unpublished or is otherwise
unavailable, the Master Servicer will select an alternative index that
is based upon comparable information.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage
Loans and the Mortgaged Properties is based upon the Mortgage Pool as
constituted at the close of business on the Cut-off Date, as adjusted
for the scheduled principal payments due on or before such date. Prior
to the issuance of the Offered Certificates, Mortgage Loans may be
removed from the Mortgage Pool as a result of incomplete documentation
or otherwise, if the Depositor deems such removal necessary or
appropriate. A limited number of other mortgage loans may be included
in the Mortgage Pool prior to the issuance of the Offered
Certificates.
A Current Report on Form 8-K will be available to purchasers of
the Offered Certificates and will be filed, together with the Pooling
and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Offered
Certificates. In the event that Mortgage Loans are removed from or
added to the Mortgage Pool as set forth in the preceding paragraph,
such removal or addition will be noted in such Current Report on Form
8-K.
THE DEPOSITOR
Quality Mortgage Acceptance Corp. (the "Depositor"), a California
corporation, was incorporated in May 1996. The principal executive
offices of the Depositor are located at 16800 Aston Street, Irvine,
California 92714 and its telephone number is (714) 440-1000. Neither
the Depositor nor any of its affiliates will make any representations
or warranties with respect to the Mortgage Loans, or have any
obligation to purchase a Mortgage Loan if the Seller defaults on its
obligation to repurchase a Mortgage Loan either in connection with a
breach of a representation and warranty or in connection with a
defective document as described above, and no assurance can be given
that the Seller will carry out such obligations with respect to
Mortgage Loans. See "POOLING AND SERVICING AGREEMENT-Assignment of
Mortgage Loans." Neither the Depositor nor any affiliate of the
Depositor will guarantee the Certificates or the assets included in
the Trust Fund for a Series.
THE SELLER
[Note: The description of the Seller set forth below will be
modified as appropriate to provide updated information or to describe
any Seller other than Quality Mortgage USA, Inc.]
The information set forth in the following paragraphs (other than
the information set forth under the caption "-Loan Delinquency,
Forbearance, Foreclosure, Bankruptcy and REO Property Status" and, to
the extent provided by [Servicer] as described herein, the information
set forth under the caption "-REO Property Liquidation Experience")
has been provided by the Seller. Neither the Depositor, the
Underwriter, the Master Servicer, the Trustee nor any of their
respective affiliates have made or will make any representation as to
the accuracy or completeness of the information provided by the
Seller. The information set forth below under the caption "-Loan
Delinquency, Forbearance, Foreclosure, Bankruptcy and REO Property
Status" and, other than to the extent provided by the Seller, the
information set forth below under the caption "-REO Property
Liquidation Experience" has been provided by [Servicer] in its
capacity as servicer of loans originated or acquired by the Seller
during the relevant periods indicated. No representation is made by
the Depositor, the Underwriter, the Master Servicer, the Seller, the
Trustee or any of their respective affiliates as to the accuracy or
completeness of the information provided by [Servicer].
[Quality Mortgage USA, Inc. (the "Seller"), a California
corporation, was incorporated in 1984, and is approved as a
non-supervised mortgagee by the U.S. Department of Housing and Urban
Development. Prior to September 1991, the Seller did not engage in
lending activities of the type involved under its present lending
programs, and was owned and operated by persons no longer connected
with the Seller. In September 1991, the Seller was acquired by CALMAC
Funding, a Nevada corporation, for the purpose of commencing
operations as an originator and seller of residential mortgage loans.
The Seller began originating and acquiring mortgage loans under its
regular lending program in January 1992 and began originating and
acquiring mortgage loans under its equity lending program in September
1992. The principal executive offices of the Seller are located at
16800 Aston Street, Irvine, California 92714 and its telephone number
is (714) 440-1000.
As of September 30, 199__, the Seller had total assets of
$__________, total liabilities of $__________ and shareholders' equity
of $__________. For the year ended September 30, 199__, the Seller
had net income (after taxes) of $__________. As of ___________,
199__, the Depositor had total assets of $__________, total
liabilities of $__________, and shareholders' equity of $__________.
For the _____-month period ended __________, 199__, the Seller had net
income (after taxes) of $__________. The Seller currently maintains
additional loan origination offices at various locations in the States
of [California, Colorado, Nevada, Texas, Washington, Maryland, Oregon,
Missouri, Indiana, Ohio, Minnesota, Pennsylvania, North Carolina,
South Carolina, Kansas, Tennessee, Oklahoma, Wisconsin, Utah,
Louisiana, Hawaii and New Mexico].
[No person other than the Seller is obligated with respect to the
representations and warranties respecting the Mortgage Loans and the
remedies for any breach thereof that are assigned to the Trustee for
the benefit of the Certificateholders. Moreover, as discussed above,
the Seller has only limited assets available to perform its repurchase
obligations in respect of any breach of such representations and
warranties, relative to the potential amount of repurchase liability,
and the total potential amount of repurchase liability is expected to
increase over time as the Seller continues to originate, acquire and
sell mortgage loans. There can be no assurance that the Seller will
continue to generate operating earnings, or that it will be successful
under its current business plan. Therefore, prospective investors in
the Offered Certificates should consider the possibility that the
Seller will not have sufficient assets with which to satisfy its
repurchase obligations in the event that a substantial amount of
Mortgage Loans are required to be repurchased due to breaches of
representations and warranties.]
The Seller will retain the right to all prepayment charges and
late payment charges received on certain of the Mortgage Loans and the
Certificateholders will have no right thereto. [In addition, it is
anticipated that the Seller will be the holder of a Percentage
Interest equal to 99.99% in the Residual Certificates. The Seller may
sell such Residual Certificates at any time, subject to certain
conditions set forth in the Pooling and Servicing Agreement.]
Loan Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status
Based solely upon information provided by [Servicer], the table
below summarizes, at the respective dates indicated, the delinquency,
forbearance, foreclosure, bankruptcy and REO property status with
respect to all mortgage loans originated under the Seller's
[regular][equity] lending program that, in each case, were transferred
to REMIC trust funds as of the respective dates three months prior to
the dates indicated. The table below is based solely upon information
provided by [Servicer], as servicer of such mortgage loans during the
periods indicated, and does not include information with respect to
mortgage loans that were purchased by the Depositor but not
transferred to REMIC trust funds, mortgage loans originated under the
Seller's [equity][regular] lending program or mortgage loans
originated by the Seller under its REO underwriting guidelines. The
indicated periods of delinquency are based on the number of days past
due on a contractual basis. The monthly payments under all of such
mortgage loans are due on the first day of each calendar month. (The
sum of the amounts and the percentages in the table below may not
equal the totals due to rounding.)
<PAGE>
At _______, 199_ At______, 199_
Number Principal Number Principal
of Loans Amount of Loans Amount
-------- --------- -------- ---------
(Dollars in Thousands)
Total Loans Outstanding.... $ $
DELINQUENCY(1).............
Period of Delinquency:..
31-60 Days......... $ $
61-90 Days.........
91-120 Days or More ________ ________ ________ ________
Total Delinquencies.....
======== ======== ======== ========
Delinquencies as a Percentage of
Total Loans Outstanding.... % % % %
FORBEARANCE LOANS(2)....... $
Forbearance Loans as a Percentage of
Total Loans Outstanding.... % % % %
FORECLOSURES PENDING(3)...... $ $
Foreclosures Pending as a Percentage of
Total Loans Outstanding...... % % % %
BANKRUPTCIES PENDING(4)...... $ $
Bankruptcies Pending as a Percentage of
Total Loans Outstanding...... % % % %
TOTAL DELINQUENCIES PLUS FORBEARANCE
LOANS, FORECLOSURES PENDING AND $ $
BANKRUPTCIES PENDING
Total Delinquencies Plus Forbearance
Loans, foreclosures Pending and
Bankruptcies Pending as Percentage
of Total Loans Outstanding..... % % % %
REO PROPERTIES(5).............. $ $
REO Properties as a Percentage of
Total Loans Outstanding........ % % % %
____________________________________
(1) The delinquency balances, percentages and numbers set forth
under this heading exclude (a) delinquent mortgage loans that
were subject to forbearance agreements with the related
mortgagors at the respective dates indicated ("Forbearance
Loans"), (b) delinquent mortgage loans that were in
foreclosure at the respective dates indicated ("Foreclosure
Loans"), (c) delinquent mortgage loans as to which the related
mortgagor was in bankruptcy proceedings at the respective
dates indicated ("Bankruptcy Loans") and (d) REO properties
that have been purchased by or on behalf of REMIC trust funds
upon foreclosure of the related mortgage loans (other than REO
properties purchased by the Seller as described below under
"-REO Property Liquidation Experience." All Forbearance Loans,
Foreclosure Loans, Bankruptcy Loans and REO properties have
been segregated into the sections of the table entitled
"Forbearance Loans," "Foreclosures Pending," "Bankruptcies
Pending" and "REO Properties," respectively, and are not
included in the "31-60 Days," "61-90 Days," "91-120 Days or
More" and "Total Delinquencies" sections of the table. See the
section of the table entitled "Total Delinquencies plus
Forbearance Loans, Foreclosures Pending and Bankruptcies
Pending" for total delinquency balances, percentages and
numbers which include Forbearance Loans, Foreclosure Loans and
Bankruptcy Loans, and see the section of the table entitled
"REO Properties" for delinquency balances, percentages and
numbers related to REO properties that have been purchased by
or on behalf of REMIC trust funds upon foreclosure of the
related mortgage loans (other than REO properties purchased by
the Seller as described below under "-REO Property Liquidation
Experience").
(2) For each of the Forbearance Loans, the servicer has entered
into a written forbearance agreement with the related
mortgagor, based on the servicer's determination that the
mortgagor is temporarily unable to make the scheduled monthly
payment on such mortgage loan. Prior to entering into each
forbearance agreement, the servicer confirmed the continued
employment status of the mortgagor and found the payment
history of such mortgagor to be satisfactory. There can be no
assurance that the mortgagor will be able to make the payments
as required by the forbearance agreement, and any failure to
make such payments will constitute a delinquency. None of the
Mortgage Loans included in the Mortgage Pool are Forbearance
Loans.
(3) Mortgage loans that are in foreclosure but as to which the
mortgaged property has not been liquidated at the respective
dates indicated. It is generally the policy, with respect to
mortgage loans originated by the Seller, to commence
foreclosure proceedings when a mortgage loan is between 31 and
60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in
bankruptcy proceedings at the respective dates indicated.
(5) REO properties that have been purchased by or on behalf of
REMIC trust funds upon foreclosure of the related mortgage
loans, including mortgaged properties that were purchased by
the Seller after the respective dates indicated, as described
below under "-REO Property Liquidation Experience," but not
including mortgaged properties that the Seller had already
purchased as of such dates.
The above data on delinquency, forbearance, foreclosure,
bankruptcy and REO property status are calculated on the basis of the
total mortgage loans originated or acquired under the Seller's
[regular][equity] lending program that, in each case, were transferred
to a REMIC trust fund as of the dates three months prior to the
respective dates indicated. However, the total amount of mortgage
loans on which the above data are based includes many mortgage loans
which were not, as of the respective dates indicated, outstanding long
enough to give rise to some of the indicated periods of delinquency,
to foreclosure or bankruptcy proceedings or to forbearance or REO
property status. In the absence of such mortgage loans, the
delinquency, forbearance, foreclosure, bankruptcy and REO property
percentages indicated above would be higher and could be substantially
higher. Because the Mortgage Pool will consist of a fixed group of
Mortgage Loans, the actual delinquency, forbearance, foreclosure,
bankruptcy and REO property percentages with respect to the Mortgage
Pool may therefore be expected to be higher, and may be substantially
higher, than the percentages indicated above. Prospective investors
should also be aware that while the information set forth in the table
above has been compiled on the basis of reports that are prepared as
of the last day of each month, monthly remittance reports that will be
sent to investors will include delinquency and foreclosure information
on the Mortgage Loans included in the Mortgage Pool that will be based
on reports prepared as of the fifteenth day of each month (the
"Monthly Remittance Reports"), and that the delinquency and
foreclosure information appearing in the Monthly Remittance Reports
may therefore be expected to be higher than would be the case if such
information were based on reports prepared as of the last day of each
month. For example, for purposes of the foregoing table, a payment due
on __________ 1st would be treated as 31 to 60 days delinquent only if
the payment was not received as of __________ 30th, while the same
payment would be treated as 31 to 60 days delinquent for purposes of
the Monthly Remittance Report in __________ if the payment was not
received as of __________ 15th. In addition, the delinquency and
foreclosure information appearing in the Monthly Remittance Reports is
used in the calculation of the Senior Prepayment Percentage for the
Mortgage Pool.
REO Property Liquidation Experience
The pooling and servicing agreements relating to the REMIC trust
funds to which mortgage loans originated or acquired under the
Seller's [regular][equity] lending program were transferred by the
Depositor prior to __________ 1, 1995 (the "REMIC Agreements") permit
the Seller at its sole option to purchase any mortgaged property
acquired or about to be acquired by foreclosure by the servicer
thereof on behalf of the related trustee.
The tables below summarize, respectively, for the periods
indicated (i) the total number of mortgage loans originated or
acquired under the Seller's [regular][equity] lending program and
transferred to REMIC trust funds, and the aggregate outstanding
principal balance thereof at origination, and (ii) the combined
experience of the Seller and [Servicer], as servicer of such mortgage
loans during the periods indicated, as of __________, 1996 with
respect to all REO properties relating to such mortgage loans that
were transferred to REMIC trust funds as of __________, 1996. The
tables below do not include information with respect to mortgage loans
purchased by the Seller but not transferred to REMIC trust funds,
mortgage loans originated or acquired under the Seller's
[equity][regular] lending program or mortgage loans originated by the
Seller under its REO underwriting guidelines.
__________ through
_________, 1996(1)
Aggregate Principal Balance at Origination..... $
Total Number of Loans..........................
__________ through
_________, 1996(1)
Total Number of REO Properties.................
Aggregate Principal Balance
of REO Properties(3)........................... $
Total Number of Liquidated Properties(4)....... $
Aggregate Principal Balance
of Liquidated Properties(3).................... $
Aggregate Net Gains/(Losses)(5)................ $
Average Net Gain/(Loss) per
Liquidated Property(6)......................... %
_________________________________
(1) The Seller began originating and acquiring mortgage loans under
its regular lending program on January 17, 1992. [The Seller
began originating and acquiring mortgage loans under its equity
lending program on September 21, 1992.]
(2) Prior to October 1, 1992, no mortgaged property securing a
mortgage loan included in any REMIC trust fund had been acquired
by foreclosure on behalf of the trustee under the related REMIC
Agreement. Accordingly, prior to October 1, 1992, the Seller did
not have any opportunity to exercise its option to purchase any
mortgaged properties acquired or about to be acquired by
foreclosure on behalf of a trustee under the provisions of the
REMIC Agreements.
(3) Aggregate of the outstanding principal balances of the related
mortgage loans at the respective dates such mortgage loans were
converted to REO property status (not including accrued
interest).
(4) Total number of REO properties that were finally liquidated
during the indicated period (each, a "Liquidated Property"),
including by sale with Seller-provided financing.
(5) As to each Liquidated Property, the Net Gain/(Loss) is equal to
(a) all amounts received in connection with the liquidation of
such Liquidated Property (including the net proceeds of any
Seller-provided financing), minus (b) the unpaid principal
balance, foreclosure costs, accrued interest and all liquidation
expenses related to such Liquidated Property.
(6) Aggregate Net Gains/(Losses) divided by the Aggregate Balance of
Liquidated Properties.
The above data on loss experience are calculated on the basis of
the total mortgage loans originated or acquired under the Seller's
[regular][equity] lending program that were transferred to REMIC trust
funds as of __________, 1996. However, the total amount of mortgage
loans on which the above data are based includes many mortgage loans
which were not, as of __________, 1996, outstanding long enough to
give rise to the possibility of default and final liquidation. The
loss experience with respect to the Mortgage Pool may therefore be
expected to be higher, and may be substantially higher, than indicated
above.
[The Seller will have no right to purchase Mortgaged Properties
from the Trust Fund as described above. Consequently, any losses
incurred upon the liquidation of defaulted Mortgage Loans will be
borne by the Certificateholders as described herein under "DESCRIPTION
OF THE CERTIFICATES-Allocation of Losses; Subordination," unless the
related Mortgaged Properties are purchased by the Master Servicer as
described herein under "DESCRIPTION OF THE CERTIFICATES-Optional
Purchase of the Delinquent Mortgage Loans."] Further, Seller-provided
financing has been used to facilitate the sale of REO properties from
time to time. Such financing may have had the effect of minimizing
losses that might otherwise have been incurred upon the liquidation of
REO properties if financing on terms equivalent to those provided by
the Depositor were not available from other sources. However, neither
the Depositor, the Underwriter, the Seller, the Master Servicer, the
Trustee nor any other person will have any obligation to purchase
Mortgaged Properties from the Trust Fund as described above or to
provide financing to facilitate the sale of REO properties. There can
be no assurance that the loss experience for future dispositions of
Mortgaged Properties on behalf of the Trust Fund will be similar to
the loss experience indicated in the foregoing tables.
DESCRIPTION OF THE CERTIFICATES
General
The Series 1996-__ Mortgage Loan Asset-Backed Certificates (the
"Certificates") will consist of the following seven Classes: (i) Class
S Certificates (the "Variable Strip Certificates"), (ii) Class A-1
Certificates and Class A-2 Certificates (collectively, with the
Variable Strip Certificates, the "Senior Certificates"), (iii) Class
B-1 Certificates, Class B-2 Certificates, and Class B-3 Certificates
(collectively, the "Subordinate Certificates") and (iv) Class R
Certificates (the "Residual Certificates"). Only the Senior
Certificates and the Class B-1 Certificates (collectively, the
"Offered Certificates") are offered hereby.
The Certificates will, in the aggregate, evidence the entire
beneficial ownership interest in a trust fund (the "Trust Fund"). The
Trust Fund will consist of (i) the Mortgage Loans, (ii) such assets as
from time to time are identified as deposited in respect of the
Mortgage Loans in the account established by the Master Servicer for
the collection of payments on the Mortgage Loans (the "Custodial
Account") and in the Excess Proceeds Account and the Certificate
Account (each as defined herein) and as belonging to the Trust Fund,
(iii) property acquired by foreclosure of such Mortgage Loans or by
deed in lieu of foreclosure, (iv) any applicable hazard insurance
policies, any other applicable insurance policies and all proceeds
thereof and (v) the representations and warranties made by the Seller
with respect to the Mortgage Loans.
Distributions on the Offered Certificates will be made on the
25th day of each month or, if such day is not a business day, then on
the next succeeding business day (each, a "Distribution Date"),
commencing in December 1995, to Certificateholders of record on the
immediately preceding Record Date. The record date (the "Record Date")
for each Distribution Date will be the close of business on the last
business day of the month immediately preceding the month in which
such Distribution Date occurs.
Distributions on the Offered Certificates will be made to each
registered holder entitled thereto, either (i) by check mailed to the
address of such Certificateholder as it appears on the books of the
Trustee or (ii) at the request, submitted to the Trustee in writing at
least five business days prior to the related Record Date, of any
holder of an Offered Certificate having an initial Certificate
Principal Balance of not less than $2,500,000 (or, with respect to a
Variable Strip Certificate, an initial Notional Amount of not less
than $10,000,000), by wire transfer in immediately available funds,
provided, that the final distribution in respect of any Offered
Certificate will be made only upon presentation and surrender of such
Certificate at the Corporate Trust Office of the Trustee. See "POOLING
AND SERVICING AGREEMENT-The Trustee" herein.
The Variable Strip Certificates and the Class A-1 Certificates
(collectively, the "DTC Registered Certificates") will be issued,
maintained and transferred on the book-entry records of the Depository
Trust Company ("DTC") and its Participants. The DTC Registered
Certificates will be issued in minimum denominations (or, in the case
of the Variable Strip Certificates, in initial Notional Amounts) of
$1.00 and integral multiples of $1.00 in excess thereof. The Class A-2
Certificates will be issued in registered and certificated form in
minimum denominations of $25,000 and integral multiples of $1,000 in
excess thereof, and the Class B-1 Certificates will be issued in
registered and certificated form in minimum denominations of $250,000
and integral multiples of $1,000 in excess thereof, provided, however,
that one Certificate of each such Class may be issued evidencing the
sum of an authorized denomination thereof and the remainder of the
aggregate initial Certificate Principal Balance of such Class.
The DTC Registered Certificates will be represented by one or
more certificates registered in the name of the nominee of DTC. The
Depositor has been informed by DTC that DTC's nominee will be Cede &
Co. ("Cede"). No person acquiring an interest in the DTC Registered
Certificates (each, a "Beneficial Owner") will be entitled to receive
a certificate representing such person's interest (a "Definitive
Certificate"), except as set forth below under "-Book-Entry
Registration of the DTC Registered Certificates-Definitive
Certificates." Unless and until Definitive Certificates are issued for
the DTC Registered Certificates under the limited circumstances
described herein, all references to actions by Certificateholders with
respect to the DTC Registered Certificates shall refer to actions
taken by DTC upon instructions from its Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders with respect to the DTC Registered Certificates
shall refer to distributions, notices, reports and statements to DTC
or Cede, as the registered holder of the DTC Registered Certificates,
for distribution to Beneficial Owners by DTC in accordance with DTC
procedures.
Book-Entry Registration of the DTC Registered Certificates
General. Beneficial Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the related DTC Registered
Certificates may do so only through Participants and Indirect
Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest on the related DTC Registered
Certificates through DTC and its Participants. Accordingly, Beneficial
Owners may experience delays in their receipt of payments. Unless and
until Definitive Certificates are issued for the related DTC
Registered Certificates, it is anticipated that the only registered
Certificateholder of such DTC Registered Certificates will be Cede, as
nominee of DTC. Beneficial Owners will not be recognized by the
Trustee or the Master Servicer as Certificateholders, as such term is
used in the Pooling and Servicing Agreement, and Beneficial Owners
will be permitted to receive information furnished to
Certificateholders and to exercise the rights of Certificateholders
only indirectly through DTC, its Participants and Indirect
Participants.
Under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers of DTC Registered Certificates among
Participants and to receive and transmit distributions of principal
and of interest on such DTC Registered Certificates. Participants and
Indirect Participants with which Beneficial Owners have accounts with
respect to such DTC Registered Certificates similarly are 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 physical certificates evidencing
their interests in the DTC Registered Certificates, the Rules provide
a mechanism by which Beneficial Owners, through their Participants and
Indirect Participants, will receive distributions and will be able to
transfer their interests in the DTC Registered Certificates.
None of the Depositor, the Master Servicer or the Trustee or any
of their respective affiliates will have any liability for any actions
taken by DTC or its nominee, including, without limitation, actions
for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the DTC Registered Certificates
held by Cede, as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued
to Beneficial Owners or their nominees, respectively, rather than to
DTC or its nominee, only under the limited conditions set forth in the
Prospectus under "DESCRIPTION OF THE CERTIFICATES-Book-Entry
Registration."
Upon the occurrence of an event described in the Prospectus in
the last paragraph under "DESCRIPTION OF THE CERTIFICATES-Book-Entry
Registration," the Trustee (through DTC) is required to notify
Participants who have ownership of DTC Registered Certificates as
indicated on the records of DTC of the availability of Definitive
Certificates for their DTC Registered Certificates. Upon surrender by
DTC of the definitive certificates representing the DTC Registered
Certificates and upon receipt of instructions from DTC for
re-registration, the Trustee will re-issue the DTC Registered
Certificates as Definitive Certificates in the respective principal
amounts owned by individual Beneficial Owners, and thereafter the
Trustee and the Master Servicer will recognize the holders of such
Definitive Certificates as Certificateholders under the Pooling and
Servicing Agreement. Such Definitive Certificates will be issued in
minimum denominations of $1,000, except that any certificate that was
represented by a DTC Registered Certificate in an amount less than
$1,000 immediately prior to the issuance of a Definitive Certificate
shall be issued in a minimum denomination equal to the amount
represented by such DTC Registered Certificate.
For additional information regarding DTC and the DTC Registered
Certificates, see "DESCRIPTION OF THE CERTIFICATES-Book-Entry
Registration" in the Prospectus.
Available Distribution Amount
[Note: The description of distributions set forth below will be
modified as appropriate to reflect the terms of a particular Series.]
The "Available Distribution Amount" for any Distribution Date
will equal (a) the sum of (i) the balance on deposit in the Custodial
Account as of the close of business on the related Determination Date,
(ii) all Advances made with respect to such Distribution Date and
(iii) certain related amounts required to be deposited by the Master
Servicer in the Certificate Account, reduced by (b) the sum of (i)
scheduled payments on the Mortgage Loans collected but due after the
related Due Date, (ii) reinvestment income on amounts in the Custodial
Account, (iii) all amounts reimbursable to the Master Servicer or any
subservicer in respect of the Mortgage Loans and (iv) any unscheduled
payments, including mortgagor prepayments on the Mortgage Loans,
Insurance Proceeds, Liquidation Proceeds and proceeds from repurchases
of the Mortgage Loans occurring in the month of such Distribution
Date. With respect to any Distribution Date, (i) the Due Date is the
first day of the month in which such Distribution Date occurs and (ii)
the Determination Date is the 15th day of the month in which such
Distribution Date occurs or, if such day is not a business day, the
immediately preceding business day.
Interest Distributions
Holders of the Variable Strip Certificates and the Class A-1
Certificates will be entitled to receive interest distributions in an
amount equal to the Accrued Certificate Interest (as defined herein)
for such Class on each Distribution Date (as to all such Classes of
Certificates in the aggregate, the "Priority Interest Distribution
Amount"), to the extent of the Available Distribution Amount for such
Distribution Date. Holders of the Class A-2 Certificates will be
entitled to receive interest distributions in an amount equal to the
Accrued Certificate Interest for such Class on each Distribution Date
to the extent of the Available Distribution Amount for such
Distribution Date remaining after distributions of interest to the
holders of the Variable Strip Certificates and interest and principal
to the holders of the Class A-1 Certificates and, if the Certificate
Principal Balances of the Subordinate Certificates have been reduced
to zero, reimbursement to the Master Servicer for certain Advances as
described below under "-Advances." Holders of the Class B-1
Certificates will be entitled to receive interest distributions in an
amount equal to the Accrued Certificate Interest for such Class on
each Distribution Date to the extent of the Available Distribution
Amount for such Distribution Date remaining after distributions of
interest and principal, as applicable, to the holders of the Classes
of Senior Certificates, and, if the Certificate Principal Balances of
the Subordinate Certificates subordinate thereto have been reduced to
zero, reimbursement to the Master Servicer for certain Advances as
described below under "-Advances."
With respect to any Distribution Date, Accrued Certificate
Interest will be equal to: (a) in the case of each Class of Offered
Certificates (other than the Variable Strip Certificates) and
Subordinate Certificates, interest accrued for the Accrual Period on
the Certificate Principal Balance (as in effect immediately prior to
such Distribution Date) of the Certificates of such Class at the
related Certificate Rate and (b) in the case of the Variable Strip
Certificates, interest accrued for the Accrual Period on the Notional
Amount (as in effect immediately prior to such Distribution Date) at
the related Certificate Rate; in each case less interest shortfalls,
if any, for such Distribution Date not covered (I), with respect to
the Variable Strip Certificates and the Class A-1 Certificates, by the
Subordination provided by the Class A-2 Certificates and the
Subordinate Certificates, (II), with respect to the Senior
Certificates, by the Subordination provided by the Subordinate
Certificates and (III), with respect to the Class B-1 Certificates, by
the Subordination provided by the Class B-2 Certificates and the Class
B-3 Certificates, including (i) any related Prepayment Interest
Shortfalls (as defined below) to the extent not covered by the Master
Servicer as described below, (ii) the interest portions of Realized
Losses (including any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses and Extraordinary Losses) not
allocated through Subordination, (iii) the interest portion of any
Advances that were made with respect to delinquencies that were
ultimately determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses and (iv) any
other interest shortfalls not covered by Subordination, including
interest shortfalls relating to the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended (the "Relief Act"), or similar
legislation or regulations, all allocated among the holders of all
Classes of Certificates in proportion to the respective amounts of
Accrued Certificate Interest for such Distribution Date on each such
Class, before taking into account any such shortfall. In the case of
the Class A-2 Certificates and the Class B-1 Certificates, Accrued
Certificate Interest will be further reduced by the allocation of the
interest portion of certain losses thereto, if any, described below
under "-Allocation of Losses; Subordination." The Accrual Period for
each Distribution Date will be from the 25th day of the month
preceding such Distribution Date to the 24th day of the month of such
Distribution Date, provided, however, that the Accrual Period will be
treated as a 30-day period regardless of the number of days from the
25th day of the preceding month to the 24th day of such month.
Accrued Certificate Interest is calculated on the basis of a 360-day
year consisting of twelve 30-day months.
The Prepayment Interest Shortfall for any Distribution Date is
equal to the aggregate shortfall, if any, in collections of interest
(adjusted to the related Net Mortgage Rates as described below)
resulting from principal prepayments on the Mortgage Loans received in
the preceding calendar month (each, a "Prepayment Period"). Such
shortfalls will result because interest on prepayments in full is
distributed only to the date of prepayment and because no interest is
collected or distributed on prepayments in part, as such prepayments
in part are applied to reduce the outstanding principal balance of
such Mortgage Loan as of the Due Date in the month of prepayment. The
Master Servicer will be obligated to apply amounts otherwise payable
to it as servicing compensation in any month to cover any shortfalls
in collections of one full month's interest at the applicable Net
Mortgage Rate resulting from principal prepayments.
In the event that the amount available for distributions of
interest on the Senior Certificates on any Distribution Date is less
than the Priority Interest Distribution Amount for such Distribution
Date, the shortfall will be allocated among the holders of such
Classes of Senior Certificates in proportion to the respective amounts
of Accrued Certificate Interest for such Distribution Date on each
such Class. With respect to any shortfall in the amount available for
distributions of interest on any particular Class of Certificates on
any Distribution Date, the amount of such shortfall will be
distributable to the holders of the Certificates of such Class on
subsequent Distribution Dates, to the extent of available funds after
distributions as required herein, subject to the priorities described
herein. Any such amounts so carried forward will not bear interest.
On the first Distribution Date, the Certificate Rate on the
Certificates (other than the Variable Strip Certificates) will be
_____% per annum. The Certificate Rate on the Certificates (other
than the Variable Strip Certificates) for each Distribution Date
thereafter will be equal to One-Month LIBOR plus _____%; provided,
however, that the Certificate Rate on each such Class of Certificates
will be subject to a maximum rate as of any Distribution Date equal to
the lesser of (i) _____% per annum and (ii) the Net Mortgage Rate Cap.
The Net Mortgage Rate Cap is a per annum rate equal to the weighted
average of the Net Mortgage Rates on the then-outstanding Mortgage
Loans. The Certificate Rate on the Variable Strip Certificates on
each Distribution Date will be equal to the excess, if any, of (i) the
Net Mortgage Rate Cap over (ii) the Certificate Rate on the
Certificates (other than the Variable Strip Certificates). The
Certificate Rate will be approximately _____% per annum with respect
to the first Distribution Date for the Variable Strip Certificates.
The Net Mortgage Rate on each Mortgage Loan will be equal to the
Mortgage Rate thereon minus _____% per annum, the annual rate at which
the related servicing fee accrues (the "Servicing Fee Rate").
As described herein, the Accrued Certificate Interest allocable
to each Class of Offered Certificates (other than the Variable Strip
Certificates) is based on the Certificate Principal Balance thereof
or, in the case of the Variable Strip Certificates, on the Notional
Amount thereof. The Certificate Principal Balance of any Class of
Offered Certificates (other than the Variable Strip Certificates) as
of any date of determination is equal to the initial Certificate
Principal Balance thereof, reduced by the aggregate of (a) all amounts
allocable to principal previously distributed with respect to such
Certificate and (b) any reductions in the Certificate Principal
Balance thereof deemed to have occurred in connection with allocations
of Realized Losses in the manner described herein; provided, however,
that (i) after the Certificate Principal Balances of the Subordinate
Certificates subordinate thereto have been reduced to zero, the
Certificate Principal Balance of any Class B-1 Certificate shall equal
the Percentage Interest evidenced thereby multiplied by the excess, if
any, of (x) the then aggregate Stated Principal Balance of all of the
Mortgage Loans over (y) the then aggregate Certificate Principal
Balances of the Senior Certificates and (ii) after the Certificate
Principal Balances of the Subordinate Certificates have been reduced
to zero, the Certificate Principal Balance of any Class A-2
Certificate shall equal the Percentage Interest evidenced thereby
multiplied by the excess, if any, of (x) the then aggregate Stated
Principal Balance of all of the Mortgage Loans over (y) the then
aggregate Certificate Principal Balance of the Class A-1 Certificates.
The Notional Amount of the Variable Strip Certificates as of any
date of determination will be equal to the aggregate Certificate
Principal Balance of all Classes of Certificates as of such date;
provided that the initial Notional Amount of the Variable Strip
Certificates shall be rounded down to the nearest dollar increment.
References herein to the Notional Amount of a Variable Strip
Certificate are used solely for convenience in certain calculations
and do not represent the right to receive distributions of such
amounts.
Calculation of One-Month LIBOR
The Certificate Rate on the Offered Certificates (other than the
Variable Strip Certificates) on the first Distribution Date will be
_____% per annum. Thereafter, on the second business day preceding
each Distribution Date (each such date, an "Interest Determination
Date"), the Trustee will determine the London interbank offered rate
for one-month U.S. dollar deposits ("One-Month LIBOR") for the
Distribution Date in the following month for the Offered Certificates
(other than the Variable Strip Certificates) on the basis of the
offered rates of the Reference Banks for one-month U.S. dollar
deposits, as such rates appear on the Reuters Screen LIBO Page, as of
11:00 a.m. (London time) on such Interest Determination Date. As used
in this section, "business day" means a day on which banks are open
for dealing in foreign currency and exchange in London and New York
City; "Reuters Screen LIBO Page" means the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other page
as may replace the LIBO page on that service for the purpose of
displaying London interbank offered rates of major banks); and
"Reference Banks" means leading banks selected by the Trustee and
engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Reuters Screen LIBO Page
on the Interest Determination Date in question, (iii) which have been
designated as such by the Trustee and (iv) not controlling, controlled
by, or under common control with, the Depositor or the Seller.
On each Interest Determination Date, One-Month LIBOR for the
Distribution Date in the following month for the Offered Certificates
(other than the Variable Strip Certificates) will be established by
the Trustee as follows:
(a) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations, One-Month LIBOR
for the Distribution Date in the following month shall be the
arithmetic mean of such offered quotations (rounded upwards if
necessary to the nearest whole multiple of 0.0625%).
(b) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR
for the Distribution Date in the following month shall be the
higher of (x) One-Month LIBOR as determined on the previous
Interest Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum that the
Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 0.0625%) of
the one-month U.S. dollar lending rates which New York City banks
selected by the Trustee are quoting on the relevant Interest
Determination Date to the principal London offices of leading
banks in the London interbank market or, in the event that the
Trustee can determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York City banks
selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest
Determination Date by the Trustee and the Trustee's calculation of the
rate of interest applicable to the Offered Certificates (other than
the Variable Strip Certificates) for the Distribution Date in the
following month shall (in the absence of manifest error) be final and
binding.
Principal Distributions on the Class A-1 Certificates
Holders of the Class A-1 Certificates will be entitled to receive
on each Distribution Date, to the extent of the portion of the
Available Distribution Amount remaining after distributions of the
Priority Interest Distribution Amount, a distribution allocable to
principal equal to the sum of the following amounts:
(i) the product of (A) the then-applicable Class A-1
Percentage and (B) the Scheduled Principal and Net Recoveries (as
defined below) for such Distribution Date;
(ii) an amount equal to the Class A-1 Percentage divided by
the Senior Percentage multiplied by the then-applicable Senior
Prepayment Percentage of all principal prepayments made by the
respective mortgagors during the related Prepayment Period;
(iii) in connection with a Mortgage Loan for which a Cash
Liquidation or an REO Disposition (each as defined below)
occurred during the related Prepayment Period and did not result
in any Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses, an amount equal to the
lesser of (A) the then-applicable Class A-1 Percentage of the
Stated Principal Balance of such Mortgage Loan and (B)(1) the
Class A-1 Percentage for such Distribution Date divided by the
Senior Percentage for such Distribution Date multiplied by (2)
the Senior Prepayment Percentage for such Distribution Date
multiplied by the related collections (including without
limitation Insurance Proceeds and Liquidation Proceeds) to the
extent applied as recoveries of principal of such Mortgage Loan;
and
(iv) any amounts allocable to principal for any previous
Distribution Date (calculated as described in the three preceding
clauses) that remain undistributed to the extent that any such
amounts are not attributable to Realized Losses that were
allocated to the Class A-2 Certificates and the Subordinate
Certificates.
Scheduled Principal and Net Recoveries for any Distribution Date
is equal to the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly payments
on the Mortgage Loans due on the related Due Date, whether or not
received on or prior to the related Determination Date, less the
principal portion of Debt Service Reductions (as defined below)
which constitute Excess Bankruptcy Losses;
(2) the principal portion of all proceeds of the repurchase
of a Mortgage Loan as required by the Pooling and Servicing
Agreement during the related Prepayment Period; and
(3) the principal portion of all Insurance Proceeds and
Liquidation Proceeds received during the related Prepayment
Period minus the aggregate amount of expenses incurred by the
Master Servicer in connection with the liquidation of the related
Mortgage Loans to the extent such expenses are not otherwise
recoverable from related Liquidation Proceeds, but only to the
extent that any such amounts either (A) were not received in
connection with a Cash Liquidation or REO Disposition, or (B)
were received in connection with a Cash Liquidation or REO
Disposition which resulted in an Excess Special Hazard Loss,
Excess Bankruptcy Loss, Excess Fraud Loss or Extraordinary Loss.
A Cash Liquidation of a defaulted Mortgage Loan, other than a
Mortgage Loan as to which an REO Disposition occurred, is deemed to
have occurred upon the final receipt by or on behalf of the Master
Servicer of all Insurance Proceeds, Liquidation Proceeds and other
payments or cash recoveries which the Master Servicer reasonably and
in good faith expects to be finally recoverable with respect to such
Mortgage Loan.
An REO Disposition is deemed to have occurred upon the final
receipt by the Master Servicer of all Insurance Proceeds, Liquidation
Proceeds and other payments and recoveries (including proceeds of a
final sale) which the Master Servicer reasonably and in good faith
expects to be finally recoverable from the sale or other disposition
of the related REO Property.
The Stated Principal Balance of any Mortgage Loan as of any date
of determination is equal to the principal balance thereof as of the
Cut-off Date, after application of all scheduled principal payments
due on or before the Cut-off Date, whether or not received, reduced by
all amounts allocable to principal that have been distributed to
Certificateholders with respect to such Mortgage Loan on or before
such date, and as further reduced to the extent that any Realized Loss
thereon has been allocated to one or more Classes of Certificates on
or before the date of determination.
The "Senior Percentage" with respect to the Class A-1
Certificates together with the Class A-2 Certificates, which initially
will be equal to approximately _____% and will in no event exceed
100%, will be adjusted for each Distribution Date to be the percentage
equal to the aggregate Certificate Principal Balances of the Class A-1
Certificates and the Class A-2 Certificates immediately prior to such
Distribution Date divided by the aggregate of the Stated Principal
Balances of all of the Mortgage Loans immediately prior to such
Distribution Date. The related "Class A-1 Percentage" with respect to
the Class A-1 Certificates, which initially will be equal to
approximately _____% will in no event exceed 100%, and will be
adjusted for each Distribution Date to be the percentage equal to the
aggregate Certificate Principal Balance of the Class A-1 Certificates,
immediately prior to such Distribution Date divided by the aggregate
Stated Principal Balance of all of the Mortgage Loans immediately
prior to such Distribution Date. The "Class A-2 Percentage" with
respect to the Class A-2 Certificates will be adjusted as described
below under "-Principal Distributions on the Class A-2 Certificates."
The "Subordinate Percentage" as of any date of determination is equal
to 100% minus the Senior Percentage as of such date.
The "Senior Prepayment Percentage" for any Distribution Date
occurring prior to the Distribution Date in December 20__ will equal
100% and, for any Distribution Date occurring in or after the
Distribution Date in December 20__, will be as follows: for any
Distribution Date occurring in or after December 20__ to and including
the Distribution Date in November 20__, the Senior Percentage for such
Distribution Date plus __% of the Subordinate Percentage for such
Distribution Date; for any Distribution Date occurring in or after
December 20__ to and including the Distribution Date in November 20__,
the Senior Percentage for such Distribution Date plus __% of the
Subordinate Percentage for such Distribution Date; for any
Distribution Date occurring in or after December 20__ to and including
the Distribution Date in November 20__, the Senior Percentage for such
Distribution Date plus __% of the Subordinate Percentage for such
Distribution Date; for any Distribution Date occurring in or after
December 20__ to and including the Distribution Date in November 20__,
the Senior Percentage for such Distribution Date plus __% of the
Subordinate Percentage for such Distribution Date; and for any
Distribution Date thereafter, the Senior Percentage for such
Distribution Date (unless on any such Distribution Date the Senior
Percentage exceeds the initial Senior Percentage, in which case the
Senior Prepayment Percentage for such Distribution Date will once
again equal 100%). Any scheduled reduction to the Senior Prepayment
Percentage described above will not be made as of any Distribution
Date unless either (a)(i) the outstanding principal balance of the
Mortgage Loans delinquent 60 days or more (including foreclosures and
REO Property) averaged over the last six months, as a percentage of
the aggregate outstanding principal balance of all Mortgage Loans
averaged over the last six months, does not exceed 2% and (ii)
Realized Losses on the Mortgage Loans to date for such Distribution
Date, if occurring during the eleventh, twelfth, thirteenth,
fourteenth and fifteenth year (or any year thereafter) after
__________ 1996, are less than __%, __%, __%, __% or __%,
respectively, of the sum of the initial Certificate Principal Balances
of the Subordinate Certificates or (b)(i) the aggregate outstanding
principal balance of the Mortgage Loans delinquent 60 days or more
(including foreclosures and REO Property) averaged over the last six
months, as a percentage of the aggregate outstanding principal balance
of all Mortgage Loans averaged over the last six months, does not
exceed __% and (ii) Realized Losses on the Mortgage Loans to date for
such Distribution Date are less than __% of the sum of the initial
Certificate Principal Balances of the Subordinate Certificates.
Notwithstanding the foregoing, upon reduction of the Certificate
Principal Balances of the Class A-1 Certificates and the Class A-2
Certificates to zero, the Senior Prepayment Percentage will equal 0%.
Principal Distributions on the Class A-2 Certificates
Holders of the Class A-2 Certificates will be entitled to receive
on each Distribution Date, to the extent of the portion of the
Available Distribution Amount remaining after (a) the sum of the
Priority Interest Distribution Amount and the aggregate amount
required to be distributed in respect of principal (as applicable) is
distributed to the holders of the Variable Strip Certificates and
Class A-1 Certificates, (b) if the Certificate Principal Balances of
the Subordinate Certificates have been reduced to zero, and after
reimbursement is made to the Master Servicer for certain Advances
remaining unreimbursed following the final liquidation of the related
Mortgage Loan to the extent described below under "-Advances," and (c)
the aggregate amount of Accrued Certificate Interest required to be
distributed on such Class on such Distribution Date is so distributed,
a distribution allocable to principal equal to the sum of the
following amounts:
(i) the product of (A) the then-applicable Class A-2
Percentage and (B) the Scheduled Principal and Net Recoveries for
such Distribution Date;
(ii) an amount equal to the Class A-2 Percentage divided by
the Senior Percentage multiplied by the then-applicable Senior
Prepayment Percentage of all principal prepayments made by the
respective mortgagors during the related Prepayment Period;
(iii) in connection with a Mortgage Loan for which a Cash
Liquidation or an REO Disposition occurred during the related
Prepayment Period and did not result in any Excess Special Hazard
Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses, an amount equal to the lesser of (A) the
then-applicable Class A-2 Percentage of the Stated Principal
Balance of such Mortgage Loan and (B)(1) the Class A-2 Percentage
for such Distribution Date divided by the Senior Percentage for
such Distribution Date multiplied by (2) the Senior Prepayment
Percentage for such Distribution Date multiplied by the related
collections (including without limitation Insurance Proceeds and
Liquidation Proceeds) to the extent applied as recoveries of
principal of such Mortgage Loan; and
(iv) any amounts allocable to principal for any previous
Distribution Date (calculated as described in the three preceding
clauses) that remain undistributed to the extent that any such
amounts are not attributable to Realized Losses that were
allocated to the Subordinate Certificates.
The "Class A-2 Percentage" with respect to the Class A-2
Certificates, which initially will be equal to approximately _____%
and will in no event exceed 100%, will be adjusted for each
Distribution Date to be the percentage equal to the Certificate
Principal Balance of the Class A-2 Certificates immediately prior to
such Distribution Date divided by the aggregate Stated Principal
Balance of all of the Mortgage Loans immediately prior to such
Distribution Date, provided that if the Certificate Principal Balances
of the Subordinate Certificates have been reduced to zero, thereafter
the Class A-2 Percentage as of any date of determination will be equal
to 100% minus the Class A-1 Percentage as of such date.
Principal Distributions on the Class B-1 Certificates
The portion of the Available Distribution Amount remaining after
(a) the aggregate amount required to be distributed in respect of
interest and principal (as applicable) is distributed to the holders
of the Senior Certificates, (b) if the Certificate Principal Balances
of the Subordinate Certificates subordinate thereto have been reduced
to zero, reimbursement is made to the Master Servicer for certain
Advances remaining unreimbursed to the extent described below under
"-Advances" and (c) the aggregate amount of Accrued Certificate
Interest required to be distributed to holders of the Class B-1
Certificates is so distributed, will be distributed on each
Distribution Date in the following order of priority, in each case to
the extent of remaining available funds included in the Available
Distribution Amount:
(A) to the holders of the Class B-1 Certificates in respect
of principal, the sum of the following amounts:
(i) the product of (A) the then-applicable Class B-1
Percentage and (B) the Scheduled Principal and Net Recoveries for
such Distribution Date;
(ii) an amount equal to the then-applicable Class B-1
Prepayment Percentage (as defined below) of all principal
prepayments made by the respective mortgagors during the related
Prepayment Period;
(iii) such Class' pro rata share, based on the Certificate
Principal Balance of each Class of Subordinate Certificates, of
all amounts received in connection with a Mortgage Loan for which
a Cash Liquidation or an REO Disposition occurred during the
related Prepayment Period and did not result in any Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, to the extent applied as
recoveries of principal of such Mortgage Loan and to the extent
not otherwise payable to the Class A-1 Certificates or the Class
A-2 Certificates; and
(iv) any amounts allocable to principal for any previous
Distribution Date (calculated as described in the three preceding
clauses) that remain undistributed to the extent that any such
amounts are not attributable to Realized Losses that were
allocated to a more subordinate Class of Subordinate
Certificates.
(B) to the holders of the Class B-2 Certificates in respect
of interest, an amount equal to the Accrued Certificate Interest
on such Class on such Distribution Date;
(C) to the holders of the Class B-2 Certificates in respect
of principal, an amount equal to the aggregate of the following
amounts:
(i) the product of (A) the then-applicable Class B-2
Percentage and (B) the Scheduled Principal and Net Recoveries for
such Distribution Date;
(ii) an amount equal to the then-applicable Class B-2
Prepayment Percentage (as defined below) of all principal
prepayments made by the respective mortgagors during the related
Prepayment Period;
(iii) such Class' pro rata share, based on the Certificate
Principal Balance of each Class of Subordinate Certificates, of
all amounts received in connection with a Mortgage Loan for which
a Cash Liquidation or an REO Disposition occurred during the
related Prepayment Period and did not result in any Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, to the extent applied as
recoveries of principal of such Mortgage Loan and to the extent
not otherwise payable to the Class A-1 Certificates or the Class
A-2 Certificates; and
(iv) any amounts allocable to principal for any previous
Distribution Date (calculated as described in the three preceding
clauses) that remain undistributed to the extent that any such
amounts are not attributable to Realized Losses that were
allocated to the Class B-3 Certificates.
(D) an amount equal to the portion of the Available
Distribution Amount remaining after the foregoing distributions,
to the holders of the Class B-1 Certificates in respect of
principal, until the Certificate Principal Balance of such Class
is reduced to zero, and thereafter to the holders of the other
Subordinate Certificates outstanding as provided in the Pooling
and Servicing Agreement.
The effect of the provisions described above will be that holders
of the Class B-1 Certificates will receive on each Distribution Date
all amounts otherwise distributable to holders of the Class B-3
Certificates on such Distribution Date, which, absent any
delinquencies or losses on the Mortgage Loans would be equal to (i)
the Accrued Certificate Interest on the Class B-3 Certificates for
such Distribution Date, (ii) the Class B-3 Percentage of the Scheduled
Principal and Net Recoveries in respect of the Mortgage Loans for such
Distribution Date and (iii) the amount of full and partial principal
prepayments and principal proceeds of a Cash Liquidation or REO
Disposition on the Mortgage Loans not otherwise distributed to holders
of the Certificates (other than the Class B-3 Certificates).
The "Class B-1 Prepayment Percentage" and "Class B-2 Prepayment
Percentage" with respect to any Distribution Date will be equal to the
product of (a) 100% minus the related Senior Prepayment Percentage for
such Distribution Date and (b) a fraction, the numerator of which is
the Class B-1 Percentage or the Class B-2 Percentage, respectively,
and the denominator of which is the sum of the Class B-1 Percentage,
the Class B-2 Percentage and the Class B-3 Percentage.
The "Class B-1 Percentage," the "Class B-2 Percentage," and the
"Class B-3 Percentage," which initially will be equal to approximately
____%, ____%, and ____% respectively, and will in no event exceed
100%, will each be adjusted for each Distribution Date to be the
percentage equal to the aggregate Certificate Principal Balance of
such Class of Subordinate Certificates immediately prior to such
Distribution Date divided by the aggregate Stated Principal Balance of
all of the Mortgage Loans immediately prior to such Distribution Date.
Example of Distributions
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence.
________ 1 . . . . Cut-off Date.The initial principal balance of the
Mortgage Pool will be the aggregate principal
balance of the Mortgage Loans as of __________ 1,
1996, after deducting any principal payments due
on or before such date. Any principal and interest
payments due on or before __________ 1 will not be
part of the Mortgage Pool.
________ 1 through
________ 30 . . . Prepayment
Period. Partial principal prepayments and
prepayments in full with interest
thereon to the date of such
prepayment in full, received at any
time during this period will be
deposited into the Custodial
Account for distribution to
Certificateholders on __________
25.
________ 30 . . . Record Date. Distributions on __________ 25 will
be made to Certificateholders of
record at the close of business on
the last business day of the month
immediately preceding the month of
distribution.
________ 2 through
________ 15 . . . Collection
Period. Payments due during the related Due
Period (__________ 2 through
__________ 1) from mortgagors will
be deposited in the Custodial
Account as received, and will
include scheduled principal
payments plus interest on the
November balances.
________ 15 . . . Determination
Date. On the second business day
following the Determination Date,
the amounts of principal and
interest that will be distributed
on __________ 25 will be determined
by the Trustee.
________ 21 . . . Interest
Determination
Date. On the second business day
immediately preceding the
Distribution Date the Trustee will
determine One-Month LIBOR for the
Distribution Date in the following
month.
________ 24 . . . Certificate
Account Deposit
Date. On the business day immediately
preceding the Distribution Date the
Master Servicer will remit to the
Trustee the amount of principal and
interest to be distributed to the
Certificateholders on such
Distribution Date from amounts on
deposit in the Custodial Account,
together with any Advances required
to be made by the Master Servicer
for such Distribution Date.
________ 25 . . . Distribution
Date. On ________ 25 the Trustee will
distribute or cause to be
distributed to the
Certificateholders the amounts
determined as of the second
business day following the
Determination Date. If a Monthly
Payment due during the related Due
Period is received from a mortgagor
after __________ 14 and an Advance
has been made with respect to such
late payment from the Custodial
Account, such late payment will be
deposited into the Custodial
Account as reimbursement therefor.
If the Master Servicer has made an
Advance with respect to such late
payment from its own funds, the
Master Servicer will reimburse
itself to the extent permitted by
the Pooling and Servicing Agreement
by withdrawing from the Custodial
Account the amount relating to such
Advance. If no such Advance has
been made with respect to such late
payment, the proceeds of such late
payment will be distributed to the
Certificateholders on the
Distribution Date occurring in
________.
Succeeding months follow the same pattern.
Allocation of Losses; Subordination
Any Realized Losses, other than losses of a type generally
covered by a special hazard insurance policy as described in the
Prospectus under "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-Hazard
Insurance on the Loans" (any such loss, a "Special Hazard Loss") to
the extent in excess of the Special Hazard Amount ("Excess Special
Hazard Losses"), losses incurred on defaulted Mortgage Loans as to
which there was fraud in the origination of such Mortgage Loans (any
such loss, a "Fraud Loss") to the extent in excess of the Fraud Loss
Amount ("Excess Fraud Losses"), losses attributable to certain actions
which may be taken by a bankruptcy court in connection with a Mortgage
Loan, including a reduction by a bankruptcy court of the principal
balance or the Mortgage Rate on a Mortgage Loan or an extension of its
maturity (any such loss, a "Bankruptcy Loss") to the extent in excess
of the Bankruptcy Loss Amount ("Excess Bankruptcy Losses"), and losses
occasioned by war, civil insurrection, certain governmental actions,
nuclear reaction and certain other risks ("Extraordinary Losses"),
will be allocated as follows: Realized Losses on the Mortgage Loans
will be allocated first to the Class B-3 Certificates, then to the
Class B-2 Certificates, then to the Class B-1 Certificates, then to
the Class A-2 Certificates, in each case until the Certificate
Principal Balance thereof is reduced to zero, and thereafter the
principal portion thereof will be allocated to the Class A-1
Certificates and the interest portion thereof to the Variable Strip
Certificates and the Class A-1 Certificates on a pro rata basis. Any
allocation of a Realized Loss (other than a Debt Service Reduction) to
an Offered Certificate will generally be made by reducing the
Certificate Principal Balance thereof, in the case of the principal
portion of such Realized Loss, and the Accrued Certificate Interest
thereon, in the case of the interest portion of such Realized Loss, by
the amount so allocated as of the Distribution Date occurring in the
month following the calendar month in which such Realized Loss was
incurred. As used herein, "Debt Service Reductions" means reductions
in the amount of monthly payments due to certain bankruptcy
proceedings, but does not include any permanent forgiveness of
principal. In addition to the foregoing allocations of Realized
Losses, the Accrued Certificate Interest on certain Classes of Offered
Certificates is subject to reduction due to shortfalls in collections
of interest as described above under "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions." Allocations of the principal
portion of Debt Service Reductions to the Class A-2 Certificates or
the Subordinate Certificates will result from the priority of
distributions of the Available Distribution Amount as described
herein. As used herein, "Subordination" refers to the provisions
discussed above for the sequential allocation of Realized Losses
(other than Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses) in respect of the Mortgage
Loans among the various Classes of Certificates, as well as all
provisions effecting such allocations including the priorities for
distribution of cash flows in the amounts described herein.
Any Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses, Extraordinary Losses or other losses of a type not
covered by Subordination, will be allocated on a pro rata basis among
all of the Certificates. An allocation of a Realized Loss on a "pro
rata basis" among two or more Classes of Certificates means an
allocation to each such Class of Certificates on the basis of their
then outstanding Certificate Principal Balances in the case of the
principal portion of a Realized Loss or based on the Accrued
Certificate Interest thereon in the case of an interest portion of a
Realized Loss.
With respect to any defaulted Mortgage Loan that is finally
liquidated, through foreclosure sale, disposition of the related
Mortgaged Property if acquired on behalf of the related
Certificateholders by deed in lieu of foreclosure, or otherwise, the
amount of loss realized, if any, will be equal to the portion of the
Stated Principal Balance remaining, if any, plus interest thereon
through the last day of the month in which such Mortgage Loan was
finally liquidated, after application of all amounts recovered (net of
amounts reimbursable to the Master Servicer or any subservicer for
Advances and expenses, including attorneys' fees) towards interest and
principal owing on the Mortgage Loan. Such amount of loss realized and
any Special Hazard Losses, Fraud Losses, Bankruptcy Losses and
Extraordinary Losses are referred to herein as "Realized Losses."
The Trustee will establish and maintain one or more separate
accounts (collectively, the "Excess Proceeds Account") in which the
Master Servicer will deposit or cause to be deposited on a daily
basis, or as and when received from subservicers, the excess, if any,
of all amounts recovered on any Mortgage Loan as to which an REO
Disposition occurs (net of amounts reimbursable to the Master Servicer
or any subservicer for Advances and expenses, including attorneys'
fees) over the Stated Principal Balance of such Mortgage Loan plus
interest thereon through the last day of the month in which such REO
Disposition occurs (the "Excess Proceeds"). The Certificateholders
will be entitled to receive on each Distribution Date, in addition to
the distributions of interest and principal described above, a
distribution of Excess Proceeds (including any interest or other
income earned thereon) in an amount equal to the lesser of (a) the
amount on deposit in the Excess Proceeds Account as of the related
Determination Date and (b) the aggregate of all Realized Losses
allocated among the Certificates on any Distribution Date and not
covered by any subsequent distribution. Such distribution will be
allocated in the following order of priority: first, to the holders
of the Variable Strip Certificates and the Class A-1 Certificates on a
pro rata basis, to the extent of the interest portions of Realized
Losses allocated to such Classes of Certificates on any Distribution
Date and not covered by any subsequent distribution, and second, to
the holders of the Class A-2 Certificates, to the extent of the
principal portions of Realized Losses allocated to such Classes of
Certificates on any Distribution Date and not covered by any
subsequent distribution, third, to the holders of the Class B-1
Certificates, fourth, to the holders of the Class B-2 Certificates,
and fifth, to the holders of the Class B-3 Certificates, in each case
to the extent of Realized Losses allocated to such Class of
Certificates on any Distribution Date and not covered by any
subsequent distribution, and then sixth, to the holders of the Class R
Certificates. If the amount on deposit in the Excess Proceeds Account
exceeds an amount calculated periodically pursuant to the terms of the
Pooling and Servicing Agreement or is in excess of zero upon the
termination of the Trust Fund, the excess amount will be distributed
to the holders of the Class R Certificates in accordance with the
terms of the Pooling and Servicing Agreement. The distribution of
Excess Proceeds will not have the effect of reducing the Certificate
Principal Balance of or Accrued Certificate Interest on any Class of
Certificates to which such distribution is allocated. The amount on
deposit in the Excess Proceeds Account initially will be equal to zero
and is not expected to be substantial at any time when the
Certificates are outstanding. Therefore, prospective investors in the
Offered Certificates should not rely on the Excess Proceeds Account to
provide significant protection against Realized Losses on the Mortgage
Loans. Further, prospective investors in the Offered Certificates
should not rely on the distribution of Excess Proceeds to provide a
return on the Certificates in addition to the interest and principal
to which prospective investors in the Offered Certificates are
entitled. The Excess Proceeds Account will be an interest-bearing
account of the type described in the Prospectus under "SERVICING OF
LOANS -Deposits to and Withdrawals from the Collection Account" and
may be invested in Eligible Investments (as defined in the Prospectus)
for the benefit of and at the risk of the Certificateholders. Any
interest or other income earned on amounts in the Excess Proceeds
Account will be held therein until distributed as described above.
The application of the Senior Prepayment Percentage (when it
exceeds the Senior Percentage) as described herein to determine the
required principal distributions on the Senior Certificates will
accelerate the amortization of the Senior Certificates relative to the
actual amortization of the Mortgage Loans. Accordingly, in the absence
of offsetting Realized Losses allocated to the Subordinate
Certificates, the percentage interest evidenced by the Senior
Certificates will be decreased (with a corresponding increase in the
interest evidenced by the Subordinate Certificates in the aggregate),
thereby increasing, as a relative matter, the Subordination afforded
such Senior Certificates by the Subordinate Certificates.
The aggregate amount of Realized Losses which may be allocated
through Subordination in connection with Special Hazard Losses (the
"Special Hazard Amount") will initially be equal to $__________. As of
any date of determination following the Cut-off Date, the Special
Hazard Amount will equal the initial amount thereof less the sum of
(A) any amounts allocated through Subordination in respect of Special
Hazard Losses and (B) the Adjustment Amount. On each anniversary of
__________ 1, 1996, the Special Hazard Amount will be equal to the
amount, if any, by which the Special Hazard Amount, without giving
effect to the deduction of the Adjustment Amount for such anniversary,
exceeds the greater of (i) _____% (or, if greater than _____%, the
highest percentage of the Mortgage Loans, by principal balance, in any
California zip code area) multiplied by the aggregate principal
balance of all of the Mortgage Loans on such anniversary and (ii)
twice the principal balance of the single Mortgage Loan having the
largest principal balance.
The aggregate amount of Realized Losses which may be allocated
through Subordination in connection with Fraud Losses (the "Fraud Loss
Amount") will initially be equal to $__________. As of any date of
determination after the Cut-off Date, the Fraud Loss Amount, will
equal (X) prior to __________ 1, 1997 an amount equal to __________%
of the aggregate principal balance of all the Mortgage Loans as of the
Cut-off Date minus the aggregate amounts allocated through
Subordination with respect of Fraud Losses up to such date of
determination, (Y) from __________ 1, 1997 through __________, 1998 an
amount equal to (1) the lesser of (a) the Fraud Loss Amount as of
__________ 1, 1997 and (b) _____% of the aggregate principal balance
of all of the Mortgage Loans as of __________ 1, 1997 minus (2) the
aggregate amounts allocated through Subordination with respect to
Fraud Losses since __________ 1, 1997 up to such date of
determination, and (Z) from __________ 1, 1998 through __________,
20__, an amount equal to (1) the lesser of (a) the Fraud Loss Amount
as of the most recent __________ 1st and (b) _____% of the aggregate
principal balance of all of the Mortgage Loans as of the most recent
__________ 1st minus (2) the aggregate amounts allocated through
Subordination with respect to Fraud Losses since the most recent
__________ 1st up to such date of determination. On and after
__________ 1, 20__, the Fraud Loss Amount will be zero and Fraud
Losses will not be allocated through Subordination of any of the
Certificates.
The aggregate amount of Realized Losses which may be allocated
through Subordination in connection with Bankruptcy Losses (the
"Bankruptcy Amount") will initially be equal to $__________. As of any
date of determination prior to __________ 1, 1997, the Bankruptcy
Amount will equal the initial amount thereof less the sum of any
amounts allocated through Subordination for such losses up to such
date of determination. As of any date of determination on or after
__________ 1, 1997, the Bankruptcy Amount will be equal to the excess,
if any, of (1) the lesser of (a) the Bankruptcy Amount as of the
business day next preceding the most recent November 1st and (b) an
amount calculated pursuant to the terms of the Pooling and Servicing
Agreement, which amount as calculated will provide for a reduction in
the Bankruptcy Amount, over (2) the aggregate amount of Bankruptcy
Losses allocated through Subordination since such anniversary. The
Bankruptcy Amount and the related formulas referred to above may be
reduced or modified upon written confirmation from each Rating Agency
that such reduction or modification will not adversely affect the
then-current ratings assigned to the Offered Certificates by such
Rating Agency. Such a reduction or modification may adversely affect
the respective coverage provided by the Subordination with respect to
Bankruptcy Losses.
Optional Purchase of Delinquent Mortgage Loans
The Master Servicer will have the right to purchase from the
Trust Fund any Mortgage Loan that is 90 days or more delinquent if the
Master Servicer determines that such Mortgage Loan otherwise would
become subject to foreclosure or related proceedings. The purchase
price for any such Mortgage Loan will equal the outstanding principal
balance of such Mortgage Loan plus accrued and unpaid interest to
first day of the month in which the amount of such purchase price will
be distributed to the Certificateholders. The Master Servicer will be
obligated to deposit into the Custodial Account the purchase price for
any Mortgage Loan purchased by it as described above.
Advances
Prior to each Distribution Date, the Master Servicer is required
to make Advances (out of its own funds or funds held in the Custodial
Account for future distribution or withdrawal) with respect to any
payments of principal and interest on the Mortgage Loans at the Net
Mortgage Rate together with an amount equivalent to interest on each
outstanding REO Property which were due on the Mortgage Loans on the
immediately preceding Due Date and delinquent on the business day next
preceding the related Determination Date.
Such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late
collections, Insurance Proceeds, Liquidation Proceeds or amounts
otherwise payable to the holders of the related Classes of Subordinate
Certificates or, after the Certificate Principal Balances of the
Subordinate Certificates have been reduced to zero, amounts otherwise
payable to the holders of the Class A-2 Certificates. The purpose of
making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses.
The Master Servicer will not be required to make any Advances with
respect to reductions in the amount of the monthly payments on the
Mortgage Loans due to Debt Service Reductions or the application of
the Relief Act or similar legislation or regulations. Any failure by
the Master Servicer to make an Advance as required under the Pooling
and Servicing Agreement will constitute an Event of Default
thereunder, in which case the Trustee, as successor Master Servicer,
will be obligated to make any such Advance, in accordance with the
terms of the Pooling and Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a
first priority basis from either (1) late collections, Insurance
Proceeds and Liquidation Proceeds from the Mortgage Loan as to which
such unreimbursed Advance was made or (2) as to any Advance that
remains unreimbursed in whole or in part following the final
liquidation of the related Mortgage Loan, either, (i) if the Class B-1
Certificates, the Class B-2 Certificates and the Class B-3
Certificates are outstanding, from amounts otherwise distributable on
the Class B-3 Certificates after distributions on the Class B-2
Certificates, (ii) if the Class B-1 Certificates and Class B-2
Certificates are outstanding but the Certificate Principal Balance of
the Class B-3 Certificates has been reduced to zero, from amounts
otherwise distributable on the Class B-2 Certificates, (iii) if the
Class B-1 Certificates are outstanding but the Certificate Principal
Balances of the Class B-2 Certificates and the Class B-3 Certificates
have been reduced to zero, from amounts otherwise distributable on the
Class B-1 Certificates and (iv) if the Certificate Principal Balances
of the Classes of Subordinate Certificates have been reduced to zero,
from amounts otherwise distributable on the Class A-2 Certificates;
provided, however, that any such Advances that were made with respect
to delinquencies which ultimately were determined to be Excess Special
Hazard Losses, Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses are reimbursable to the Master Servicer out of
any funds in the Custodial Account prior to distributions on any of
the Certificates and the amount of such losses will be allocated as
described herein. In addition, if the Certificate Principal Balances
of the Class A-2 Certificates and the Subordinate Certificates have
been reduced to zero, any Advances previously made which are deemed by
the Master Servicer to be nonrecoverable from related late
collections, Insurance Proceeds and Liquidation Proceeds may be
reimbursed to the Master Servicer out of any funds in the Custodial
Account prior to distributions on the Certificates. The effect of
these provisions on the Class B-1 Certificates is that with respect to
any Advance that remains unreimbursed following the final liquidation
of the related Mortgage Loan, the entire amount of the reimbursement
for such Advance will be borne by the holders of the Class B-1
Certificates (except as described above), to the extent of the amounts
otherwise distributable to them after distributions on the Class B-2
Certificates or, after the Certificate Principal Balance of the Class
B-2 Certificates has been reduced to zero, to the extent of the entire
amounts otherwise distributable to the holders of the Class B-1
Certificates. The effect of these provisions on the Class A-2
Certificates is that, after the Certificate Principal Balances of the
Subordinate Certificates have been reduced to zero, with respect to
any Advance which remains unreimbursed following the final liquidation
of the Mortgage Loan, the entire amount of the reimbursement for such
Advance will be borne by the Class A-2 Certificateholders, except as
described above, to the extent of the amounts otherwise distributable
to them.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The effective yield to the holders of the Offered Certificates
will be lower than the yield otherwise produced by the related
Certificate Rates and purchase prices because monthly distributions
will not be payable to such holders until the 25th day (or the
immediately following business day if such 25th day is not a business
day) of the month following the month in which interest accrues on the
Mortgage Loans (without any additional distribution of interest or
earnings thereon in respect of such delay).
The yield to maturity and the aggregate amount of distributions
on the Offered Certificates will be affected by, among other things,
the rate and timing of principal payments on the Mortgage Loans and
the amount and timing of mortgagor defaults resulting in Realized
Losses. Such yield may be adversely affected by a higher or lower than
anticipated rate of principal payments on the Mortgage Loans. The rate
of principal payments on such Mortgage Loans will in turn be affected
by the amortization schedules of the Mortgage Loans, the rate and
timing of prepayments thereon by the mortgagors, liquidations of
defaulted Mortgage Loans and repurchases of Mortgage Loans due to
certain breaches of representations. The timing of changes in the rate
of prepayments, liquidations and repurchases of the Mortgage Loans
may, and the timing of Realized Losses will, significantly affect the
yield to an investor, even if the average rate of principal payments
experienced over time is consistent with an investor's expectation.
After the Certificate Principal Balances of the Subordinate
Certificates subordinate thereto have been reduced to zero, the yield
to maturity on the Class B-1 Certificates will be extremely sensitive
to losses on the Mortgage Loans (and the timing thereof) because the
entire amount (subject to the limits described herein with respect to
certain types of losses as described herein) of such losses (rather
than a pro rata portion thereof) will be allocable to such Class of
Certificates. After the Certificate Principal Balances of the
Subordinate Certificates have been reduced to zero, the yield to
maturity on the Class A-2 Certificates will be extremely sensitive to
losses on the Mortgage Loans (and the timing thereof) because the
entire amount (subject to the limits described herein with respect to
certain types of losses) of such losses (rather than a pro rata
portion thereof) will be allocable to such Class of Certificates.
Certain loss scenarios could lead to the failure of the Class A-2
Certificateholders or the Class B-1 Certificateholders to recover
fully their initial investment. Since the rate and timing of principal
payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described more fully herein and in the
Prospectus under "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS"), no
assurance can be given as to such rate or the timing of principal
prepayments on the Offered Certificates.
[To accommodate changes in the interest portion of the monthly
payment due on each GPARM Loan resulting from monthly changes in the
Mortgage Rate, the monthly payment will be adjusted semi-annually on
each Payment Adjustment Date, subject to an increase of not more than
_____% in the monthly payment from that in effect immediately prior to
such Payment Adjustment Date, except as otherwise provided under
"DESCRIPTION OF THE MORTGAGE POOL" herein. However, due to the
Payment Cap and the fact that the Mortgage Rates on the GPARM Loans
are subject to change monthly while the monthly payments due thereon
are only subject to change semi-annually, the portion of each monthly
payment allocated to interest and that allocated to principal could
vary significantly. If an adjustment of the Mortgage Rate on any
GPARM Loan results in Deferred Interest, such Deferred Interest will
be added to the principal balance of the GPARM Loan, resulting in
negative amortization. If an adjustment to the Mortgage Rate on any
GPARM Loan causes the amount of the accrued interest to exceed the
scheduled interest component of the monthly payment and to be less
than the entire monthly payment, the principal balance will not be
reduced in accordance with a fully amortizing schedule, and therefore
reduced amortization will result. If an adjustment to the Mortgage
Rate on any GPARM Loan causes the amount of interest accrued in any
month to be less than the scheduled interest component of the then
current monthly payment, such excess will be applied to reduce the
outstanding principal balance on the related GPARM Loan, thereby
resulting in accelerated amortization of such GPARM Loan.]
The Mortgage Loans may be prepaid by the mortgagors at any time;
however, in certain circumstances, the Mortgage Loans will be subject
to a prepayment charge for prepayments. See "DESCRIPTION OF THE
MORTGAGE POOL" herein. The Mortgage Loans generally contain
due-on-sale clauses. Prepayments, liquidations and repurchases of the
Mortgage Loans will result in distributions to holders of the Offered
Certificates (other than the Variable Strip Certificates) of principal
amounts which would otherwise be distributed over the remaining terms
of the Mortgage Loans. Factors affecting prepayment (including
defaults and liquidations) of mortgage loans include changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties, changes in the value of the
mortgaged properties, mortgage market interest rates and servicing
decisions. Furthermore, as described under "DESCRIPTION OF THE
CERTIFICATES-Principal Distributions on the Class A-1 Certificates"
and "-Principal Distributions on the Class A-2 Certificates" herein,
during certain periods all or a disproportionately large percentage of
principal prepayments on the Mortgage Loans will be allocated among
the Class A-1 Certificates and the Class A-2 Certificates, which will
cause the Certificate Principal Balances of the Subordinate
Certificates collectively to decline more slowly than would be the
case if the Subordinate Certificates received their proportionate
share of principal prepayments. However, as described under
"DESCRIPTION OF THE CERTIFICATES-Principal Distributions on the Class
B-1 Certificates" herein, holders of the Class B-1 Certificates, will
be entitled to principal distributions that include certain amounts
otherwise distributable to the holders of the Class B-3 Certificates
which will cause the weighted average life of the Class B-1
Certificates to be shorter than would otherwise be the case. [In
addition, as described herein under "THE MORTGAGE POOL", the GPARM
Loans may be subject to periods of slower amortization or negative
amortization, in which case the weighted average life of the Offered
Certificates will be increased, and to accelerated amortization, in
which case the weighted average of life of the Offered Certificates
will be decreased.]
Because it is impossible to accurately predict the timing and
dollar amount of principal prepayments on the Mortgage Loans, if any,
that will be made, as well as the percentage according to which those
prepayments will be allocated among Classes of Certificates at any
particular point in time, investors in the Certificates, and
particularly investors in the Class B-1 Certificates, may find it
difficult to analyze the effect of principal prepayments on the yield
and average life of the various Classes of Certificates.
All of the Mortgage Loans comprising the Mortgage Pool are
adjustable rate mortgage loans. The yield to maturity on the Offered
Certificates will be affected by changes in the Index and, in certain
circumstances, the Mortgage Rates as they adjust from time to time.
Each Mortgage Rate [(except with respect to the GPARM Loans)] will be
subject to adjustment commencing approximately six months after its
date of origination and semi-annually thereafter on the Adjustment
Date for the related Mortgage Loan. Such Adjustment Dates will occur
in various months. Any semi-annual increases or decreases in the
Mortgage Rates [(except with respect to the GPARM Loans)] will be
limited on each Adjustment Date, and the Mortgage Rates will be
further subject to lifetime maximum and minimum rates. In addition,
such Mortgage Rates will be based on the Index (which may not rise and
fall consistently with other indices or prevailing interest rates on
residential mortgage loans) plus a specified margin (which may be
different from then current margins on residential mortgage loans).
The Mortgage Rates on the Mortgage Loans adjust periodically in
response to the Index as most recently available as of the date 45
days prior to each Adjustment Date. Furthermore, the first
distribution on the Certificates reflecting a periodic adjustment to
scheduled monthly payments on the underlying Mortgage Loans will be
distributed to Certificateholders on the Distribution Date in the
third month following the month in which the related Index was
published. The Index may not rise or fall consistently with mortgage
rates generally. Therefore, the Index may be higher than mortgage
rates generally, resulting in prepayments when the Mortgage Rates on
the Mortgage Loans are increasing.
The rate of defaults on the Mortgage Loans will also affect the
rate and timing of principal payments on the Mortgage Loans. In
general, defaults on mortgage loans are expected to occur with greater
frequency in their early years. Increases in the Monthly Payments to
an amount in excess of the Monthly Payment required at the time of
origination may result in a default rate higher than that on level
payment mortgage loans, to the extent that the mortgagor under each
Mortgage Loan was qualified on the basis of the Mortgage Rate in
effect at origination which rate was lower than the sum of the Index
that otherwise would have been applicable at origination and the
related Gross Margin. The repayment of such Mortgage Loans will be
dependent on the ability of the mortgagor to make larger Monthly
Payments as a result of increases in the Mortgage Rate. The rate of
default on Mortgage Loans which are refinance mortgage loans or which
were not originated under the Full Documentation program may be higher
than for other types of Mortgage Loans. As a result of the
underwriting standards for the Seller's regular lending program, the
Mortgage Loans are likely to experience rates of delinquency,
foreclosure, bankruptcy and loss that are higher, and that may be
substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. See "THE SELLER-Loan
Delinquency, Forbearance, Foreclosure, Bankruptcy and REO Property
Status" and "-REO Property Liquidation Experience" above for important
information regarding the delinquency, forbearance, foreclosure,
bankruptcy and REO property status and loss experience of certain
mortgage loans previously originated by the Seller under the regular
lending program. In addition, because of such underwriting criteria
and their likely effect on the delinquency, foreclosure, bankruptcy
and loss experience of the Mortgage Loans, the Mortgage Loans will be
serviced in a manner intended to result in a faster exercise of
remedies, including foreclosure, in the event Mortgage Loan
delinquencies and defaults occur, than would be the case if the
Mortgage Loans were serviced in a more conventional manner.
Furthermore, the rate and timing of prepayments, defaults and
liquidations on the Mortgage Loans will be affected by the general
economic condition of the region of the country in which the related
Mortgaged Properties are located. The risk of delinquencies and loss
is greater and prepayments are less likely in regions where a weak or
deteriorating economy exists, as may be evidenced by, among other
factors, increasing unemployment or falling property values. See
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" in the Prospectus.
[Several factors contribute to the increased risk of default in
connection with negatively amortizing mortgage loans. The outstanding
principal balance of a mortgage loan which is subject to negative
amortization increases by the amount of interest which is deferred as
described herein. During periods in which the outstanding principal
balance of GPARM Loan is increasing due to the addition of Deferred
Interest thereto, such increasing principal balance of the GPARM Loan
may approach or exceed the value of the related Mortgaged Property,
thus increasing the likelihood of defaults as well as the amount of
any loss experienced with respect to any such GPARM Loan that is
required to be liquidated. Additionally, although increases in the
amount of the related monthly payments are subject to Payment Caps,
such Payment Caps are not in effect on any of the Recast Dates, as
described herein, or when the outstanding principal balance exceeds
the Negative Amortization Cap, in which case the monthly payment for
each such GPARM Loan will be recalculated to equal an amount which
would be sufficient to fully amortize such GPARM Loan over its
remaining term at the Mortgage Rate as adjusted on the immediately
preceding Rate Adjustment Date. The amount of such increased monthly
payment may be substantially higher than the monthly payment in effect
prior to such recalculation and the payment of the GPARM Loans will be
dependent on the ability of the Mortgagor to make such larger monthly
payments. Furthermore, each GPARM Loan provides for the payment of
any remaining unamortized principal balance of such GPARM Loan (due to
the addition of Deferred Interest, if any, to the principal balance of
such GPARM Loan) in a single payment at the maturity of GPARM Loan.
Because the Mortgagors may be so required to make a larger single
payment upon maturity, it is possible that the default risk associated
with the GPARM Loans is greater then that associated with fully
amortizing mortgage loans.]
As described under "DESCRIPTION OF THE CERTIFICATES-Allocation of
Losses; Subordination" and "DESCRIPTION OF THE CERTIFICATES-Advances,"
amounts otherwise distributable to holders of the Class B-1
Certificates will be made available to protect the holders of the
Senior Certificates against interruptions in distributions due to
certain mortgagor delinquencies and amounts otherwise distributable to
holders of the Class A-2 Certificates will be made available to
protect the holders of the Variable Strip Certificates and the Class
A-1 Certificates against interruptions in distributions due to certain
mortgagor delinquencies, in each case to the extent not covered by
Advances. Such delinquencies will affect the yield to investors in the
Class B-1 Certificates to the extent not covered by the Subordinate
Certificates subordinate thereto and such delinquencies will affect
the yield to investors in the Class A-2 Certificates to the extent not
covered by the Subordinate Certificates. Even if subsequently cured,
such delinquencies may affect the timing of the receipt of
distributions by the holders of the Class B-1 Certificates or the
Class A-2 Certificates, because the entire amount (rather than a pro
rata portion) thereof would be borne by such Class of Certificates.
When a principal prepayment in full is made on a Mortgage Loan,
the mortgagor is charged interest only for the period from the Due
Date of the immediately preceding monthly payment up to the date of
such prepayment, instead of for a full month. Partial principal
prepayments are applied as of the first day of the month of receipt,
with a resulting reduction in interest payable for the month during
which the partial prepayment is made. Full or partial prepayments (or
other liquidations) received in any calendar month will be distributed
to Certificateholders on the Distribution Date in the month following
the month of receipt. With respect to such full or partial prepayments
(or other liquidations), the Master Servicer is obligated to fund
shortfalls in collection of one full month's interest (adjusted to the
related Net Mortgage Rate) but only to the extent of the servicing
compensation otherwise payable to the Master Servicer. Accordingly, to
the extent any such shortfall in interest collections exceeds the
amount that the Master Servicer is obligated to fund, the effect of
any such principal prepayment will be to reduce the aggregate amount
of interest that is available for distribution to the related
Certificateholders, and will be allocated among the Certificates in
proportion to the interest otherwise distributable or accrued thereon.
In addition, the yield to maturity of the Offered Certificates
will depend on the prices paid by the holders of the Offered
Certificates and the related Certificate Rates. The extent to which
the yield to maturity of an Offered Certificate is sensitive to
prepayments will depend upon the degree to which it is purchased at a
discount or premium. For additional considerations relating to the
yield on the Certificates, see "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" in the Prospectus.
Variable Strip Certificate Yield Considerations
The yield to maturity on the Variable Strip Certificates will be
highly sensitive to the prepayment, repurchase and default experience
on the Mortgage Loans included in the Trust Fund. Investors should
carefully consider the associated risks, including the risk that a
rapid rate of principal prepayments, defaults or repurchases of the
Mortgage Loans could result in the failure of investors in the
Variable Strip Certificates to fully recover their initial investment.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus
Supplement for the Mortgage Loans ("CPR") represents an assumed
constant 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. CPR does not purport to be either an
historical description of the prepayment experience of any pool of
mortgage loans or a prediction of the anticipated rate of prepayment
of any mortgage loans, including the Mortgage Loans to be included in
the Trust Fund.
The following table indicates the approximate pre-tax yields to
maturity (on a corporate bond equivalent basis (CBE)) on the Variable
Strip Certificates for the specified percentages of CPR and assumed
purchase prices. For the purposes of the table, it is assumed that (i)
all of the Mortgage Loans have identical payment provisions, (ii) the
original term to stated maturity of each Mortgage Loan is 30 years,
(iii) the distributions in respect of the Certificates are received in
cash on the 25th day of each month commencing in December 1995, (iv)
the Mortgage Rate of each Mortgage Loan is initially _____% per annum
from the first Due Date through the fourth Due Day, _____% per annum
from the fifth Due Date through the tenth Due Date, and thereafter
remains constant at _____% per annum (based on an Index equal to
_____%) (v) the remaining term to stated maturity of each Mortgage
Loan is 354 months, as of the Cut-off Date, (vi) the Certificate Rate
with respect to the Variable Strip Certificates is initially _____%
per annum from the first Due Date through the fourth Due Date, _____%
from the fifth Due Date through the tenth Due Date, and thereafter
remains constant at _____% per annum; (vii) all of the Mortgage Loans
prepay at the specified constant percentages of CPR, (viii) the Net
Mortgage Rate on each Mortgage Loan is equal to the Mortgage Rate
minus _____%, (ix) One-Month LIBOR remains fixed at _____% per annum,
(x) the aggregate principal balance of the Mortgage Loans is
$__________ as of the Cut-off Date, (xi) no defaults or delinquencies
in the payment by mortgagors of principal and interest on the Mortgage
Loans are experienced, (xii) the Master Servicer does not exercise its
option to repurchase all of the Mortgage Loans as described under the
caption "Pooling and Servicing Agreement-Termination," (xiii)
prepayments representing payment in full of individual Mortgage Loans
are received on the last day of each month and include 30 days
interest thereon, commencing in __________ 1996, (xiv) the scheduled
monthly payment for each Mortgage Loan is received on the first day of
each month commencing in __________ 1996 and has been calculated based
on its outstanding balance, interest rate and remaining term to stated
maturity such that the Mortgage Loan will amortize in amounts
sufficient to repay the remaining balance of such Mortgage Loan by its
stated maturity, (xv) the Variable Strip Certificates are purchased on
__________, 1996, (xvi) the aggregate assumed purchase price of the
Variable Strip Certificates is equal to the sum of (a) the percentage
of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date, as specified below, and (b) 5 days of accrued interest
and (xvii) the number of days between the date the Offered
Certificates are purchased and the first Distribution Date is 0 days
(such assumptions, collectively, the "Structuring Assumptions").
Pre-Tax Yield to Maturity (CBE) of the Variable Strip
Certificates
Percentages of CPR
Assumed Purchase Price 10% 12% 18% 20% 25%
% ................... % % % % %
% ................... % % % % %
% ................... % % % % %
% ................... % % % % %
Investors in the Variable Strip Certificates should be aware that
the foregoing yields were calculated assuming no change in the level
of One-Month LIBOR or the Index. The Certificate Rate on the Variable
Strip Certificates is based upon, among other factors, as described
herein under "DESCRIPTION OF THE CERTIFICATES-Interest Distributions,"
the excess, if any, of (i) the Net Mortgage Rate Cap over (ii)
One-Month LIBOR plus _____%. The Net Mortgage Rate Cap is primarily
based upon the value of Six-Month LIBOR, which is generally different
from the value of One-Month LIBOR, as described herein. The yield to
maturity of investors in the Variable Strip Certificates will be
extremely sensitive to differences between One-Month LIBOR and
Six-Month LIBOR, and investors in the Variable Strip Certificates may
receive no distributions of interest. As described above, One-Month
LIBOR and the Index applicable to the Mortgage Loans may respond
differently to economic and market factors, and there is not
necessarily any correlation between them. Moreover, the Mortgage Loans
are subject to Periodic Rate Caps, Maximum Mortgage Rates and Minimum
Mortgage Rates (each as defined herein). Thus, it is possible, for
example, that One-Month LIBOR may rise during periods in which the
Index on the Mortgage Loans is stable or falling or that, even if both
One-Month LIBOR and the Index rise during the same period, One-Month
LIBOR may rise much more rapidly than the Index.
The yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the
assumed stream of cash flows to be paid on the Variable Strip
Certificates, would cause the discounted present values of such
assumed cash flows to equal the aggregate assumed purchase prices of
the Variable Strip Certificates. Such calculations do not take into
account the effect of any Prepayment Interest Shortfalls or variations
that may occur in the interest rates at which investors may be able to
reinvest funds received by them as distributions on the Variable Strip
Certificates and consequently do not purport to reflect the return on
any investment in the Variable Strip Certificates when such
reinvestment rates are considered.
The Mortgage Loans will not have all of the characteristics
assumed above. There can be no assurance that the Mortgage Loans will
prepay at any of the constant rates shown in the table or at any other
particular rate, that the pre-tax yields on the Variable Strip
Certificates will correspond to any of the pre-tax yields shown
therein or that the aggregate purchase prices paid for the Variable
Strip Certificates will be equal to any of the amounts assumed above.
Because the rate of distributions of principal on the Certificates
will be related to the actual amortization (including prepayments) of
the Mortgage Loans, which may include Mortgage Loans that have
remaining terms to stated maturity shorter or longer than those
assumed and interest rates higher or lower than those assumed, the
pre-tax yields on the Variable Strip Certificates will differ from
those set forth above, even if all of the Mortgage Loans prepay at the
indicated CPR percentages. It is unlikely that any Mortgage Loan will
prepay at a constant rate to maturity or that all of the Mortgage
Loans will prepay at the same rate. The foregoing table assumes that
all of the Mortgage Loans prepay at the same constant rate. In fact,
mortgage loans bearing different (or the same) mortgage rates may
prepay at different rates. Accordingly, investors should calculate
expected yields based on their own assumptions and should not rely on
the yields specified above.
The yield on the Variable Strip Certificates will be materially
and adversely affected to a greater extent than the yield on the other
Classes of Offered Certificates if the Mortgage Loans with higher
Gross Margins prepay faster than the Mortgage Loans with lower Gross
Margins, because holders of the Variable Strip Certificates generally
have rights to relatively larger portions of interest payments on the
related Mortgage Loans with higher Gross Margins than do holders of
the other Classes of Offered Certificates.
The timing of changes in the rate of prepayments may
significantly affect the actual yields to investors on the Variable
Strip Certificates, 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 Variable Strip
Certificates will 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 Variable Strip
Certificates.
Weighted Average Life of the Class B-1 Certificates
Weighted average life refers to the average amount of time that
will elapse from the date of issuance of a security to the date of
distribution to the investor of each dollar distributed in reduction
of principal of such security (assuming no losses). The weighted
average life of the Class B-1 Certificates will be influenced by,
among other things, the rate at which principal of the Mortgage Loans
is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
Based on the Structuring Assumptions (except for assumption
(xvi)) in the foregoing discussions the following table indicates the
weighted average life of the Class B-1 Certificates and sets forth the
percentages of the initial Certificate Principal Balance of the Class
B-1 Certificates that would be outstanding after each of the
Distribution Dates indicated at various percentages of CPR.
Percentage of Initial Certificate Principal Balance
Outstanding at the Following Percentages of CPR
Class B-1 Certificates
Distribution Date 0% 10% 18% 20% 25% 30%
Initial Percentage 100% 100% 100% 100% 100% 100%
________, 1997....................
________, 1998....................
________, 1999....................
________, 2000....................
________, 2001....................
________, 2002....................
________, 2003....................
________, 2004....................
________, 2005....................
________, 2006....................
________, 2007....................
________, 2008....................
________, 2009....................
________, 2010....................
________, 2011....................
________, 2012....................
________, 2013....................
________, 2014....................
________, 2015....................
________, 2016....................
________, 2017....................
________, 2018....................
________, 2019 and thereafter.....
____________________________________________________________________
Weighted Average Life in Years*...
____________________________________________________________________
________________
* The weighted average life of a Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the
Certificate Principal Balance by the number of years from the
date of issuance of the Certificate to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the
initial Certificate Principal Balance of the Certificate.
POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") dated as
of __________ 1, 1996 among the Depositor, the Master Servicer, and
[Trustee], as Trustee. Reference is made to the Prospectus for
important information in addition to that set forth herein regarding
the terms and conditions of the Pooling and Servicing Agreement and
the Offered Certificates. The Offered Certificates will be
transferable and exchangeable at the corporate trust office of the
Trustee, which will serve as Certificate Registrar and Paying Agent.
The Depositor will provide a prospective or actual Certificateholder
without charge, on written request, a copy (without exhibits) of the
Pooling and Servicing Agreement. Requests should be addressed to Frank
Waters, Quality Mortgage Acceptance Corp., 16800 Aston Street, Irvine,
California 92714.
The Master Servicer has the right to resign from the obligations
and duties imposed on it under the Pooling and Servicing Agreement
upon the appointment of a successor servicer and delivery to the
Trustee of a letter from each Rating Agency that such resignation and
appointment will not, in and of itself, result in a downgrading of the
Certificates. The Master Servicer may not assign its obligations and
duties under the Pooling and Servicing Agreement.
Assignment of Mortgage Loans
The Mortgage Loans will be assigned by the Depositor to the
Trustee pursuant to the terms of the Pooling and Servicing Agreement,
together with all principal and interest due on the Mortgage Loans
after the Cut-off Date. The Trustee will, concurrently with such
assignment, authenticate and deliver the Certificates. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the
Pooling and Servicing Agreement which will specify with respect to
each Mortgage Loan, among other things, the original principal
balance, the principal balance as of the close of business on the
Cut-off Date, the Monthly Payment, the maturity date and the Mortgage
Rate.
As to each Mortgage Loan, the following documents are required to
be delivered to the Trustee in accordance with the Pooling and
Servicing Agreement: (i) the related original Mortgage Note endorsed
without recourse to the Trustee, (ii) the original Mortgage with
evidence of recording indicated thereon (or, if such original recorded
Mortgage has not yet been returned by the recording office, a copy
thereof certified by the Seller to be a true and complete copy of such
Mortgage sent for recording), (iii) an original recorded assignment of
the Mortgage to the Trustee (or if such original recorded assignment
has not yet been returned by the recording office, a copy thereof
certified by the Seller to be a true and complete copy of such
assignment sent for recording), (iv) the policies of title insurance
issued with respect to each Mortgage Loan and (v) the originals of any
assumption, modification, extension or guaranty agreements. The
assignments to the Trustee in connection with each Mortgage Loan are
required to be submitted for recording promptly after the Delivery
Date. The Trustee will review each Mortgage File within 90 days of the
Delivery Date, and if any such document is found to be defective in
any material respect and the Seller does not cure such defect within
60 days of notice thereof from the Trustee, the Seller will be
obligated to purchase the related Mortgage Loan from the Trust Fund
within 90 days of such notice.
Pursuant to the terms of the Pooling and Servicing Agreement, the
Depositor will assign to the Trustee for the benefit of the
Certificateholders all of its right, title and interest in and to each
Purchase Agreement insofar as it relates to the representations and
warranties made by the Seller in respect of the related Mortgage Loans
and the remedies provided for breach of such representations and
warranties. The representations and warranties made by the Seller with
respect to the Mortgage Loans differ but are similar in nature to the
representations and warranties summarized in the Prospectus under the
caption "LOAN UNDERWRITING PROCEDURES AND STANDARDS-Representations
and Warranties," modified to the extent necessary to reflect the
actual characteristics of the Mortgage Pool. Upon discovery by the
Trustee of a breach of any representation, warranty or covenant which
materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the Trustee will promptly
notify the Seller and the Master Servicer. The Seller will have 90
days from its discovery or its receipt of such notice to cure such
breach or repurchase the Mortgage Loan. The Seller will not have any
right to substitute another mortgage loan for a Mortgage Loan as to
which such a breach has occurred. See "THE SELLER" above.
Neither the Depositor, the Master Servicer, the Trustee nor any
of their respective affiliates will make any representations or
warranties with respect to the Mortgage Loans, or have any obligation
to purchase a Mortgage Loan if the Seller defaults on its obligation
to repurchase a Mortgage Loan either in connection with a breach of a
representation and warranty or in connection with a defective document
as described above, and no assurance can be given that the Seller will
carry out such obligations with respect to Mortgage Loans. Although
the Subordination described herein will not be available to support
the Seller's obligation to repurchase any Mortgage Loan, to the extent
any such Mortgage Loan is not repurchased by the Seller and losses
occur on such Mortgage Loans, Subordination with respect to such
Mortgage Loans will be available to the extent provided herein. To the
extent that the Subordination is so utilized, such Subordination will
be depleted more quickly than if such Mortgage Loans had been
repurchased by the Seller.
The Master Servicer
[Description of Master Servicer]
The following table sets forth certain information concerning the
delinquency experience (including bankruptcies) and foreclosures in
progress on one- to-four family residential mortgage loans included in
The Master Servicer's servicing portfolio at the end of the indicated
periods. 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 it is one month past
due on a contractual basis.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1992 At December 31, 1993 At December 31, 1994 At December 31, 1995
-------------------- -------------------- -------------------- --------------------
By Percent By Percent By Percent By Percent
Number by Number by Number by Number by
of Number of Number of Number of Number
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
<S> <C> <C> <C> <C>
Total Residential
Portfolio............
Period of
Delinquency:
31-60 days........... % % % %
61-90 days...........
91 days or more......
Foreclosures in
Progress............
Total Delinquent
Loans................ % % % %
Bankruptcy Loans...... % % % %
</TABLE>
<PAGE>
The aggregate principal balances of the one- to-four family
residential mortgage loans included in The Master Servicer's servicing
portfolio at close of business on __________, __________, __________,
and __________ were approximately $__________, $__________,
$__________ and $__________, respectively.
The following table sets forth certain information concerning the
foreclosure experience on one-to four-family residential mortgage
loans included in the Master Servicer's servicing portfolio at or for
the indicated periods.
Year Ended Year Ended Year Ended Year Ended
---------- ---------- ---------- ----------
By Number By Number By Number By Number
of of of of
Loans Loans Loans Loans
Foreclosed Loans % % % %
Foreclosed Ratio % % % %
There can be no assurance that the delinquency experience of the
Mortgage Loans comprising the Mortgage Pool will correspond to the
delinquency experience of the Master Servicer's mortgage portfolio set
forth in the foregoing tables. The statistics shown above represent
the delinquency experience for the Master Servicer's residential
mortgage servicing portfolio only for the periods presented, whereas
the aggregate delinquency experience on the Mortgage Loans comprising
the Mortgage Pool will depend on the results obtained over the life of
the Mortgage Pool. Moreover, Master Servicer's residential mortgage
servicing portfolio includes mortgage loans with a variety of payment
and other characteristics (including geographic location) which are
not necessarily representative of the payment and other
characteristics of the Mortgage Loans comprising the Mortgage Pool.
[Prospective investors in the Offered Certificates particularly should
be aware that the Master Servicer's servicing portfolio, on which the
foregoing tables are based, does not include any mortgage loans having
underwriting standards similar to those applicable to the Mortgage
Loans and consists primarily of mortgage loans underwritten in a
traditional manner.]
It also should be noted that if the residential real estate
market should experience a decline in property values, the actual
rates of delinquency and foreclosure could be higher than those
previously experienced by the Master Servicer. In addition, adverse
economic conditions may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquency, bankruptcy and
foreclosure with respect to the Mortgage Pool. See "THE DEPOSITOR-Loan
Delinquency, Forbearance, Foreclosure, Bankruptcy and REO Property
Status" and "-REO Property Liquidation Experience" herein for
important information regarding the delinquency, forbearance,
foreclosure, bankruptcy and REO property status and loss experience of
mortgage loans previously originated by the Depositor under
substantially the same underwriting criteria pursuant to which the
Mortgage Loans were originated or acquired.
Servicing and Other Compensation and Payment of Expenses
The servicing fee (the "Servicing Fee") for each Mortgage Loan is
payable out of the interest payments on such Mortgage Loan. The
Servicing Fee in respect of each Mortgage Loan will be payable at a
rate (the "Servicing Fee Rate") equal to _____% per annum on the
outstanding principal balance of each Mortgage Loan. The Servicing
Fees consist of (a) servicing compensation payable to the Master
Servicer in respect of its master servicing activities, (b)
subservicing and other related compensation payable to any subservicer
(including such compensation paid to the Master Servicer as the direct
servicer of a Mortgage Loan for which there is no subservicer) and (c)
the fees payable to the Trustee. The Master Servicer is entitled to
retain as additional servicing compensation any assumption and
reconveyance fees, to the extent collected from mortgagors, and any
interest or other income earned on funds held in the Custodial Account
or the Certificate Account. The Master Servicer is obligated to pay
certain ongoing expenses associated with the Trust Fund and incurred
by the Master Servicer in connection with its responsibilities under
the Pooling and Servicing Agreement. See "SERVICING OF LOANS-Servicing
Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master
Servicer and subservicers and for information regarding expenses
payable by the Master Servicer.
Voting Rights
Certain actions specified in the Prospectus that may be taken by
holders of Certificates evidencing a specified percentage of all
undivided interests in the Trust Fund may be taken by holders of
Certificates entitled in the aggregate to such percentage of the
Voting Rights. __% of all Voting Rights will be allocated among all
holders of the Certificates (other than the Variable Strip
Certificates) in proportion to their then outstanding Certificate
Principal Balances, __% and __% of all Voting Rights will be allocated
among holders of the Variable Strip Certificates and Class R
Certificates, respectively, in proportion to the Percentage Interests
(as defined in the Prospectus) evidenced by their respective
Certificates. The Pooling and Servicing Agreement will be subject to
amendment without the consent of the holders of the Residual
Certificates in certain circumstances.
Events of Default and Termination Event
Events of default ("Events of Default") under the Pooling and
Servicing Agreement will consist of (i) any failure by the Master
Servicer to distribute or cause to be distributed to
Certificateholders any required payment which continues unremedied for
five days after the giving of written notice of such failure to the
Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights; (ii) any failure by
the Master Servicer duly to observe or perform in any material respect
any of its other covenants or agreements in the Pooling and Servicing
Agreement which continues unremedied for thirty days after the giving
of written notice of such failure to the Master Servicer by the
Trustee or the Depositor, or to the Master Servicer, the Depositor and
the Trustee by the holders of Certificates evidencing not less than
25% of the Voting Rights; (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations; and
(iv) any failure of the Master Servicer to make any Advance as
required which is not remedied one business day prior to the related
Distribution Date.
A termination event ("Termination Event") under the Pooling and
Servicing Agreement will consist of a determination by the Trustee on
the Determination Date in December of any year, commencing in
__________ 1997 and ending in __________ 20__, that (a) if such
Determination Date occurs in or before __________ 20__, the Total
Expected Losses (as defined below) on such Determination Date is
greater than 50% of the Initial Loss Coverage Amount (as defined
below) and (b) if such Determination Date occurs after __________ 20__
and in or before __________ 20__, the Total Expected Losses on such
Determination Date is greater than 75% of the Initial Loss Coverage
Amount.
On any Determination Date, "Total Expected Losses" will equal the
sum of (a) all Realized Losses previously allocated through
Subordination and (b) all Prospective Losses (as defined below) as of
such Determination Date. "Prospective Losses," as of any Determination
Date, will be an amount equal to the sum of (i) the product of (x) the
aggregate Stated Principal Balance of the Mortgage Loans that are 31
days to 60 days delinquent, (y) 25% and (z) the Loss Severity
Percentage (as defined below), (ii) the product of (x) the aggregate
Stated Principal Balance of the Mortgage Loans that are 61 days to 90
days delinquent, (y) 50% and (z) the Loss Severity Percentage and
(iii) the product of (x) the aggregate Stated Principal Balance of the
Mortgage Loans that are 91 days or more delinquent plus the aggregate
Stated Principal Balance of all REO Properties, if any, and (y) the
Loss Severity Percentage. For purposes of calculating Prospective
Losses, Mortgage Loans in foreclosure will be categorized based on
their respective number of days of delinquency. The "Initial Loss
Coverage Amount" will equal the aggregate initial Certificate
Principal Balance of the Class M Certificates and the Subordinate
Certificates, and the "Loss Severity Percentage" will be equal to 43%.
Rights Upon Event of Default or Termination Event
So long as an Event of Default under the Pooling and Servicing
Agreement as described in clauses (i), (ii) and (iii) of the third
preceding paragraph remains unremedied, the Depositor or the Trustee
may, and at the direction of holders of Certificates evidencing not
less than 51% of the Voting Rights shall, by notice in writing to the
Master Servicer terminate all of the rights and obligations of the
Master Servicer under the Pooling and Servicing Agreement and in and
to the Trust Fund. If an Event of Default under the Pooling and
Servicing Agreement as described in clause (iv) of the third preceding
paragraph shall occur, the Trustee will, by notice to the Master
Servicer and the Depositor, terminate all of the rights and
obligations of the Master Servicer under the Pooling and Servicing
Agreement and in and to the Trust Fund; provided, however, that if the
Trustee determines that the failure by the Master Servicer to make any
required Advance was due to circumstances beyond its control and the
required Advance was otherwise made, the Trustee shall not terminate
the Master Servicer. If a Termination Event under the Pooling and
Servicing Agreement as described in the second preceding paragraph
shall occur, the Trustee will give notice to the Master Servicer and
the Certificateholders of such Termination Event within 5 days and,
upon the direction of holders of Certificates entitled to at least 51%
of the Voting Rights received within 90 days of such notice, the
Trustee shall, by notice to the Master Servicer and the Depositor,
terminate all of the rights and obligations of the Master Servicer
under the Pooling and Servicing Agreement and in and to the Trust
Fund. Upon receipt by the Master Servicer of any such written notice,
all authority and power of the Master Servicer under the Pooling and
Servicing Agreement will pass to and be vested in the Trustee, and the
Trustee will be authorized and empowered to execute and deliver, on
behalf of the Master Servicer, as attorney-in-fact, or otherwise, any
and all documents and other instruments, and to do or accomplish all
other acts or things necessary or appropriate to effect the purposes
of such termination. Upon receipt by the Master Servicer of notice of
termination, the Trustee will succeed to all the responsibilities,
duties and liabilities of the Master Servicer under the Pooling and
Servicing Agreement and will be entitled to similar compensation
arrangements. In the event that the Trustee is unwilling, it may, or
if it is unable or if the holders of Certificates evidencing not less
than 51% of the Voting Rights request in writing, it shall, appoint or
petition a court of competent jurisdiction for the appointment of a
mortgage loan servicing institution, with a net worth of at least
$10,000,000 to act as successor to the Master Servicer under the
Pooling and Servicing Agreement. Pending such appointment, the Trustee
is obligated to act in such capacity. 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 Pooling and Servicing Agreement. In addition, holders of
Certificates evidencing at least 66% of the Voting Rights of
Certificates affected by an Event of Default may waive such Event of
Default; provided, however, that (a) an Event of Default with respect
to the Master Servicer's obligation to make Advances may be waived
only by all of the holders of Certificates affected by such Event of
Default and (b) no such waiver is permitted that would materially
adversely affect any non-consenting Certificateholder. See "THE
POOLING AND SERVICING AGREEMENTS-Rights Upon Event of Default" in the
Prospectus.
Limitation on Resignation of the Master Servicer
The Master Servicer may resign from its obligations and duties
under the Pooling and Servicing Agreement only if such resignation,
and the appointment of a successor, will not result in a downgrading
of the ratings assigned to any Class of Certificates, or upon a
determination that its duties under the Pooling and Servicing
Agreement are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor
servicer has assumed the Master Servicer's responsibilities,
liabilities, obligations and duties under the Pooling and Servicing
Agreement. Any proposed successor Master Servicer must be an
established mortgage loan servicing institution, must be reasonably
acceptable to the Trustee, must be acceptable to each Rating Agency
for purposes of maintaining its then-current ratings of the
Certificates and must comply with any further requirements of a
successor Master Servicer under the Pooling and Servicing Agreement.
Termination
The obligations created by the Pooling and Servicing Agreement
will terminate upon payment to the Certificateholders of all amounts
held in the Certificate Account and the Excess Proceeds Account
required to be paid to the Certificateholders pursuant to such Pooling
and Servicing Agreement, following the earlier of (i) the final
payment or other liquidation of the last Mortgage Loan remaining in
the Trust Fund or the disposition of all property acquired upon
foreclosure of any such Mortgage Loan and (ii) the repurchase of all
of the assets of the Trust Fund by the Master Servicer when the
aggregate principal balance of the Mortgage Loans equals 5% or less of
the aggregate principal balance as of the Cut-off Date, pursuant to a
provision of the Agreement giving the Master Servicer the right to do
so. Written notice of termination of the Pooling and Servicing
Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which
will be specified in the notice of termination.
Any such repurchase of Mortgage Loans and property acquired in
respect of the Mortgage Loans shall be made at a price equal to the
sum of (a) 100% of the unpaid principal balance of each outstanding
Mortgage Loan (net of unreimbursed advances attributable to principal)
as of the day of such repurchase plus accrued interest thereon at the
Net Mortgage Rate to the first day of the month of such repurchase,
plus (b) the appraised value of any property acquired in respect of
any defaulted Mortgage Loan (but not more than the unpaid principal
balance of that Mortgage Loan together with accrued interest at the
applicable Net Mortgage Rate to the first day of the month of such
purchase) less the good faith estimate of the Master Servicer of
liquidation expenses to be incurred in connection with its disposal
thereof. The exercise of the right to purchase the assets of the Trust
Fund as set forth in clause (ii) of the preceding paragraph will
effect early retirement of the Certificates.
The Trustee
[Trustee] will be the Trustee under the Pooling and Servicing
Agreement. The Depositor and the Seller may maintain other banking
relationships in the ordinary course of business with the Trustee.
Offered Certificates may be surrendered at the Corporate Trust Office
of the Trustee located at [Address], or at such other addresses as the
Trustee may designate from time to time by notice to the
Certificateholders, the Depositor and the Master Servicer.
The Trustee is eligible to serve as such under the Pooling and
Servicing Agreement only if it is a corporation or banking association
organized and doing business under the laws of the United States or
any state thereof, authorized under such laws to exercise corporate
trust powers and subject to supervision or examination by federal or
state authority and has combined capital and surplus of at least
$50,000,000.
The Trustee may, upon written notice to the Master Servicer, the
Depositor and all Certificateholders, resign at any time, in which
event the Master Servicer will be obligated to appoint a successor
Trustee. If no successor Trustee has been appointed and has accepted
appointment within 60 days after giving such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction
for appointment of a successor Trustee. The appointment of any
successor Trustee may not result in a reduction in the ratings of the
Certificates by [Rating Agency I] and [Rating Agency II]. The Trustee
may also be removed at any time (i) by the Master Servicer, if the
Trustee ceases to be eligible to continue as such as described above
or if the Trustee becomes insolvent or (ii) by holders of Certificates
evidencing at least 51% of the Voting Rights. Any removal or
resignation of the Trustee and appointment of a successor Trustee as
described above will not become effective until acceptance of
appointment by the successor Trustee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Mayer, Brown &
Platt, counsel to the Depositor, will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the
Pooling and Servicing Agreement, for federal income tax purposes, the
Trust Fund will qualify as a REMIC under the Code. For federal income
tax purposes, the Class R Certificates will be the sole Class of
"residual interests" in the REMIC and the Senior Certificates and the
Subordinate Certificates will constitute the "regular interests" in
the REMIC and will be treated as debt instruments of the REMIC. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
For federal income tax reporting purposes, the Offered
Certificates will be treated as having been issued with original issue
discount. The prepayment assumption that will be used in determining
the rate of accrual of original issue discount, market discount and
amortizable premium, if any, for federal income tax purposes will be
that subsequent to the date of any determination the Mortgage Loans
will prepay at a CPR percentage equal to 20%. No representation is
made that the Mortgage Loans will prepay at that rate or at any other
rate. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES-REMICs-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount,"
"-Market Discount" and "-Premium" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued regulations
(the "OID Regulations") under Sections 1271 to 1275 of the Code
generally addressing the treatment of debt instruments issued with
original issue discount. Purchasers of the Offered Certificates should
be aware that the OID Regulations do not adequately address certain
issues relevant to, or are not applicable to, securities such as the
Offered Certificates. In addition, there is considerable uncertainty
concerning the application of the OID Regulations to REMIC Regular
Certificates that provide for payments based on an adjustable rate.
Because of the uncertainty concerning the application of Section
1272(a)(6) of the Code to such Certificates and because the rules of
the OID Regulations relating to debt instruments having an adjustable
rate of interest are limited in their application in ways that could
preclude their application to such Certificates even in the absence of
Section 1272(a)(6) of the Code, the IRS could assert that the Offered
Certificates (other than the Variable Strip Certificates) should be
governed by the rules applicable to debt instruments having contingent
payments or by some other method not yet set forth in regulations.
Prospective purchasers of the Offered Certificates are advised to
consult their tax advisors concerning the tax treatment of such
Certificates.
It appears that a reasonable method of reporting original issue
discount with respect to the Offered Certificates (other than the
Variable Strip Certificates) generally would be to report all income
with respect to such Certificates as original issue discount for each
period, computing such original issue discount (i) by assuming that
the value of the applicable index will remain constant for purposes of
determining the original yield to maturity of, and projecting future
distributions on, each Class of such Certificates, thereby treating
such Certificates as fixed rate instruments to which the original
issue discount computation rules described in the Prospectus can be
applied, and (ii) by accounting for any positive or negative variation
in the actual value of the applicable index in any period from its
assumed value as a current adjustment to original issue discount with
respect to such period. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" in the Prospectus.
If the rules of the OID Regulations were applied literally to the
Offered Certificates, other than the Variable Strip Certificates, it
appears that such rules would (i) require that the weighted average
interest rate paid on such Certificates be modified and treated as if
it were an adjustable rate based on the applicable index (plus or
minus a fixed number of basis points) rather than a fixed rate prior
to the first adjustment date of each Mortgage Loan, with the
adjustable rate being such that the fair market value of such
Certificates would not be affected by the substitution of the
adjustable rate for the fixed rate, (ii) accrue original discount, if
any, on the Certificates as so modified by assuming that the
applicable index will remain constant for purposes of determining the
constant yield to maturity of, and the cash flow projections on, the
Certificates and (iii) make a positive (or negative) adjustment to
interest income in any period in which the actual interest paid on
such Certificates (including interest paid at a fixed rate prior to
the first adjustment date of each Mortgage Loan) were greater or less
than the interest assumed to be paid thereon (including the interest
assumed to be paid thereon at an adjustable rate prior to the first
adjustment date).
If the method for computing original issue discount described in
the Prospectus results in a negative amount for any period with
respect to a Certificate issued with original issue discount, in
particular the Variable Strip Certificates, the amount of original
issue discount allocable to such period will be zero and the holder of
such a Certificate will be permitted to offset such negative amount
only against future original issue discount, if any, attributable to
such Certificate. Although uncertain, a Certificateholder may be
permitted to deduct a loss to the extent that his or her respective
remaining basis in such Certificate exceeds the maximum amount of
future payments to which such Certificateholder is entitled, assuming
no further prepayments of the Mortgage Loans. Although the matter is
not free from doubt, any such loss might be treated as a capital loss.
The OID Regulations appear to permit in some circumstances the
holder of a debt instrument to recognize original issue discount under
a method that differs from that used by the issuer. Accordingly, it is
possible that the holder of an Offered Certificate may be able to
select a method for recognizing original issue discount that differs
from that used by the Trust Fund in preparing reports to the
Certificateholders and the IRS. Prospective purchasers of the Offered
Certificates are advised to consult their tax advisors concerning the
tax treatment of such Certificates in this regard.
Certain Classes of Certificates may be treated as having been
issued with a premium. Certificateholders may elect to amortize such
premium under a constant yield method in which case such amortizable
premium will generally be allocated among the interest payments on
such Certificates and will be applied as an offset against such
interest payments. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES-REMICs-Taxation of Owners of REMIC Regular
Certificates-Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real
property loans" under Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" under
Section 856(c)(5)(A) of the Code generally in the same proportion that
the assets of the Trust Fund would be so treated. In addition,
interest on the Offered Certificates will be treated as "interest on
obligations secured by mortgages on real property" under Section
856(c)(3)(B) of the Code generally to the extent that such Offered
Certificates are treated as "real estate assets" under Section
856(c)(5)(A) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860G(a)(3) of the
Code. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES-REMICs-Characteriza
tion of Investment in REMIC Certificates" in the Prospectus.
To the extent permitted by then applicable law, any "prohibited
transactions tax," "contributions tax," tax on "net income from
foreclosure property" or state or local income or franchise tax that
may be imposed on the Trust Fund will be borne by the Master Servicer
or Trustee in either case out of its own funds, provided that the
Master Servicer or the Trustee, as the case may be, has sufficient
assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the
case may be, under the Pooling and Servicing Agreement and in respect
of compliance with then applicable law. Any such tax not borne by the
Master Servicer or the Trustee will be payable out of the Trust Fund,
which may reduce the amounts otherwise payable to holders of the
Offered Certificates, to the extent any such tax exceeds amounts
otherwise payable to holders of the Subordinate Certificates not
offered hereby. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES-REMICs-Prohibited Transactions Tax and Other Taxes" in
the Prospectus.
For further information regarding the federal income tax
consequences of investing in the Offered Certificates, see "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES-REMICs-Taxation of Owners of REMIC
Regular Certificates" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") between the Depositor and
[Underwriter] (the "Underwriter"), the Depositor has agreed to sell to
the Underwriter, and the Underwriter has agreed to purchase from the
Depositor, the Offered Certificates.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Offered Certificates
is subject to, among other things, the receipt of certain legal
opinions and to the conditions, among others, that no stop order
suspending the effectiveness of the Depositor's Registration Statement
shall be in effect, and that no proceedings for such purpose shall be
pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter
will be effected from time to time in one or more negotiated
transactions, or otherwise, at varying prices to be determined, in
each case, at the time of sale. The proceeds to the Depositor from the
sale of the Offered Certificates will be approximately $__________
plus accrued interest at the weighted average of the Net Mortgage
Rates as of the Cut-off Date but before deducting expenses payable by
the Depositor. The Underwriter may effect such transactions by selling
its Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Offered Certificates, the Underwriter
may be deemed to have received compensation from the Depositor in the
form of an underwriting discount. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Offered
Certificates may be deemed to be underwriters and any profit on the
resale of the Offered Certificates positioned by them may be deemed to
be underwriting discounts and commissions under the Securities Act of
1933.
The Underwriting Agreement provides that the Depositor will
indemnify the Underwriter, and under limited circumstances the
Underwriter will indemnify the Depositor, against certain civil
liabilities under the Securities Act of 1933, or contribute to
payments required to be made in respect thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will
continue or will provide investors with a sufficient level of
liquidity. The primary source of information available to investors
concerning the Offered Certificates will be the monthly statements
discussed in the Prospectus under "THE POOLING AND SERVICING
AGREEMENTS-Reports to Certificateholders," which will include
information as to the outstanding principal balance of the Offered
Certificates and the status of the applicable form of credit
enhancement. There can be no assurance that any additional information
regarding the Offered Certificates will be available through any other
source. In addition, the Depositor is not aware of any source through
which price information about the Offered Certificates will be
generally available on an ongoing basis. The limited nature of such
information regarding the Offered Certificates may adversely affect
the liquidity of the Offered Certificates, even if a secondary market
for the Offered Certificates becomes available.
USE OF PROCEEDS
The Depositor will apply the net proceeds from the sale of the
Offered Certificates against the purchase price of the Mortgage Loans.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed
upon for the Depositor by Mayer, Brown & Platt, Los Angeles,
California.
RATINGS
It is a condition to the issuance of the Offered Certificates
that the Variable Strip Certificates and the Class A-1 Certificates be
rated "___" by [Rating Agency I] ("[Rating Agency I]") and "___" by
[Rating Agency II] ("[Rating Agency II]"), the Class A-2 Certificates
be rated "___" by [Rating Agency I] and "___" by [Rating Agency II]
and the Class B-1 Certificates be rated "___" by [Rating Agency I] and
"___" by [Rating Agency II].
[The ratings assigned by [Rating Agency I] to mortgage
pass-through and asset-backed certificates address the likelihood of
the receipt by certificateholders of all distributions on the
underlying mortgage loans to which such certificateholders are
entitled. Ratings by [Rating Agency I] address the structural, legal
and issuer related aspects associated with the certificates, including
the nature and quality of the underlying mortgage loans. Such ratings
do not represent any assessment of the likelihood of principal
prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. With respect to the
Variable Strip Certificates, the ratings address only the likelihood
of receipt by the holders of the Variable Strip Certificates of
distributions thereon in the amounts calculated as described herein
and does not address the possibility that such Certificateholders
might suffer a lower than anticipated yield or the possibility that
investors in the Variable Strip Certificates may fail to fully recoup
their initial investment.]
[The ratings assigned by [Rating Agency II] to mortgage
pass-through and asset-backed certificates address the likelihood of
the receipt by certificateholders of all distributions to which they
are entitled under the transaction structure. [Rating Agency II]'s
ratings reflect its analysis of the riskiness of the mortgage loans
and its analysis of the structure of the transaction as set forth in
the operative documents. [Rating Agency II]'s ratings do not address
the effect on the certificates' yield attributable to prepayments or
recoveries on the underlying mortgages. With respect to the Variable
Strip Certificates, the ratings address only the likelihood of receipt
by the holders of the Variable Strip Certificates of distributions
thereon in the amounts calculated as described herein and does not
address the possibility that such Certificateholders might suffer a
lower than anticipated yield or the possibility that investors in the
Variable Strip Certificates may fail to fully recoup their initial
investment.]
The Depositor has not requested ratings on the Offered
Certificates by any rating agency other than [Rating Agency I] and
[Rating Agency II]. However, there can be no assurance as to whether
any other rating agency will rate the Offered Certificates, or, if it
does, what ratings would be assigned by such other rating agency.
Ratings on the Offered Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Offered
Certificates by [Rating Agency I] and [Rating Agency II].
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by
the assigning rating organization. Each securities rating should be
evaluated independently of similar ratings on different securities.
LEGAL INVESTMENT
The Offered Certificates (other than the Class ___ Certificates)
will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as
they are rated in at least the second highest rating category by
[Rating Agency I] or [Rating Agency II] and, as such, are legal
investments for certain entities to the extent provided in SMMEA.
SMMEA provided that states could override its provisions on legal
investment and restrict or condition investment in mortgage related
securities by taking statutory action on or prior to October 3, 1991.
Certain states have enacted legislation which overrides the preemption
provisions of SMMEA. The Class ___ Certificates will not constitute
"mortgage related securities" for purposes of SMMEA.
The Federal Financial Institutions Examination Council issued a
supervisory policy statement (the "Policy Statement") applicable to
all depository institutions (to the extent adopted by the respective
federal regulators) setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities." The
Policy Statement has been adopted by the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the
Comptroller of the Currency, the Office of Thrift Supervision and, in
part, by the National Credit Union Administration (the "NCUA"). In
addition, the NCUA has issued regulations governing federal credit
union investments which prohibit investment in certain specified types
of securities. The NCUA has indicated that its regulations will take
precedence over the Policy Statement. Similar policy statements and
regulations have been issued by other regulators having jurisdiction
over depository institutions. The Depositor makes no representations
regarding the application of the Policy Statement, or of such similar
statements and regulations, to any Class of Offered Certificates or
the treatment of the Offered Certificates thereunder.
The Depositor makes no representations as to the proper
characterization of any Class of Offered Certificates for legal
investment or other purposes, or as to the ability of particular
investors to purchase any Class of Offered Certificates under
applicable legal investment restrictions. These uncertainties may
adversely affect the liquidity of any Class of Offered Certificates.
Accordingly, all institutions whose investment activities are subject
to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with
their own legal advisors in determining whether and to what extent any
Class of Offered Certificates, and in particular the Class B-1
Certificates, constitutes a legal investment or is subject to
investment, capital or other restrictions.
See "LEGAL INVESTMENT" in the Prospectus.
[ERISA CONSIDERATIONS]
<PAGE>
[MULTIFAMILY]
SUBJECT TO COMPLETION - DATED MAY 17, 1996
PROSPECTUS
May __, 1996
Quality Mortgage Acceptance Corp.
Depositor
Mortgage Loan Asset-Backed Certificates
(Issuable in Series)
This Prospectus relates to Mortgage Loan Asset-Backed
Certificates (the "Certificates") which may be sold from time to
time under this Prospectus and related Prospectus Supplements in
one or more series (each a "Series") by Quality Mortgage
Acceptance Corp. (the "Depositor"). Capitalized terms not
otherwise defined herein have the meanings specified in the
Glossary attached hereto.
Each Certificate of a Series will evidence a beneficial
ownership interest in assets deposited into a trust (a "Trust
Fund") by the Depositor pursuant to a Pooling and Servicing
Agreement executed by the Depositor, the Trustee and the Master
Servicer for such Series specified in the related Prospectus
Supplement. The Trust Fund will consist of Mortgage Assets,
which may include Mortgage Loans, or participation interests
therein, Private Mortgage-Backed Securities or any combination of
the foregoing and other assets, including any insurance policies,
reserve funds, accounts or other credit supports specified in the
related Prospectus Supplement. The Mortgage Loans in the Trust
Fund for a Series will have been originated by Quality Mortgage
USA, Inc., or other affiliates of the Depositor, and other
various financial institutions and entities engaged generally in
the business of originating and/or servicing housing loans. The
Mortgage Loans may include, without limitation, fixed rate or
adjustable rate Multifamily Loans and FHA Loans and may provide
for other payment features, and may call for payments from the
obligors other than monthly payments, as specified in the related
Prospectus Supplement. Mortgage Loans underlying or comprising
the Mortgage Assets will be secured by property consisting of
multifamily residential rental properties consisting of five or
more attached or detached dwelling units. Some Mortgage Loans
underlying the Mortgage Assets may be delinquent or
non-performing as specified in the related Prospectus Supplement.
The Mortgage Loans, or participation interests therein, will be
serviced by various servicers under the supervision of the Master
Servicer or by the Master Servicer directly as specified in the
related Prospectus Supplement. The Master Servicer's and any
Servicer's obligations will each be limited to its contractual,
supervisory and/or servicing obligations and such other
obligations as are specified in the related Prospectus
Supplement. See "SERVICING OF MORTGAGE LOANS."
Each Series of Certificates will consist of one or more
Classes. If a Series includes multiple Classes, such Classes may
vary with respect to the amount, percentage and timing of
distributions of principal, interest or both and one or more
Classes may be subordinated to other Classes with respect to
distributions of principal, interest or both as described herein
and in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the Mortgage Assets held under the
Pooling and Servicing Agreement may be divided into one or more
Asset Groups and the Certificates of each separate Class will
evidence beneficial ownership of each corresponding Asset Group.
See "DESCRIPTION OF THE CERTIFICATES."
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These Securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Distribution of principal of and interest on the
Certificates of each Series will be made on each Distribution
Date for a Series. The rate of reduction of the aggregate
principal balance of each Class of a Series will depend
principally upon the rate of payment (including prepayments) with
respect to the Mortgage Loans comprising or underlying the
Mortgage Assets. A rate of prepayment lower or higher than
anticipated may affect yield on Certificates of a Series in the
manner described herein and in the related Prospectus Supplement.
Under certain limited circumstances described herein and in the
related Prospectus Supplement, the Mortgage Assets may be
purchased by the entity specified in the related Prospectus
Supplement and the related Trust Fund may be terminated prior to
the maturity of the Mortgage Assets or the Final Scheduled
Distribution Date of the Certificates of the related Series. If
so specified in the related Prospectus Supplement, Certificates
of a Series may be subject to special distributions in reduction
of principal balance under certain circumstances. See
"DESCRIPTION OF THE CERTIFICATES" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS."
The Certificates evidence an interest in the related Trust
Fund only, and are not guaranteed by any governmental agency, or
by the Depositor, the Trustee, the Master Servicer, or by any of
their respective affiliates or, unless otherwise specified in the
related Prospectus Supplement, by any other person or entity.
The Depositor's only obligations with respect to any Series will
be pursuant to certain representations and warranties set forth
in the related Pooling and Servicing Agreement as described
herein or in the related Prospectus Supplement. See "THE POOLING
AND SERVICING AGREEMENTS."
If specified in the related Prospectus Supplement, one or
more elections may be made to treat the Trust Fund for a Series
as a "real estate mortgage investment conduit" (a "REMIC") for
federal income tax purposes. See "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."
Certificates of a Series offered hereby and by the related
Prospectus Supplement may be made through one or more different
methods, including offerings through one or more underwriters, as
more fully described herein and in the related Prospectus
Supplement. See "PLAN OF DISTRIBUTION." Retain this Prospectus
for future reference. This Prospectus may not be used to
consummate sales of the securities offered hereby unless
accompanied by a Prospectus Supplement.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of
Certificates will, among other things, set forth with respect to
such Series: (a) the aggregate initial principal balances, the
Certificate Rate (or method for determining it in the case of
Floating Interest Certificates) and authorized denominations of
each Class of such Series; (b) certain information concerning the
Trust Fund for such Series, including the principal amount, type
and characteristics of Mortgage Assets included in the Trust Fund
on the date of issue, and, if applicable, the amount of Reserve
Funds, if any, for such Series; (c) where Private Mortgage-Backed
Securities are included in the Trust Fund, information concerning
the PMBS Issuer, the PMBS Trustee, the PMBS Servicer, if any, and
the underlying collateral; (d) the circumstances, if any, under
which Special Distributions of principal may be made or a Trust
Fund terminated prior to the Final Scheduled Distribution Date;
(e) the Final Scheduled Distribution Date of each Class of such
Series; (f) the method used to calculate the aggregate amount of
principal to be distributed with respect to the Certificates of
such Series on each Distribution Date; (g) the order of the
application of principal distributions to the respective Classes
and the allocation of principal to be so applied; (h) the extent
of subordination of each Class of Subordinate Certificates, if
any; (i) the identity of each Class of Compound Interest
Certificates, Floating Interest Certificates, Principal Weighted
Certificates, Interest Weighted Certificates, Subordinate
Certificates and Reduced Volatility Certificates included in such
Series, if any; (j) the Distribution Dates for the respective
Classes; (k) the Assumed Reinvestment Rate (if applicable);
(l) if applicable, the percentage of Excess Cash Flow to be
applied to distributions in reduction of principal balance of
Certificates of a Series; (m) additional information with respect
to any special hazard insurance policy or repurchase bond or
other credit support, if any, relating to the Series or the
Mortgage Assets; (n) relevant financial information with respect
to the Mortgagor(s) and the Mortgaged Property underlying the
Mortgage Assets, if applicable; (o) the plan of distribution for
such Series; and (p) whether the Certificates are to be issuable
in book-entry or definitive form.
ADDITIONAL INFORMATION
The Depositor has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement under the
Securities Act of 1933, as amended, with respect to the
Certificates. This Prospectus, which forms a part of the
Registration Statement, omits certain information contained in
such Registration Statement pursuant to the Rules and Regulations
of the Commission. The Registration Statement and the exhibits
thereto can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W,
Washington, D.C. 20549, and at certain of its Regional Offices
located as follows: Chicago Regional Office, Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661; and New York Regional Office, 75 Park Place, New
York, New York 10007. Copies of such material can also be
obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning the related Trust
Fund are required under the Pooling and Servicing Agreement to be
forwarded to Certificateholders. If the Certificates are issued
in book-entry form, such reports would instead be forwarded to
Participants (as defined herein) as registered holders of the
Certificates. See "DESCRIPTION OF CERTIFICATES-Book-Entry
Registration." In such case, Certificateowners (as defined
herein) may obtain such reports upon request to their
Participants. Such reports will not be examined and reported on
by an independent public accountant. See "THE POOLING AND
SERVICING AGREEMENTS-Reports to Certificateholders."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Depositor on behalf
of the Trust Fund referred to in the accompanying Prospectus
Supplement with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), after the date of such Prospectus
Supplement and prior to the termination of any offering of the
Certificates issued by such Trust Fund shall be deemed to be
incorporated by reference in this Prospectus and to be a part of
this Prospectus from the date of the 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 the accompanying
Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except
as modified or superseded, to constitute a part of this
Prospectus.
The Depositor on behalf of any Trust Fund will provide
without charge to each person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been
or may be incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by
reference into the information that this Prospectus
incorporates). Such requests should be directed to: Quality
Mortgage Acceptance Corp., 16800 Aston Street, Irvine, California
92714, Attention: Frank Waters.
SUMMARY OF TERMS OF THE CERTIFICATES
The following is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus
and in the Prospectus Supplement with respect to the Series
offered thereby and to the terms and provisions of the related
Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") executed by the Depositor, the master servicer (the
"Master Servicer") and the trustee (the "Trustee") as specified
in the related Prospectus Supplement. All capitalized terms not
otherwise defined in this Prospectus or the related Prospectus
Supplement for a Series have the respective meanings assigned to
them in the Glossary attached hereto.
Securities Offered
The Mortgage Loan Asset-Backed Certificates (the
"Certificates") are issuable from time to time in separate Series
pursuant to separate Pooling and Servicing Agreements. Each
Certificate of a Series will evidence a beneficial ownership
interest in the Trust Fund for such Series, or in an Asset Group
specified in the related Prospectus Supplement. The Certificates
will be issuable in fully registered form in the authorized
minimum denominations and multiples thereof specified in the
related Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Certificates or certain classes of
such Certificates offered thereby may be available in book-entry
form only.
The Certificates of a Series will evidence interests in the
related Trust Fund only and will not be guaranteed by any
governmental agency, by the Depositor, the Trustee, the Master
Servicer or by any of their respective affiliates, or unless
otherwise specified in the related Prospectus Supplement, by any
other person or entity. See "RISK FACTORS" and "CREDIT SUPPORT."
Each series of Certificates will consist of one or more
Classes. If a Series consists of multiple Classes, the
respective Classes may differ with respect to the amount,
percentage and timing of distributions of principal, interest or
both. Additionally, one or more Classes may consist of
Subordinate Certificates which are subordinated to other Classes
of Certificates with respect to the right to receive
distributions of principal, interest, or both under the
circumstances and in such amounts as described herein and in the
related Prospectus Supplement. Any Class of Certificates of a
Series will be offered hereby and by such Prospectus Supplement
only if rated by at least one Rating Agency in one of its four
highest rating categories. See "DESCRIPTION OF THE
CERTIFICATES-General," "CREDIT SUPPORT-Subordinated Certificates"
and "RISK FACTORS."
Depositor
Quality Mortgage Acceptance Corp., a California corporation
(the "Depositor"), was incorporated in May 1996. The principal
executive offices of the Depositor are located at 16800 Aston
Street, Irvine, California 92714 and its telephone number is
(714) 440-1000. The Depositor's only obligations with respect to
the Certificates will be pursuant to certain representations and
warranties described herein under "THE POOLING AND SERVICING
AGREEMENTS." Neither the Depositor nor any affiliate of the
Depositor will guarantee the Certificates or the assets included
in the Trust Fund for a Series. See "RISK FACTORS" and "THE
DEPOSITOR."
Trustee
The Trustee with respect to a Series will be specified in
the related Prospectus Supplement. See "THE POOLING AND
SERVICING AGREEMENTS" herein for a description of the Trustee's
rights and obligations.
Interest Distributions
Interest Distributions on the Certificates of a Series will
be made from amounts available therefor in the related
Certificate Account on each Distribution Date at the applicable
Certificate Rate specified in (or, with respect to Floating
Interest Certificates, determined in the manner set forth in) the
related Prospectus Supplement. The Certificate Rate on
Certificates of a Series may be variable and change with changes
in the mortgage rate or pass-through rates of the Mortgage Assets
included in the related Trust Fund and/or as prepayments occur
with respect to such Mortgage Assets.
Principal Weighted Certificates may not be entitled to
receive any interest distributions or may be entitled to receive
only nominal interest distributions as specified in the related
Prospectus Supplement.
Compound Interest Certificates will not receive
distributions of interest but interest accruing with respect to
the principal balance of such Compound Interest Certificates will
be added to such principal balance on each Distribution Date
until the Accrual Termination Date. Following the Accrual
Termination Date, interest distributions with respect to such
Compound Interest Certificates will be made on the basis of their
Compound Value.
A Series may include one or more Classes of Floating
Interest Certificates. With respect to any such Class of
Floating Interest Certificates, the related Prospectus Supplement
will set forth: (a) the initial Floating Rate (or manner of
determining the initial Floating Rate); (b) the method by which
the Floating Rate will be determined from time to time; (c) the
periodic intervals at which such determination will be made; and
(d) the Maximum Floating Rate and the Minimum Floating Rate, if
any. See "DESCRIPTION OF THE CERTIFICATES" and "YIELD,
PREPAYMENT AND MATURITY CONSIDERATIONS."
Principal Distributions (Including Prepayments)
Principal distributions on the Certificates of a Series will
be made from amounts available therefor in the related
Certificate Account on each Distribution Date in an aggregate
amount determined as specified in the related Prospectus
Supplement. Principal distributions will be allocated among the
respective Classes of a Series in the manner and in the priority
set forth in the related Prospectus Supplement.
Interest Weighted Certificates may not be entitled to any
principal distributions or may be entitled to receive only
nominal principal distributions as specified in the related
Prospectus Supplement.
If and to the extent specified in the related Prospectus
Supplement, Certificates of a Series having other than monthly
Distribution Dates may be subject to Special Distributions of
principal if, as a result of principal prepayments with respect
to the housing loans comprising or underlying the Mortgage Assets
in the related Trust Fund, low reinvestment yields or both, it is
determined (based on assumptions specified in the related Pooling
and Servicing Agreement) that the amount of cash anticipated to
be available in the Certificate Account for such Series on the
next Distribution Date may be less than the scheduled
distributions to be made on such Distribution Date. See
"DESCRIPTION OF THE CERTIFICATES" and "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS."
Final Scheduled Distribution Date
The Final Scheduled Distribution Date for each Class of a
Series is the date after which no Certificates of such Class will
remain outstanding, assuming timely payments or distributions are
made on the Mortgage Assets in the related Trust Fund in
accordance with their terms. The Final Scheduled Distribution
Date of a Class may be the same date as the maturity date of the
Mortgage Asset in the related Trust Fund which has the latest
stated maturity or will be determined as described herein and in
the related Prospectus Supplement.
The actual maturity date of the Certificates of a Series
will depend primarily upon the level of prepayments with respect
to the housing loans comprising or underlying the Mortgage Assets
in the related Trust Fund. The actual maturity of any
Certificate is likely to occur earlier and may occur
substantially earlier than its Final Scheduled Distribution Date
as a result of the application of prepayments to the reduction of
the principal balances of the Certificates. The rate of
prepayments on the housing loans comprising or underlying
Mortgage Assets in the Trust Fund for a Series will depend on a
variety of factors, including certain characteristics of such
housing loans and the prevailing level of interest rates from
time to time, as well as on a variety of economic, demographic,
tax, legal, social and other factors. No assurance can be given
as to the actual prepayment experience with respect to a Series.
See "RISK FACTORS" and "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS."
Optional Termination
If so specified in the related Prospectus Supplement, the
Depositor, the Master Servicer, or such other entity that is
specified in the related Prospectus Supplement, may, at its
option, cause an early termination of the related Trust Fund by
repurchasing all of the Mortgage Assets remaining in the Trust
Fund on or after a specified date, or on or after such time as
the aggregate unpaid principal balance of the Mortgage Assets is
less than the percentage specified in the related Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES-Optional
Termination."
The Trust Fund
The Trust Fund for a Series will consist of Private
Mortgage-Backed Securities, Mortgage Loans, or participation
interests therein, or any combination of the foregoing (the
"Mortgage Assets"), together with certain accounts, reserve
funds, insurance policies and related agreements specified in the
related Prospectus Supplement. If so specified in the related
Prospectus Supplement, the Mortgage Assets may be divided into
Asset Groups and the Certificates of separate Classes will
evidence beneficial interests of a corresponding Asset Group.
The Trust Fund for a Series will also include the Collection
Account, the Certificate Account, and may include certain
policies of insurance relating to the Mortgage Assets, and
various credit supports, all as specified in the related
Prospectus Supplement. See "THE TRUST FUNDS-Collection Account
and Certificate Account," "CREDIT SUPPORT" and "DESCRIPTION OF
MORTGAGE AND OTHER INSURANCE."
Mortgage Assets
The Mortgage Assets for a Series of Certificates may consist
of any combination of the following to the extent and as
specified in the related Prospectus Supplement:
Mortgage Loans
Mortgage Assets for a Series may consist, in whole or in
part, of Mortgage Loans or participation interests therein.
Participation interests in Mortgage Loans will be purchased
pursuant to participation agreements. See "THE TRUST
FUNDS-General." Payments on Mortgage Loans will be collected by
the Master Servicer (or by a Servicer), as specified in the
related Prospectus Supplement, and such payments (net of
servicing fees and certain other amounts) will be available to
make distributions on the Certificates of such Series. See
"SERVICING OF MORTGAGE LOANS." Mortgage Loans may, as specified
in the related Prospectus Supplement, include FHA Loans and may
have various payment characteristics and may include or Mortgage
Loans having balloon or other special payment features. The
Mortgage Loans may have fixed or adjustable interest rates
(Mortgage Loans having adjustable rates are sometimes referred to
herein as "Adjustable Rate Mortgages," or "ARMs"). ARMs will, as
described in the related Prospectus Supplement, permit or require
periodic changes in the mortgage rate, and in the scheduled
payments of principal and interest due from the obligor on the
related mortgage note. The Mortgage Loans may include Mortgage
Loans secured by mortgages, deeds of trust or other security
instruments creating either a first or second lien on related
Mortgaged Properties. The Mortgaged Properties will consist of
multifamily residential rental property consisting of five or
more dwelling units ("Multifamily Property").
To the extent described herein or in the related Prospectus
Supplement, all Mortgaged Property will be covered by standard
hazard insurance policies (which may be a blanket policy)
insuring against losses due to various causes, including fire,
lightning and windstorm. Mortgaged Property located in a
federally designated special hazard flood zone will be required
to be covered by flood insurance. See "DESCRIPTION OF MORTGAGE
AND OTHER INSURANCE."
The related Prospectus Supplement will describe the
principal characteristics of the Mortgage Loans included in the
Trust Fund, including, without limitation, (a) the aggregate
principal balance of the Mortgage Loans as of the related Cut-off
Date, (b) the geographical distribution of the Mortgaged
Properties by state or other specified geographical area, (c) the
weighted average original and remaining scheduled term-to-stated
maturity of the Mortgage Loans, (d) the relative percentages (by
aggregate principal balance) of Mortgage Loans that have fixed
interest rates or are ARMs or Mortgage Loans having other special
payment characteristics, (e) the relative percentages of Mortgage
Loans that are secured by Mortgaged Properties which are owner
occupied or are investment properties or vacation and second
homes, (f) the range of Loan-to-Value Ratios for the Mortgage
Loans, (g) the weighted average principal balance of the Mortgage
Loans as of the Cut-off Date, (h) the lien priority of the
Mortgage Loans, and (i) any guarantees or other credit support
for such Mortgage Loans. Unless otherwise specified in the
related Prospectus Supplement, each Mortgage Loan will have a 10-
to 40-year term at origination and a Loan-to-Value Ratio at
origination not exceeding 100%.
All distributions on any Mortgage Certificates, and all
payments (including prepayments, liquidation proceeds and
insurance proceeds) received from the Servicer on any Mortgage
Loans, included in the Pool for a Series will be remitted to an
account (the "Certificate Account"), and, together with any
amounts available pursuant to the terms of any applicable credit
support and any other amounts described in the related Prospectus
Supplement, will be available for distribution on the
Certificates of such Series as described in the related
Prospectus Supplement. Such Certificate Account shall be an
Eligible Account or Accounts established and maintained by the
Servicer for the benefit of the holders of a Series of
Certificates.
The Servicer or, for a Series of REMIC Certificates, the
holders of the Residual Certificates of such Series or the REMIC
Administrator may have the option to repurchase the Mortgage
Loans and/or Mortgage Certificates included in the related Pool
and thereby terminate the related Pooling and Servicing
Agreement. Any such option will be exercisable at the times and
upon satisfaction of the conditions specified in the related
Prospectus Supplement.
Substitution of Mortgage Loans and/or Mortgage Certificates
will be permitted for a period specified in the related
Prospectus Supplement following notice of breaches of
representations and warranties with respect to any original
Mortgage Loan or notice that the documentation with respect to
any Mortgage Loan is determined by the Trustee to be incomplete.
Other circumstances under which substitutions may be permitted
will be described in the related Prospectus Supplement.
Mortgage Loans that constitute Mortgage Assets will be
purchased by the Depositor in the open market or in privately
negotiated transactions, including transactions with entities
affiliated with the Depositor.
Private Mortgage-Backed Securities
Private Mortgage-Backed Securities may include (a) mortgage
participations or pass-through certificates representing
beneficial interests in certain Mortgage Loans,
(b) collateralized mortgage obligations secured by such Mortgage
Loans or (c) pass-through certificates representing beneficial
interests in Agency Securities. All Private Mortgage-Backed
Securities will be publicly registered or otherwise exempt from
applicable private placement restrictions. Although individual
Mortgage Loans underlying a Private Mortgage-Backed Security may
be insured or guaranteed by the United States or an agency or
instrumentality thereof, they need not be, and the Private
Mortgage-Backed Securities themselves will not be so insured or
guaranteed. See "THE TRUST FUNDS-Private Mortgage Backed
Securities." Payments on the Private Mortgage-Backed Securities
will be distributed directly to the Trustee as registered owner
of such Private Mortgage-Backed Securities. See "THE TRUST
FUNDS-Private Mortgage-Backed Securities." Any Private
Mortgage-Backed Security will have been acquired in a secondary
transaction and not from the issuer or an affiliate of the issuer
of such Private Mortgage-Backed Security and each Private
Mortgage-Backed Security will evidence an interest in, or will be
secured by a pledge of, Mortgage Loans that conform to the
descriptions of Mortgage Loans contained herein.
The related Prospectus Supplement for a Series will specify
(i) the aggregate approximate principal amount and type of any
Private Mortgage-Backed Securities to be included in the Trust
Fund for such Series; (ii) certain characteristics of the
Mortgage Loans which comprise the underlying assets for the
Private Mortgage-Backed Securities including (A) the payment
features of such Mortgage Loans (i.e., whether they are fixed
rate or adjustable rate and whether they provide for fixed level
payments, negative amortization, or other payment features),
(B) the approximate aggregate principal amount, if known, of the
underlying Mortgage Loans which are insured or guaranteed by a
governmental entity, (C) the servicing fee or range of servicing
fees with respect to the Mortgage Loans, and (D) the minimum and
maximum stated maturities of the Mortgage Loans at origination;
(iii) the maximum original term-to-stated maturity of the Private
Mortgage-Backed Securities; (iv) the weighted average
term-to-stated maturity of the Private Mortgage-Backed
Securities; (v) the pass-through or certificate rate or ranges
thereof for the Private Mortgage-Backed Securities; (vi) the
weighted average pass-through or certificate rate of the Private
Mortgage-Backed Securities; (vii) the Issuer of the Private Mort-
gage-Backed Securities (the "PMBS Issuer"), the Servicer of the
Private Mortgage-Backed Securities (the "PMBS Servicer") and the
trustee of the Private Mortgage-Backed Securities (the "PMBS
Trustee"); (viii) certain characteristics of credit support, if
any, such as reserve funds, insurance policies, letters of credit
or guarantees, relating to the Mortgage Loans underlying the
Private Mortgage-Backed Securities, or to such Private
Mortgage-Backed Securities themselves; (ix) the terms on which
underlying Mortgage Loans for such Private Mortgage-Backed
Securities may, or are required to, be repurchased prior to
stated maturity; and (x) the terms on which substitute Mortgage
Loans may be delivered to replace those initially deposited with
the PMBS Trustee. See "THE TRUST FUNDS."
Collection Account and Certificate Account
Payments or distributions with respect to the Mortgage
Assets for a Series will initially be remitted for deposit in a
Collection Account maintained by the Master Servicer and then
transferred to a Certificate Account to be established with or in
the name of the Trustee for such Series. The amounts remitted
may be net of servicing fees, Retained Interests and other
amounts specified in the related Prospectus Supplement. Amounts
so deposited will be used to make distributions on the
Certificates of such Series on the applicable Distribution Date.
See "THE TRUST FUNDS-Collection Account and Certificate Account."
Determination of Asset Value
With respect to a Series of Certificates as to which the
Distribution Dates are less frequent than monthly, each Mortgage
Asset will be assigned an Asset Value. The aggregate of the
Asset Values of the Mortgage Assets included in the Trust Fund
for such a Series will equal not less than the initial aggregate
principal balances of the Certificates of such Series. The
related Prospectus Supplement for such a Series will summarize
the method or methods and related assumptions used to determine
Asset Value for the Mortgage Assets for such Series. See
"DESCRIPTION OF THE CERTIFICATES-Valuation of Trust Assets."
Forward Funding Commitments; Pre-Funding Account
If specified in the related Prospectus Supplement relating
to any Series, the Trustee or the Master Servicer may, on behalf
of the related Trust Fund, enter into an agreement (each, a
"Forward Purchase Agreement") with the Depositor whereby the
Depositor will agree to transfer additional Mortgage Loans to
such Trust Fund following the date on which such Trust Fund is
established and the related Certificates are issued. Any Forward
Purchase Agreement will require that any Mortgage Loans so
transferred to a Trust Fund conform to the requirements specified
in such Forward Purchase Agreement. If a Forward Purchase
Agreement is to be utilized and the Trustee will be required to
deposit in a segregated account (each, a "Pre-Funding Account")
all or a portion of the proceeds received by the Trustee in
connection with the sale of one or more classes of Certificates
of the related Series; subsequently, the additional Mortgage
Loans will be transferred to the related Trust Fund in exchange
for money released to the Depositor from the related Pre-Funding
Account in one or more transfers. Each Forward Purchase
Agreement will set a specified period during which any such
transfers must occur. The Forward Purchase Agreement or the
related Agreement will require that, if all moneys originally
deposited to such Pre-Funding Account are not so used by the end
of such specified period, then any remaining moneys will be
applied as a mandatory prepayment of the related class or classes
of Certificates as specified in the related Prospectus
Supplement. The specified period for the acquisition by a Trust
Fund of additional Mortgage Loans will not exceed three months
from the date such Trust Fund is established.
Credit Support
Credit support in the form of reserve funds, subordination,
insurance policies, letters of credit or other types of credit
support may be provided with respect to the Mortgage Assets or
with respect to one or more Classes of Certificates of a Series.
If the Mortgage Assets are divided into separate Asset Groups,
the beneficial ownership of which is evidenced by a separate
Class or Classes of a Series, credit support may be provided by a
cross-support feature which requires that distributions be made
with respect to Certificates evidencing beneficial ownership of
one Asset Group prior to distributions to Subordinate
Certificates evidencing a beneficial ownership interest in
another Asset Group within the Trust Fund.
The type, characteristics and amount of credit support will
be determined based on the characteristics of the Mortgage Loans
underlying or comprising the Mortgage Assets and other factors
and will be established on the basis of requirements of each
Rating Agency rating the Certificates of such Series. The
protection against losses provided by such credit support will be
limited. See "CREDIT SUPPORT" and "RISK FACTORS."
Subordinate Certificates; Subordination Reserve Fund
A Series of Certificates may include one or more Classes of
Subordinate Certificates. The rights of Holders of such
Subordinate Certificates to receive distributions on any
Distribution Date will be subordinate in right and priority to
the rights of Holders of Senior Certificates of the Series, but
only to the extent described in the related Prospectus
Supplement. If so specified in the related Prospectus
Supplement, subordination may apply only in the event of certain
types of losses not covered by other credit support, such as
hazard losses not covered by the standard hazard insurance
policies, losses resulting from the bankruptcy of a borrower due
to application of provisions of the Bankruptcy Code, or losses
resulting from the denial of insurance coverage due to fraud or
misrepresentation in connection with the origination of a Loan.
A Subordination Reserve Fund may be established at the level
specified in the related Prospectus Supplement. The related
Prospectus Supplement will also set forth information concerning
the amount of subordination of a Class or Classes of Subordinate
Certificates in a series, the circumstances in which such
subordination will be applicable, the manner, if any, in which
the amount of subordination will decrease over time, the manner
of funding the related Subordination Reserve Fund, if any, and
the conditions under which amounts in any Subordination Reserve
Fund will be used to make distributions to Holders of Senior
Certificates or be released from the related Trust Fund. If cash
flows otherwise distributable to Holders of Subordinate
Certificates evidencing a beneficial ownership interest in an
Asset Group will be used as credit support for Senior
Certificates evidencing a beneficial ownership interest in
another Asset Group within the Trust Fund, the related Prospectus
Supplement will specify the manner and conditions for applying
such a cross-support feature. See "CREDIT SUPPORT-Subordinate
Certificates; Subordination Reserve Fund."
Insurance
If and to the extent specified in the related Prospectus
Supplement, certain insurance policies in addition to any
standard hazard insurance policies described above under "Mort-
gage Assets" will be required to be maintained with respect to
the Mortgage Loans included in the Trust Fund for a Series. Such
insurance policies may include, but are not limited to, (i) a
special hazard insurance policy insuring against losses which are
not covered by the standard hazard insurance policies, (ii) and
(iii) repurchase bonds insuring the repurchase of Mortgage Loans
by the originator of such Loan in the event of the loss of other
insurance coverage due to certain misrepresentations in the
origination or sale of any such Mortgage Loans or in other
circumstances specified in the related Prospectus Supplement.
See "CREDIT SUPPORT" and "DESCRIPTION OF MORTGAGE AND OTHER
INSURANCE." The Prospectus Supplement for a Series will provide
information concerning any such insurance policies, including
(a) the types of coverage provided by each, (b) the amount of
such coverage, (c) conditions to payment under each and
(d) certain information relating to the issuers of such insurance
policies. To the extent described in the related Prospectus
Supplement, certain insurance policies to be maintained with
respect to the Mortgage Loans may be terminated, reduced or
replaced following the occurrence of certain events affecting the
authority of creditworthiness of the insurer. Additionally, such
insurance policies may be terminated, reduced or replaced by the
Master Servicer, provided that no rating assigned to Certificates
of the related Series offered hereby and by the related
Prospectus Supplement is adversely affected.
Certificate Guarantee Insurance
If so specified in the related Prospectus Supplement, credit
support for a Series may be provided by an insurance policy (the
"Certificate Guarantee Insurance") issued by one or more
insurance companies. Such Certificate Guarantee Insurance may
guarantee timely distributions of interest and full distributions
of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified
in the related Prospectus Supplement. See "CREDIT
SUPPORT-Certificate Guarantee Insurance."
Reserve Funds
The Depositor may deposit in one or more reserve funds
(collectively, the "Reserve Funds") for any Series cash, Eligible
Reserve Fund Investments, demand notes or a combination thereof
in the aggregate amount, if any, specified in the related
Prospectus Supplement. Any Reserve Funds for a Series may also
be funded over time through application of a specified amount of
cash flow, to the extent described in the related Prospectus
Supplement. Such a Reserve Fund may be established to increase
the likelihood of the timely distributions on the Certificates of
such Series or to reduce the likelihood of a Special Distribution
with respect to any Series. Reserve Funds may be established to
provide protection against certain losses in addition to or in
lieu of other credit support, including, without limitation, as
losses resulting from delinquent payments on Mortgage Loans,
losses from risks not covered by standard hazard insurance
policies, losses due to bankruptcy of a borrower and application
of certain provisions of the Bankruptcy Code, and losses due to
denial of insurance coverage due to misrepresentations made in
connection with the origination of a Loan. Amounts on deposit in
the Reserve Funds for a Series, and the reinvestment income
thereon, will be applied for the purposes, in the manner and to
the extent provided by the related Prospectus Supplement.
On each Distribution Date for a Series, all amounts on
deposit in any Reserve Funds for the Series in excess of the
amounts required to be maintained therein by the related Pooling
and Servicing Agreement and specified in the related Prospectus
Supplement may be released from the Reserve Funds and will not be
available for future distributions on the Certificates of such
Series.
Additional information concerning any Reserve Funds,
including whether the Reserve Fund is a part of the Trust Fund,
the circumstances under which moneys therein will be applied to
make distributions to Certificateholders, the required balance to
be maintained in such Reserve Funds, the manner in which such
required balance will decrease over time and the manner of
funding the Reserve Fund will be set forth in the related
Prospectus Supplement. See "CREDIT SUPPORT-Reserve Funds."
Letter of Credit
If so specified in the related Prospectus Supplement, credit
support may be provided by one or more letters of credit. A
letter of credit may provide limited protection against certain
losses in addition to or in lieu of other credit support, such as
losses resulting from delinquent payments on the Mortgage Loans
in the Trust Fund, losses from risks not covered by standard
hazard insurance policies, losses due to bankruptcy of a borrower
and application of certain provisions of the Bankruptcy Code, and
losses due to denial of insurance coverage due to
misrepresentations made in connection with the origination or
sale of a Loan. The issuer of the letter of credit (the "L/C
Bank") will be obligated to honor demands with respect to such
letter of credit, to the extent of the amount available
thereunder, to provide funds under the circumstances and subject
to such conditions as are specified in the related Prospectus
Supplement. The liability of the L/C Bank under its letter of
credit will be reduced by the amount of unreimbursed payments
thereunder.
The maximum liability of an L/C Bank under its letter of
credit will be an amount equal to a percentage specified in the
related Prospectus Supplement of the initial aggregate principal
balance of the Mortgage Loans in the Trust Fund or one or more
Classes of Certificates of the related Series. The maximum
amount available at any time to be paid under a letter of credit
will be determined in the manner specified therein and in the
related Prospectus Supplement.
Servicing of Mortgage Loans
The Master Servicer identified in the related Prospectus
Supplement will service the Mortgage Loans directly or administer
and supervise the performance by Servicers of their duties and
responsibilities under separate servicing agreements (the
"Servicing Agreements") entered into between the Master Servicer
and such Servicers. Each Servicer will be obligated under its
Servicing Agreement to perform customary servicing functions.
Advances with respect to delinquent payments of principal or
interest on a Loan will be made by the Master Servicer or the
Servicers only to the extent described in the related Prospectus
Supplement. Such advances will be intended to provide liquidity
only and will be reimbursable to the Master Servicer or the
Servicer, as the case may be, from scheduled payments of
principal and interest, late collections, or from the proceeds of
liquidation of the related Mortgage Loans, from other recoveries
relating to such Mortgage Loans (including any insurance proceeds
or payments from other credit supports). The Master Servicer or
the Servicers will be obligated to repurchase Mortgage Loans for
which insurance coverage has been denied on the grounds of fraud
or misrepresentation only to the extent specified in the related
Prospectus Supplement. If so specified in the related Prospectus
Supplement, the Depositor may (i) obtain and assign to the
Trustee an agreement with an independent standby servicer
acceptable to each Rating Agency rating such Certificates, which
will provide that such standby servicer will assume a Servicer's
or the Master Servicer's obligations in the event of a default by
the Servicer or Master Servicer or (ii) obtain a performance bond
acceptable to each Rating Agency rating such Certificates that
will guarantee certain of the Servicer's or Master Servicer's
obligations. See "SERVICING OF MORTGAGE LOANS."
Federal Income Tax Considerations
If an election is made for treatment as a REMIC under the
Internal Revenue Code of 1986, as amended (the "Code"), one or
more Classes of Certificates will be treated as REMIC "Regular
Interests." The Holder of such a Regular Interest will be
treated as holding a debt obligation for federal income tax
purposes and will be required to report stated interest income on
the accrual method.
Compound Interest Certificates will be, and certain other
Classes of Certificates constituting Regular Interests may be,
issued with original issue discount that is not de minimis. In
such cases, the Certificateholder will be required to include the
original issue discount in gross income as it accrues, which
inclusion may occur prior to the receipt of cash attributable to
such income. If a Regular Interest Certificate is issued at a
premium, the holder thereof will be entitled to make an election
to amortize such premium on a constant yield method as an offset
to interest income on such Certificate (and not as a separate
deduction item). Certificates constituting Regular Interests
will represent "qualifying real property loans" for mutual
savings banks and domestic building and loan associations, "loans
secured by an interest in real property" for domestic building
and loan associations and "real estate assets" for real estate
investment trusts to the extent that the underlying Mortgage
Loans qualify for such treatment.
In the case of a REMIC election, a Class of Certificates may
be treated as REMIC "Residual Interests." Certificates
classified as REMIC Residual Interests will generally be treated
as representing "qualifying real property loans" for mutual
savings banks and domestic building and loan associations, "loans
secured by an interest in real property" for domestic building
and loan associations and "real estate assets" for real estate
investment trusts to the same extent as REMIC Regular Interests.
The holder of a REMIC Residual Interest Certificate must
include in income its pro rata share of the REMIC's taxable
income. Accordingly, in certain circumstances, the holder of a
REMIC Residual Interest might (i) have REMIC taxable income or
tax liability attributable to REMIC taxable income for a
particular period or periods in excess of cash distributions for
such period or periods or (ii) have an after-tax return on its
investment that is less than the after-tax return on comparable
debt instruments or stripped bonds. In addition, a portion (or,
in some cases, all) of the income from a REMIC Residual Interest:
(i) except, in certain circumstances, with respect to a holder
classified as a thrift institution under the Code, may not be
subject to offset by losses from other activities, (ii) for a
holder that is subject to tax under the Code on unrelated
business taxable income, may be treated as unrelated business
taxable income and (iii) for a foreign holder, may not qualify
for exemption from withholding under any treaty. Further,
individual trust or estate holders are subject to limitations on
the deductibility of expenses of the REMIC.
If no REMIC election is made, the Trust Fund will be treated
as a grantor trust and will not be classified as an association
taxable as a corporation for federal income tax purposes. The
treatment of a particular Series of Certificates will depend on
the characteristics of such Series of Certificates. The holders
of Certificates will either be treated as owners of undivided pro
rata interests in the underlying Mortgage Loans ("Pass-Through
Certificates"), or as owners of stripped bonds or stripped
coupons ("Stripped Certificates") under the Code. All income
with respect to a Stripped Certificate will be accounted for as
original issue discount and, unless otherwise specified in the
related Prospectus Supplement, will be reported by the Trustee on
an accrual basis, which may be prior to the receipt of cash
associated with such income.
The holder of a Pass-Through Certificate must include in
income its allocable share of all interest and other income of
the Trust and may, subject to certain limitations for individual
trust or estate Certificateholders, deduct its allocable share of
all expenses of the Trust. Pass-Through Certificates will be
considered to represent "qualifying real property loans" for
mutual savings banks and domestic building and loan associations,
"loans secured by an interest in real property" for domestic
building and loan associations and "real estate assets" for real
estate investment trusts to the extent that the Mortgage Loans
qualify for such treatment. Although there is no direct
authority and the matter is not free from doubt, Stripped
Certificates should also qualify for such treatment to the extent
that the underlying loans qualify for such treatment. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
ERISA Considerations
A fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully review with its own legal
advisors whether the purchase or holding of Certificates could
give rise to a transaction prohibited or otherwise impermissible
under ERISA or the Code. See "ERISA CONSIDERATIONS."
Legal Investment
The related Prospectus Supplement will specify the classes
of Certificates offered by this Prospectus and such Prospectus
Supplement that will constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"). Such "mortgage related securities" will be
legal investments for certain types of institutional investors to
the extent provided in SMMEA, subject, in any case, to any other
regulations which may govern investments by such institutional
investors. See "LEGAL INVESTMENT."
Use of Proceeds
It is expected that the Depositor will use the net proceeds
from the sale of each Series for one or more of the following
purposes: (i) to purchase the related Mortgage Assets, (ii) to
repay indebtedness which has been incurred to obtain funds to
acquire such Mortgage Assets, (iii) to establish any reserve
funds described in the related Prospectus Supplement and (iv) to
pay costs of structuring, guaranteeing and issuing such
Certificates. Any other material use of proceeds will be
specified in the related Prospectus Supplement. The purchase of
the Mortgage Assets for a Series may be effected by an exchange
of Certificates with the Depositor of such Mortgage Assets. See
"USE OF PROCEEDS."
Ratings
Unless otherwise specified in the related Prospectus
Supplement, it will be a requirement for issuance of any Series
that the Certificates offered by this Prospectus and such
Prospectus Supplement be rated by at least one Rating Agency in
one of its four highest applicable rating categories. The rating
or ratings applicable to Certificates of each Series offered
hereby and by the related Prospectus Supplement will be as set
forth in the related Prospectus Supplement. A securities rating
should be evaluated independently of similar ratings on different
types of securities. A security rating does not address the
effect that the rate of prepayments on Mortgage Loans comprising
or underlying the Mortgage Assets may have on the yield to
investors in the Certificates. See "RISK FACTORS." A rating is
not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning
Rating Agency.
RISK FACTORS
Investors should consider, among other things, the following
risk factors in connection with an investment in the
Certificates.
Limited Liquidity
There can be no assurance that a secondary market for the
Certificates of any Series will develop or, if it does develop,
that it will provide Certificateholders with liquidity of
investment or will continue for the life of the Certificates.
The underwriter or the underwriters with respect to any series
may make a secondary market in the Certificates, but will have no
obligation to do so. In addition, the market value of
Certificates of each Series will fluctuate with changes in
prevailing rates of interest. Consequently, sale of the
Certificates by a Holder in any secondary market which may
develop may be at a discount from par value or from their
purchase price. Certificateholders have no optional redemption
rights. If so specified in the related Prospectus Supplement for
a Series, the Depositor, the Master Servicer, or another entity
designated in the related Prospectus Supplement may, at its
option, cause an early termination of a Trust Fund by
repurchasing all of the Mortgage Assets from such Trust Fund on
or after a date specified in the related Prospectus Supplement,
or on or after such time as the aggregate principal amount of the
Mortgage Assets is less than a specified percentage of their
initial aggregate principal amount. See "DESCRIPTION OF
CERTIFICATES-Optional Termination." In addition, the issuance of
the Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary trading market since investors
may be unwilling to purchase Certificates for which they cannot
obtain physical certificates. See "DESCRIPTION OF THE
CERTIFICATES-Book-Entry Registration."
Yield, Prepayment and Maturity
The rate at which prepayments (which include both voluntary
prepayments by the obligors on the Mortgage Loans and
liquidations due to defaults and foreclosures) occur on the
Mortgage Loans underlying or comprising the Mortgage Assets for a
Series will be affected by a variety of factors, including,
without limitation, the level of prevailing interest rates and
economic, demographic, tax, social, legal and other factors.
There can be no assurance as to the rate of prepayment on the
Mortgaged Assets securing any Certificate or deposited in the
Trust Fund, as the case may be, or that the rate of payments will
conform to any model described herein or in the Prospectus
Supplement. If prevailing interest rates fall significantly
below the applicable mortgage rates, principal prepayments are
likely to be higher than if prevailing rates remain at or above
the rates borne by the Mortgage Loans comprising or underlying
the Mortgaged Assets securing a series of Certificates or
deposited into a Trust Fund, as the case may be. As a result,
the actual maturity of or final distribution on any Class could
occur significantly earlier than its Stated Maturity or Final
Scheduled Distribution Date. The final distribution on the
Certificates will also be affected by the extent to which Excess
Cash Flow is applied to payments or distributions of principal on
the Certificates. Prepayments on the Mortgage Loans comprising
or underlying the Mortgage Assets for a Series generally will
result in a faster rate of distributions of principal on the
Certificates than if payments on such Mortgaged Assets were made
as scheduled. Thus, the prepayment experience on the Mortgage
Loans comprising or underlying the Mortgage Assets will affect
the average life and yield to investors of each Class and the
extent to which each such Class is paid prior to its Final
Scheduled Distribution Date. A Series may include a Class of
Interest Weighted Certificates offered at a significant premium
or a Class of Principal Weighted Certificates offered at a
substantial discount. Yields on such Classes of Certificates
will be extremely sensitive to prepayments on the Mortgage Loans
comprising or underlying the Mortgage Assets for such Series. In
general, if a Certificate, including a Certificate of a Class of
Interest Weighted Certificates, is purchased at a premium and
principal distributions on the Mortgage Loans occur at a rate
faster than anticipated at the time of purchase, the investor's
actual yield to maturity could be significantly lower than that
assumed at the time of purchase. Where the amount of interest
allocated with respect to a Class of Interest Weighted
Certificates is extremely disproportionate to principal, a
Certificateholder could, under some such prepayment scenarios,
fail to recoup its original investment. Conversely, if a
Certificate, including a Certificate of a Class of Principal
Weighted Certificates, is purchased at a discount and principal
distributions thereon occur at a rate slower than assumed at the
time of purchase, the investor's actual yield to maturity could
be significantly lower than that originally anticipated. Any
rating assigned to the Certificates by a Rating Agency will
reflect only such Rating Agency's assessment of the likelihood
that timely distributions will be made with respect to such
Certificates in accordance with the related Pooling and Servicing
Agreement. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the Mortgage Loans
underlying or comprising the Mortgage Assets will be made by
borrowers or of the degree to which the rate of such prepayments
might differ from that originally anticipated. As a result, such
rating will not address the possibility that prepayment rates
higher or lower than anticipated by an investor may cause such
investor to experience a lower than anticipated yield, or that an
investor purchasing an Interest Weighted Certificate at a
significant premium might fail to recoup its initial investment.
See "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS."
Certain Mortgage Loans and Mortgaged Property; Borrower Default
Mortgage Loans made with respect to Multifamily Property may
entail risks of loss in the event of delinquency and foreclosure
that are greater than similar risks associated with traditional
single family property. Many of the Mortgage Loans may be
nonrecourse loans as to which, in the event of a borrower
default, recourse may be had only against the specific
Multifamily Property and such limited other assets as have been
pledged to secure such Loan, and not against the borrower's other
assets. Furthermore, the repayment of Mortgage Loans secured by
income producing properties is typically dependent upon the
successful operation of the related real estate project rather
than upon the liquidation value of the underlying real estate.
If the net operating income from the project is reduced (for
example, if rental or occupancy rates decline or real estate and
personal property tax rates or other operating expenses
increase), the borrower's ability to repay the loan may be
impaired. A number of the Mortgage Loans may be secured by
owner-occupied Mortgaged Properties or Mortgaged Properties
leased to a single tenant. Accordingly, a decline in the
financial condition of the borrower or single tenant, as
applicable, may have a disproportionately greater effect on the
net operating income from such Mortgaged Properties than would be
the case with respect to Mortgaged Properties with multiple
tenants. Furthermore, the liquidation value of any Mortgaged
Property may be adversely affected by risks generally incident to
interests in real property, including changes in general or local
economic conditions and/or specific industry segments; declines
in real estate values; declines in rental or occupancy rates,
increases in interest rates, real estate and personal property
tax rates and other operating expenses including energy costs;
changes in governmental rules, regulations and fiscal policies,
including environmental legislation; acts of God; and other
factors which are beyond the Master Servicer's or any Servicer's
control. Although the Servicer or the Master Servicer is
obligated to cause standard hazard insurance to be maintained
with respect to each Loan, insurance with respect to
extraordinary hazards such as earthquakes and floods is generally
not required to be maintained, and insurance is not available
with respect to many of the other risks listed above.
Certain of the Mortgage Loans as of the Cut-off Date may not
be fully amortizing over their terms to maturity, and, thus, will
have substantial principal balances due at their stated maturity.
Mortgage Loans with balloon payments involve a greater degree of
risk because the ability of an borrower to make a balloon
payments typically will depend upon its ability either to
refinance the loan or to sell the related Mortgaged Property.
The ability of a borrower to accomplish either of these goals
will be affected by a number of factors, including the level of
available mortgage rates at the time of sale or refinancing, the
borrower's equity in the related Mortgaged Property, the
financial condition and operating history of the borrower and the
related Mortgaged Property, tax laws, prevailing general economic
conditions and the availability of credit for multifamily real
estate projects generally.
If so specified in the related Prospectus Supplement, in
order to maximize recoveries on defaulted Mortgage Loans, the
Servicer, if any, will have considerable flexibility under the
Servicing Agreement to extend and modify Mortgage Loans which are
in default or as to which a payment default is reasonably
foreseeable, including in particular with respect to balloon
payments. In addition, the Servicer may receive a workout fee
based on receipts from or proceeds of such Mortgage Loans. While
the Servicer generally will be required to determine that any
such extension or modification is likely to produce a greater
recovery on a present value basis than liquidation, there can be
no assurance that such flexibility with respect to extensions or
modifications or payment of a workout fee to the Servicer will
increase the present value of receipts from or proceeds of
Mortgage Loans which are in default or as to which a default is
reasonably foreseeable. To the extent losses on such Mortgage
Loans exceed levels of available credit support, the Holders of
the Certificates of a Series may experience a loss. See
"SERVICING OF MORTGAGE LOANS-Maintenance of Insurance Policies
and Other Servicing Procedures" and "CREDIT SUPPORT."
Delinquent and Non-Performing Mortgage Loans
As set forth in the related Prospectus Supplement, the
Mortgage Pool for a particular Series may include, as of the
Cut-off Date, REO Properties or Mortgage Loans that are past due
or are non-performing. Management of such REO Properties or
servicing with respect to such Mortgage Loans will be transferred
to the Master Servicer as of the Closing Date. Credit Support
provided with respect to a particular Series may not cover all
losses related to such delinquent or non-performing Mortgage
Loans or to such REO Properties. Investors should consider the
risk that the inclusion of such Mortgage Loans or such REO
Properties in the Mortgage Pool may affect the rate of defaults
and prepayments on such Mortgage Pool and the yield on the
Certificates of such Series. See "THE TRUST FUNDS-The Mortgage
Loans."
Remedies Following Default
The market value of the Mortgage Assets securing a Series
will fluctuate as general interest rates fluctuate. Following an
Event of Default with respect to a Series of Certificates, there
is no assurance that the market value of the Mortgage Assets
securing the Series, will be equal to or greater than the unpaid
principal and accrued interest due on the Certificates of such
Series, together with any other expenses or liabilities payable
thereon. If the Mortgage Assets securing a Series are sold by
the Trustee following an Event of Default, the proceeds of such
sale may be insufficient to pay in full the principal of and
interest on such Certificates. However, in the absence of a
direction by Certificateholders evidencing 25% or more of the
aggregate principal amount of the Certificates of a Series, the
Trustee may be restricted from selling the Mortgage Assets
securing such Series. See "THE POOLING AND SERVICING
AGREEMENTS-Rights Upon Event of Default."
In addition, upon an Event of Default with respect to a
Series and a resulting sale of the Mortgage Assets securing such
Certificates, distribution of the proceeds of such sale will be
made in the order of priority and in the manner specified in the
related Prospectus Supplement.
In the event the Certificate Principal Balance of a Series
is declared due and payable, the holders of any such Certificates
issued at a discount from par ("original issue discount") may be
entitled, under applicable provisions of the Bankruptcy Code, to
receive no more than an amount equal to the unpaid principal
amount thereof less unamortized original issue discount
("accreted value"). There is no assurance as to how such
accreted value would be determined if such event occurred.
Enforceability
As specified in the related Prospectus Supplement, the
Mortgages may contain due-on-sale clauses, which permit the
lender to accelerate the maturity of the Loan if the borrower
sells, transfers or conveys the related Mortgaged Property or its
interest in the Mortgaged Property. Such clauses are generally
enforceable subject to certain exceptions.
As specified in the related Prospectus Supplement, the
Mortgage Loans may include a debt-acceleration clause, which
permits the lender to accelerate the debt upon a monetary or
non-monetary default of the borrower. The courts of all state
will enforce clauses providing for acceleration in the event of a
material payment default. The equity courts of any state,
however, may refuse to foreclose a mortgage or deed of trust when
an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration
unconscionable.
To the extent specified in the related Prospectus
Supplement, the Mortgage Loans will be secured by an assignment
of leases and rents pursuant to which the borrower typically
assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived
therefrom to the lender as further security for the related Loan,
which retaining a license to collect rents for so long as there
no default. In the event the borrower defaults, the license
terminates and the lender is entitled to collect rents. Such
assignments are typically not perfected as security interests
prior to actual possession of the cash flows. Some state laws
may require that the lender take possession of the Mortgaged
Property and obtain a judicial appointment of a receiver before
becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect
of the borrower, the lender's ability to collect the rents may be
adversely affected. See "CERTAIN LEGAL ASPECTS OF THE MORTGAGE
LOANS."
Nature of Mortgages; Properties
Since some of the Mortgages are primarily junior liens
subordinated to the rights of the mortgagee under the related
senior mortgage or mortgages, the proceeds of any liquidation,
insurance or condemnation proceedings will be available to
satisfy the outstanding balance of such junior mortgage only to
the extent that the claims of such senior mortgagees have been
satisfied in full, including any related foreclosure costs. In
addition, a junior mortgagee may not foreclose on the Mortgaged
Property securing a junior mortgage unless it forecloses subject
to the senior mortgages, in which case it must either pay the
entire amount due on the senior mortgages to the senior
mortgagees at or prior to the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event
the mortgagor is in default thereunder. The Trust Fund will not
have any source of funds to satisfy the senior mortgages or make
payments due to the senior mortgagees.
There are several factors that could adversely affect the value
of the Mortgaged Properties such that the outstanding balance of the
related Mortgage Loan, together with any senior financing on the
Mortgaged Properties, would equal or exceed the value of the
Properties. Among the factors that could adversely affect the value
of the Mortgaged Properties are an overall decline in the residential
real state market in the areas in which the Mortgaed Properties
are located or a decline in the general condition of the
Mortgaged Properties as a result of failure of borrowers to
maintain adequately the Mortgaged Properties or of natural disasters
that are not necessarily covered by insurance, such as
earthquakes and floods. Any such decline could extinguish the
value of a junior interest in Mortgaged Property before having any
effect on the related senior interest therein. If such a decline
occurs, the actual rates of delinquencies, foreclosure and losses on
the Mortgage Loans secured by second liens could be higher than those
currently experienced in the mortgage lending industry in general. See
"CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS-Junior Liens; Rights of
Senior Lienholders."
Environmental Risks
Real property pledged as security to a lender may be subject
to certain environmental risks. Under the laws of certain
states, contamination of a property may give rise to a lien on
the property to assure the costs of clean-up. In several states,
such a lien has priority over the lien of an existing mortgage
against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), a
lender may be liable, as an "owner" or "operator," for costs of
addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or
employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by a prior owner. A
lender also risks such liability on foreclosure of the Mortgaged
Property. Unless otherwise specified in the related Prospectus
Supplement, the Pooling and Servicing Agreement or Servicing
Agreement, as applicable, provides that the Master Servicer or
the Servicer, as applicable, acting on behalf of the Trust Fund,
may not acquire title to a Mortgaged Property underlying a Loan
or take over its operation unless the Master Servicer or the
Servicer, as applicable, as previously determined, based upon a
report prepared by a person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with
applicable environmental laws and regulations or, if not, that
taking such actions as are necessary to bring the Mortgaged
Property in compliance therewith is reasonably likely to produce
a greater recovery on a present value basis than not taking such
actions and (ii) there are no circumstances or conditions present
that have resulted in any contamination or if such circumstances
or conditions are present for which such action could be
required, taking such actions with respect to the Mortgaged
Property is reasonably likely to produce a greater recovery on a
present value basis that not taking such actions. See "CERTAIN
LEGAL ASPECTS OF MORTGAGE LOANS-Environmental Legislation."
Credit Support Limitations
The amount, type and nature of insurance policies,
subordination, Certificate Guarantee Insurance, letters of credit
and other credit support, if any, required with respect to a
Series will be determined on the basis of criteria established by
each Rating Agency rating such Series. Such criteria are
necessarily based upon an actuarial analysis of the behavior of
Mortgage Loans in a larger group. Such actuarial analysis is the
basis upon which each Rating Agency determines (a) required
amounts and types of special hazard insurance, reserve funds,
subordination or other credit support and (b) limits on the
number and amount of Mortgage Loans which have various special
payment characteristics, have various Loan-to-Value Ratios and/or
were made for various purposes (e.g., refinancing). There can be
no assurance that the historical data supporting such actuarial
analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of housing
loans accurately predicts the delinquency, foreclosure or loss
experience of any particular pool of Mortgage Loans.
In addition, if distributions in reduction of the principal
balance of Certificates of a Series of Certificates are made in
order of the respective Final Scheduled Distribution Dates of the
Class, any limits with respect to the aggregate amount of claims
under any special hazard insurance policy may be exhausted before
the principal of the later-maturing Classes has been repaid. As
a result, the impact of significant losses on the Mortgage Loans
may bear primarily upon the Certificates of the later-maturing
Classes.
The Prospectus Supplement for a Series will describe any
reserve funds, insurance policies, letters of credit or other
third-party credit support relating to the Mortgage Assets or to
the Certificates of such Series. Use of such reserve funds and
payments under such insurance policies, letters of credit or
other third-party credit support will be subject to the
conditions and limitations described herein and in the related
Prospectus Supplement. Moreover, such reserve funds, insurance
policies, letters of credit or other credit support will not
cover all potential losses or risks. The obligations of the
issuers of any credit support such as a special hazard insurance
policy, letter of credit, Certificate Guarantee Insurance,
repurchase bond or other third-party credit support will not be
guaranteed or insured by the United States, or by any agency or
instrumentality thereof. A Series of Certificates may include a
Class or multiple Classes of Subordinate Certificates to the
extent described in the related Prospectus Supplement. Although
such subordination is intended to reduce the risk of delinquent
distributions or ultimate losses to Holders of Senior
Certificates, the Subordinated Amount will be limited and will
decline under certain circumstances and the related Subordination
Reserve Fund, if any, could be depleted in certain circumstances.
See "DESCRIPTION OF THE CERTIFICATES," "THE TRUST FUNDS" and
"CREDIT SUPPORT."
Limited Obligations and Assets of Depositor
Unless otherwise set forth in the related Prospectus
Supplement, the Trust Fund for a Series will be the only
available source of funds to make distributions on the
Certificates of such Series. The only obligations of the
Depositor with respect to the Certificates of any Series will be
pursuant to certain representations and warranties. See "THE
POOLING AND SERVICING AGREEMENTS-Assignment of Mortgage Assets"
herein. The Depositor has only limited assets available to
perform its repurchase obligations in respect of any breach of
any representation or warranty. Therefore, prospective investors
in the Certificates should consider the possibility that the
Depositor will not have sufficient assets with which to satisfy
its repurchase obligations in the event that a substantial amount
of Mortgage Loans with respect to a Series is required to be
repurchased due to breaches of representations and warranties.
See "THE DEPOSITOR."
ERISA Considerations
Generally, ERISA applies to investments made by employee
benefit plans and transactions involving the assets of such
plans. Due to the complexity of regulations which govern such
plans, prospective investors that are subject to ERISA are urged
to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Certificates of
any Series. See "ERISA CONSIDERATIONS."
Certain Federal Tax Considerations Regarding REMIC Residual
Interests
Holders of REMIC Residual Interests will be required to
report on their federal income tax returns as ordinary income
their pro rata share of the taxable income of the REMIC
regardless of the amount or timing of their receipt of cash
payments as described in "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS-Residual Interests in a REMIC." Accordingly,
under certain circumstances, holders of Certificates which
constitute REMIC Residual Interests might have taxable income and
tax liabilities arising from such investment during a taxable
year in excess of the cash received during such period. The
requirement that Holders of Residual Interest Certificates report
their pro rata share of the taxable income and net loss of the
REMIC will continue until the principal balances of all Classes
of Certificates of the related Series have been reduced to zero,
even though holders of Residual Interests have received full
payment of their stated interest and principal. A portion (or,
in certain circumstances, all) of a Residual Interest
Certificateholder's share of the REMIC taxable income may be
treated as "excess inclusion" income to such holder which
(i) except in the case of certain thrift institutions, will not
be subject to offset by losses from other activities, (ii) for a
tax exempt Holder, will be treated as unrelated business taxable
income and (iii) for a foreign holder, will not qualify for
exemption from withholding tax. Individual Holders of
Certificates constituting Residual Interests may be limited in
their ability to deduct servicing fees and other expenses of the
REMIC. Because of the special tax treatment of REMIC residual
interests, the taxable income arising in a given year on a REMIC
residual interest will not be equal to the taxable income
associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax
yield. Therefore, the after-tax yield on the Residual Interest
Certificates may be significantly less than that of a corporate
bond or stripped instrument having similar cash flow
characteristics.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in Series pursuant to
separate Pooling and Servicing Agreements among the Depositor,
the Trustee and the Master Servicer for the related Series
identified in the related Prospectus Supplement. The following
summaries describe certain provisions common to each Series. The
summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions
of the Pooling and Servicing Agreement and the Prospectus
Supplement relating to each Series. When particular provisions
or terms used in the Pooling and Servicing Agreement are referred
to, such provisions or terms shall be as specified in the Pooling
and Servicing Agreement.
Each Series will consist of one or more Classes, one or more
of which may consist of Compound Interest Certificates, Floating
Interest Certificates, Interest Weighted Certificates, Principal
Weighted Certificates or Reduced Volatility Certificates. A
Series may also include one or more Classes of Subordinate
Certificates. Each Series will be issued in fully registered
form, in the minimum original principal amount or notional amount
for Certificates of each Class specified in the related
Prospectus Supplement. The transfer of the Certificates may be
registered, and the Certificates may be exchanged, without the
payment of any service charge payable in connection with such
registration of transfer or exchange. If specified in the
related Prospectus Supplement, one or more Classes of a Series
may be available in book-entry form only.
Valuation of Trust Assets
If so stated in the related Prospectus Supplement, each
Mortgage Asset included in the Trust Fund for a Series will be
assigned an initial Asset Value determined in the manner and
subject to the assumptions summarized in the related Prospectus
Supplement. The Asset Value of the Mortgage Assets will not be
less than the initial aggregate principal amount of the
Certificates of the related Series at the date of issuance
thereof.
The Asset Value of Mortgage Assets represents the principal
amount of Certificates of a Series that, based on certain
assumptions, can be supported by the scheduled principal and
interest due on the Mortgage Assets irrespective of prepayments
thereon, the reinvestment income thereon at the Assumed
Reinvestment Rate (which may be zero) and the moneys available to
be withdrawn from related Reserve Funds, if any, as specified in
the related Prospectus Supplement. Individual Mortgage Assets
for a Series which share similar characteristics may be
aggregated into one or more groups (each an "Asset Group"), each
of which will be assigned a single aggregate Asset Value. If so
specified in the related Prospectus Supplement, the Mortgage
Assets in a Trust Fund may be divided into multiple Asset Groups
and the Certificates of separate Classes will evidence beneficial
ownership of each corresponding Asset Group. Unless the related
Prospectus Supplement provides otherwise, the aggregate Asset
Value of an Asset Group will be calculated as though the
underlying Mortgage Assets constitute a single Loan having such
of the characteristics of the Mortgage Assets included in the
Asset Group that would result in the lowest Asset Value being
assigned to each Mortgage Asset included in such Asset Group.
There are a number of alternative means of determining Asset
Value of a Mortgage Asset, including determinations based on the
discounted present value of the remaining scheduled payments on
such Mortgage Asset, determinations based on the relationship
between the interest rate borne by such Mortgage Asset and the
Certificate Rate or Rates for the related Classes of
Certificates, or based upon the aggregate principal balances of
the Mortgage Assets. If applicable, the Prospectus Supplement
for a Series will specify the method or methods and summarize the
related assumptions used to determine the Asset Values of the
Mortgage Assets in the related Trust Fund.
The Assumed Reinvestment Rate, if any, for a Series will be
the highest rate permitted by each Rating Agency rating such
Series or a rate insured, guaranteed or otherwise provided for by
means of a surety bond, interest rate swap agreement, interest
rate cap agreement, Guaranteed Investment Contract, or other
arrangement satisfactory to each such Rating Agency. See "THE
POOLING AND SERVICING AGREEMENTS-Investment of Funds."
Distributions on the Certificates
General. Commencing on the date specified in the related
Prospectus Supplement, distributions of principal and interest on
the Certificates will be made on each Distribution Date to the
extent of the "Available Distribution Amount" as set forth in the
related Prospectus Supplement.
Distributions of interest on Certificates which receive
interest will be made periodically at the intervals and at the
Certificate Rate specified or, with respect to Floating Interest
Certificates, determined in the manner described in the related
Prospectus Supplement. Interest on the Certificates will be
calculated on the basis of a 360-day year consisting of twelve
30-day months, or on such other basis as is specified in the
related Prospectus Supplement.
If funds in the Certificate Account (together with any
amounts transferred from any reserve fund or applicable credit
support) are insufficient to make the full distribution to
Certificateholders described above on any Distribution Date, the
funds available for distribution to the Certificateholders of
each Class will be distributed in accordance with their
respective interests therein, except that Subordinate
Certificateholders, if any, will not, subject to the limitations
described in the related Prospectus Supplement, receive any
distributions until Senior Certificateholders receive the amount
of present distributions due them and the amount of distributions
owed them which were not timely distributed thereon and to which
they are entitled (in each case calculated as described in the
related Prospectus Supplement). If specified in the related
Prospectus Supplement, the difference between the amount which
the Certificateholders would have received if there had been
sufficient eligible funds available for distribution and the
amount actually distributed, plus interest at the applicable
Certificate Rate will be included in the calculation of the
amount which the Certificateholders are entitled to receive on
the next Distribution Date. See "THE POOLING AND SERVICING
AGREEMENTS-Deficiency Events."
Distributions of principal of and interest on Certificates
of a Series will be made by check mailed to Certificateholders of
such Series registered as such on the close of business on the
record date specified in the related Prospectus Supplement at
their addresses appearing on the Certificate Register, except
that (a) distributions may be made by wire transfer (at the
expense of the Certificateholder requesting payment by wire
transfer) in certain circumstances described in the related
Prospectus Supplement and (b) the final distribution in
retirement of a Certificate will be made only upon presentation
and surrender of such Certificate at the corporate trust office
of the Trustee for such Series or such other office of the
Trustee as specified in the Prospectus Supplement. Notice of the
final distribution on a Certificate will be mailed to the Holder
of such Certificate before the Distribution Date on which such
final distribution in retirement of the Certificate is expected
to be made. If specified in the related Prospectus Supplement,
the Certificates of a Series or certain Classes of a Series may
be available only in book-entry form. See "-Book-Entry
Registration."
With respect to reports to be furnished to
Certificateholders concerning a distribution, see "THE POOLING
AND SERVICING AGREEMENTS-Reports to Certificateholders."
Certificates Generally. With respect to any Series,
distributions on the Certificates on each Distribution Date will
generally be allocated to each Certificate entitled thereto on
the basis of the undivided percentage interest (the "Percentage
Interest") evidenced by such Certificate in the Trust Fund or on
the basis of their outstanding principal amounts or notional
amounts (subject to any subordination of the rights of any
Subordinate Classes to receive current distributions as specified
in the related Prospectus Supplement). See "-Subordinate
Certificates." Each Certificate will have a principal amount or
a notional amount and a specified Certificate Rate (which may be
zero). Interest distributions will be made on each Certificate
entitled to an interest distribution on each Distribution Date at
the Certificate Rate specified or, with respect to Floating
Interest Certificates, determined as described in the related
Prospectus Supplement, to the extent funds are available in the
Certificate Account, subject to any subordination of the rights
of any Subordinate Class to receive current distributions. See
"-Subordinate and Other Certificates" and "CREDIT SUPPORT." If
the Mortgage Assets for a Series have adjustable or variable
interest or pass-through rates, then the Certificate Rate of the
Certificates of such Series may also vary, due to changes in such
rates and due to prepayments with respect to Mortgage Loans
comprising or underlying the related Mortgage Assets. If the
Mortgage Assets for a Series have fixed interest or pass-through
rates, then the Certificate Rate on Certificates of the related
Series may be fixed, or may vary, to the extent prepayments cause
changes in the weighted average interest rate or pass-through
rate of the Mortgage Assets. If the Mortgage Assets have
lifetime or periodic adjustment caps on the respective
pass-through rates, then the Certificate Rate on the Certificates
of the related Series may also reflect such caps.
A Series may include a Class of Interest Weighted
Certificates, a Class of Principal Weighted Certificates, or
both. Unless otherwise specified in the related Prospectus
Supplement, payments received from the Mortgage Assets will be
allocated on the basis of the Percentage Interest of each Class
in the principal component of such distributions, the interest
component of such distributions, or both, and will be further
allocated on a pro rata basis among the Certificates within each
Class. The method or formula for determining the Percentage
Interest of a Certificate will be set forth in the related
Prospectus Supplement.
Interest on all Certificates currently entitled to receive
interest will be distributed on the Distribution Dates specified
in the related Prospectus Supplement, to the extent funds are
available in the Certificate Account, subject to any
subordination of the rights of any Subordinate Class to receive
current distributions. See "-Subordinate Certificates" and
"CREDIT SUPPORT." Distributions of interest on a Class of
Compound Interest Certificates will commence only after the
related Accrual Termination Date specified in the related
Prospectus Supplement. On each Distribution Date prior to and
including the Accrual Termination Date, interest on such Class of
Compound Interest Certificates will accrue and the amount of
interest accrued on such Distribution Date (the "Accrual
Distribution Amount") will be added to the principal balance
thereof on the related Distribution Date. On each Distribution
Date after the Accrual Termination Date, interest distributions
will be made on Classes of Compound Interest Certificates on the
basis of the current Compound Value of such Class. The Compound
Value of a Class of Compound Interest Certificates equals the
initial aggregate principal balance of the Class, plus accrued
and undistributed interest added to such Class through the
immediately preceding Distribution Date, less any principal
distributions previously made in reduction of the aggregate
outstanding principal balance of such Class.
To the extent provided in the related Prospectus Supplement,
a Series may include one or more Classes of Floating Interest
Certificates. The Certificate Rate of a Floating Interest
Certificate will be a variable or adjustable rate, subject to a
Maximum Floating Rate, Minimum Floating Rate, or both. For each
Class of Floating Interest Certificates, the related Prospectus
Supplement will set forth the initial Floating Rate (or the
method of determining it), the Floating Interest Period, and the
formula, index, or other method by which the Floating Rate for
each Floating Interest Period will be determined.
To the extent provided in the related Prospectus Supplement,
a Series may include one or more classes of Reduced Volatility
Certificates.
Distributions of principal will be allocated among the
Classes of a Series in the order of priority and amount specified
in the related Prospectus Supplement.
Subordinate Certificates. Subordinate Certificates may be
included in a Series to provide credit support as described
herein under "CREDIT SUPPORT" in lieu of or in addition to other
forms of credit support. The extent of subordination of a Class
of Subordinate Certificates may be limited as described in the
related Prospectus Supplement. See "CREDIT SUPPORT." If the
Mortgage Assets are divided into separate Asset Groups,
beneficial ownership of which is evidenced by separate Classes of
a Series, credit support may be provided by a cross-support
feature which requires that distributions be made to Senior
Certificates evidencing beneficial ownership of one Asset Group
prior to making distributions on Subordinate Certificates
evidencing a beneficial ownership interest in another Asset Group
within the Trust Fund. Subordinate Certificates will not be
offered hereby or by such related Prospectus Supplement unless
they are rated in one of the four highest rating categories by at
least one Rating Agency.
Special Distributions
Special Distributions. To the extent specified in the
related Prospectus Supplement, Special Distributions in reduction
of Certificate principal amount may be made with respect to the
Certificates of a Series on the day or days of any month
specified therein if, as a result of the prepayment experience on
the Mortgage Assets for such Series or the low yields available
for reinvestment, or both, it is determined (based on assumptions
specified in the Pooling and Servicing Agreement and after giving
effect to the amounts, if any, available to be withdrawn from any
reserve fund for such Series) that the amount anticipated to be
available in the Certificate Account on the date specified in the
related Prospectus Supplement for such Series, will be
insufficient to make scheduled distributions of principal and
interest on the Certificates of such Series on the next
Distribution Date. The amount distributed in reduction of
principal amount will not exceed the Principal Distribution
Amount otherwise required to be paid on the next Distribution
Date. Therefore, the result of such a Special Distribution with
respect to the Certificates of a Series will be to reduce their
aggregate principal amount prior to the next scheduled
Distribution Date.
All distributions in reduction of the Certificate principal
amount pursuant to any Special Distribution will be made in the
order of priority and in the manner specified in the related
Prospectus Supplement. Notice of any Special Distribution will
be mailed by the Trustee to the Certificateholders of the related
Series prior to the Special Distribution Date.
Optional Termination
If so specified in the related Prospectus Supplement for a
Series, the Depositor, the Master Servicer, or another entity
designated in the related Prospectus Supplement may, at its
option, cause an early termination of a Trust Fund by
repurchasing all of the Mortgage Assets from such Trust Fund on
or after a date specified in the related Prospectus Supplement,
or on or after such time as the aggregate principal amount of the
Mortgage Assets is less than a specified percentage of their
initial aggregate principal amount. In the case of a Trust Fund
for which a REMIC election has been made, the Trustee shall
receive a satisfactory opinion of counsel that the repurchase
price will not jeopardize the status of the REMIC and that the
optional termination will be conducted so as to constitute a
"qualified liquidation" under Section 860F of the Code. Such
optional termination will be in addition to terminations which
may result from other events. See "THE POOLING AND SERVICING
AGREEMENTS-Deficiency Event" and "-Termination."
Book-Entry Registration
If so specified in the related Prospectus Supplement, the
Certificates will be issued in book-entry form in the minimum
denominations specified in such Prospectus Supplement and
integral multiples thereof, and each Class will be represented by
a single Certificate registered in the name of the nominee of the
depository, The Depository Trust Company ("DTC"), a
limited-purpose trust company organized under the laws of the
State of New York. No person acquiring an interest in the
Certificates (a "Certificateowner") will be entitled to receive a
Certificate issued in fully registered, certificated form (a
"Definitive Certificate") representing such person's interest in
the Certificates except in the event that the book-entry system
for the Certificates is discontinued (as described below).
Unless and until Definitive Certificates are issued, it is
anticipated that the only Certificateholder of the Certificates
will be Cede & Co., as nominee of DTC. In such case,
Certificateowners will not be registered "Certificateholders" or
registered "Holders" under the Pooling and Servicing Agreement,
and Certificateowners will only be permitted to exercise the
rights of Certificateholders indirectly through DTC Participants.
DTC was created to hold securities for its participating
organizations ("Participants") and facilitate the clearance and
settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its
Participants. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC
system also is available to entities that clear through or
maintain a custodial relationship with a Participant, either
directly or indirectly ("indirect participants").
Certificateowners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer
ownership of Certificates may do so only though Participants and
Indirect Participants. Because DTC can only act on behalf of
Participants and Indirect Participants, the ability of a
Certificateowner to pledge such owner's Certificate to persons or
entities that do not participate in the DTC system, or otherwise
take actions in respect of such Certificate, may be limited. In
addition, under a book-entry format, Certificateowners may
experience some delay in their receipt of principal and interest
distributions with respect to the Certificates since such
distributions will be forwarded to DTC and DTC will then forward
such distributions to its Participants which in turn will forward
them to Indirect Participants or Certificateowners.
Under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC Participants
may make book-entry transfers among Participants through DTC
facilities with respect to the Certificates and DTC, as
registered holder, is required to receive and transmit principal
and interest distributions and distributions with respect to the
Certificates. Participants and Indirect Participants with which
Certificateowners have accounts with respect to Certificates
similarly are required to make book-entry transfers and receive
and transmit such distributions on behalf of their respective
Certificateowners. Accordingly, although Certificateowners will
not possess certificates, the Rules provide a mechanism by which
Certificateowners will receive distributions and will be able to
transfer their interests.
The Depositor understands that DTC will take any action
permitted to be taken by a Certificateholder under the Pooling
and Servicing Agreement only at the direction of one or more
Participants to whose account with DTC the Certificates are
credited. Additionally, the Depositor understands that DTC will
take such actions with respect to holders of a certain specified
interest in the certificates or holders having a certain
specified voting interest only at the direction of and on behalf
of Participants whose holdings represent that specified interest
or voting interest. DTC may take conflicting actions with
respect to other Holders of Certificates to the extent that such
actions are taken on behalf of Participants whose holdings
represent that specified interest or voting interest.
DTC may discontinue providing its services as securities
depository with respect to the Certificates at any time by giving
reasonable notice to the Depositor or the Trustee. Under such
circumstances, in the event that a successor securities
depository is not obtained, Definitive Certificates will be
printed and delivered. In addition the Depositor may at its
option elect to discontinue use of the book-entry system through
DTC. In that event, too, Definitive Certificates will be printed
and delivered.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Payment Delays
With respect to any Series, a period of time will elapse
between receipt of payments or distributions on the Mortgage
Assets and the Distribution Date on which such payments or
distributions are passed through to Certificateholders. Such a
delay will effectively reduce the yield that would otherwise be
obtained if payments or distributions were distributed on or near
the date of receipt. The related Prospectus Supplement may set
forth an example of the timing of receipts and the distribution
thereof to Certificateholders.
Principal Prepayments
With respect to a Series for which the Mortgage Assets
consist of Mortgage Loans or participation interests therein,
when a Loan prepays in full, the borrower will generally be
required to pay interest on the amount of prepayment only to the
prepayment date. In addition, the prepayment may not be required
to be passed through to Certificateholders until the month
following receipt. The effect of these provisions is to reduce
the aggregate amount of interest which would otherwise be
available for distributions on the Certificates, thus effectively
reducing the yield that would be obtained if interest continued
to accrue on the Loan until the date on which the principal
prepayment was scheduled to be paid. To the extent specified in
the related Prospectus Supplement, this effect on yield may be
mitigated by, among other things, an adjustment to the servicing
fee otherwise payable to the Master Servicer or Servicer with
respect to any such prepaid Mortgage Loans. See "SERVICING OF
MORTGAGE LOANS-Advances and Limitations Thereon."
Timing of Reduction of Principal Balance
A Series may provide that, for purposes of calculating
interest distributions, the principal amount of the Certificates
is deemed reduced as of a date prior to the Distribution Date on
which principal thereon is actually distributed. Consequently,
the amount of interest accrued during any Interest Accrual Period
will be less than the amount that would have accrued on the
actual principal balance of the Certificate outstanding. The
effect of such provisions is to produce a lower yield on the
Certificates than would be obtained if interest were to accrue on
the Certificates on the actual unpaid principal amount of such
Certificates to each Distribution Date. The related Prospectus
Supplement will specify the time at which the principal amounts
of the Certificates are determined or are deemed to reduce for
purposes of calculating interest distributions on Certificates of
such a Series.
Interest or Principal Weighted Certificates
If a Class of Certificates consists of Interest Weighted
Certificates or Principal Weighted Certificates, a lower rate of
principal prepayments than anticipated will negatively affect the
yield to investors in Principal Weighted Certificates, and a
higher rate of principal prepayments than anticipated will
negatively affect the yield to investors in Interest Weighted
Certificates. The Prospectus Supplement for a Series including
such Certificates will include a table showing the effect of
various levels of prepayment on yields on such Certificates.
Such tables will be intended to illustrate the sensitivity of
yields to various prepayment rates and will not be intended to
predict, or provide information which will enable investors to
predict, yields or prepayment rates.
Final Scheduled Distribution Date
The Final Scheduled Distribution Date of each Class of any
Series will be specified in the related Prospectus Supplement and
will be the date (calculated on the basis of the assumptions
applicable to such Series described therein) on which the entire
aggregate principal balance of such Class will be reduced to
zero. Since prepayments on the Mortgage Loans underlying or
comprising the Mortgage Assets will be used to make distributions
in reduction of the outstanding principal amount of the
Certificates, it is likely that the actual maturity of any Class
will occur earlier, and may occur substantially earlier, than its
Final Scheduled Distribution Date.
Prepayments and Weighted Average Life
The rate of return on reinvestment of distributions of
principal and interest on the Mortgage Assets securing a Series,
the rates at which principal payments are received on such
Mortgage Assets and the rate at which payments are made from any
reserve fund or other credit enhancement for such Series may
affect the ultimate maturity of each Class of such Series.
Prepayments on the Mortgage Assets will accelerate the rate at
which principal is paid or distributed on the Certificates of a
Series. High reinvestment rates tend to increase the amount of
Excess Cash Flow, which, to the extent applied to principal
payments or distributions on the Certificates of a Series, will
accelerate principal payments or distributions on such
Certificates.
Weighted average life refers to the average amount of time
that will elapse from the date of issue of a security until each
dollar of the principal of such security will be repaid to the
investor. The weighted average life of the Certificates of a
Series will be influenced by the rate at which principal on the
Mortgage Loans comprising or underlying the Mortgage Assets for
such Certificates is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments, in whole or in part, and
liquidations due to default).
The rate of principal prepayments on pools of housing loans
is influenced by a variety of economic, demographic, geographic,
legal, tax, social and other factors. The rate of prepayments of
multifamily housing loans has fluctuated significantly in recent
years. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans
comprising or underlying the Mortgage Assets for a Series, such
Mortgage Loans are likely to prepay at rates higher than if
prevailing interest rates remain at or above the interest rates
borne by such Mortgage Loans. In this regard, it should be noted
that the Mortgage Loans comprising or underlying the Mortgage
Assets of a Series may have different interest rates, and the
stated pass-through or interest rate of certain Mortgage Assets
or the Certificate Rate on the Certificates may be a number of
percentage points less than interest rates on such Mortgage
Loans. In addition, the weighted average life of the
Certificates may be affected by the varying maturities of the
Mortgage Loans comprising or underlying the Mortgage Assets. If
any Mortgage Loans comprising or underlying the Mortgage Assets
for a Series have actual terms-to-stated maturity of less than
those assumed in calculating the Final Scheduled Distribution
Date of the related Certificates, one or more Class of the Series
may be fully paid prior to its Final Scheduled Distribution Date,
even in the absence of prepayments and a reinvestment return
higher than the Assumed Reinvestment Rate.
Prepayments on loans are also commonly measured relative to
a prepayment standard or model, such as the Constant Prepayment
Rate ("CPR") prepayment model or the Standard Prepayment
Assumption ("SPA") prepayment model, each as described below.
CPR represents a constant assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of
loans for the life of such loans. SPA represents an assumed rate
of prepayment each month relative to the then outstanding
principal balance of a pool of loans. A prepayment assumption of
100% of SPA assumes prepayment rates of 0.2% per annum of the
then outstanding principal balance of such loans in the first
month of the life of the loans and an additional 0.2% per annum
in each month thereafter until the thirtieth month. Beginning in
the thirtieth month and in each month thereafter during the life
of the loans, 100% of SPA assumes a constant prepayment rate of
6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or
assumption purports to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment
of any pool of loans, including the Mortgage Loans underlying or
comprising the Mortgage Assets. Thus, it is likely that
prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular
level of CPR or SPA.
The Depositor is not aware of any publicly available
statistics that set forth prepayment experience or prepayment
forecasts of multifamily mortgage loans over an extended period
of time.
The Prospectus Supplement for each Series consisting of
multiple classes will describe the prepayment standard or model
used to prepare any illustrative tables setting forth the
weighted average life of each Class of such Series under a given
set of prepayment assumptions. The related Prospectus Supplement
may also describe the percentage of the initial principal balance
of any Class of such Series that would be outstanding on
specified Distribution Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including
assumptions that prepayments on the Mortgage Loans comprising or
underlying the related Mortgage Assets are made at rates
corresponding to various percentages of CPR or SPA or at such
other rates specified in such Prospectus Supplement. Such tables
and assumptions are intended to illustrate the sensitivity of
weighted average life of the Certificates to various prepayment
rates and will not be intended to predict or to provide
information which will enable investors to predict the actual
weighted average life of the Certificates or prepayment rates of
the Mortgage Loans comprising or underlying the related Mortgage
Assets.
Other Factors Affecting Weighted Average Life
Type of Loan. Mortgage Loans made with respect to
Multifamily Properties may have provisions which prevent
prepayment for a number of years and may provide for payments of
interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the
maturity of the related mortgage loan. ARMs comprising or
underlying the Mortgage Assets may experience a rate of principal
prepayments which is different from the principal prepayment rate
for ARMs included in any other mortgage pool or from multifamily
fixed rate Mortgage Loans or from other adjustable rate mortgages
having different characteristics. Because ARMs have not been
originated in large quantities until recently, there can be no
certainty as to their respective rates of prepayment in either
stable or changing interest rate environments.
In the case of Negatively Amortizing ARMs, if interest rates
rise without a simultaneous increase in the related Scheduled
Payment, Deferred Interest and Negative Amortization may result.
However, borrowers may pay amounts in addition to their Scheduled
Payments in order to avoid such Negative Amortization and to
increase tax deductible interest payments. To the extent that
any of such Mortgage Loans negatively amortize over their
respective terms, future interest accruals are computed on the
higher outstanding principal balance of such mortgage loan and a
smaller portion of the Scheduled Payment is applied to principal
than would be required to amortize the unpaid principal over its
remaining term. Accordingly, the weighted average life of such
Mortgage Loans will increase. During a period of declining
interest rates, the portion of each Scheduled Payment in excess
of the scheduled interest and principal due will be applied to
reduce the outstanding principal balance of the related Loan,
thereby resulting in accelerated amortization of such Negatively
Amortizing ARM. Any such acceleration in amortization of the
principal balance of any Negatively Amortizing ARM will shorten
the weighted average life of such Mortgage Loan. The application
of partial prepayments to reduce the outstanding principal
balance of a Negatively Amortizing ARM will tend to reduce the
weighted average life of the mortgage loan and will adversely
affect the yield to Holders who purchased their Certificates at a
premium, if any, and Holders of a Class of Interest Weighted
Certificates. The pooling of Negatively Amortizing ARMs having
Rate Adjustment Dates in different months, together with
different initial Mortgage Rates, Lifetime Mortgage Rate Caps,
Minimum Mortgage Rates and stated maturity dates, could result in
some Negatively Amortizing ARMs which comprise or underlie the
Mortgage Assets experiencing negative amortization while the
amortization of other Negatively Amortizing ARMs may be
accelerated.
If the Mortgage Loans comprising or underlying the Mortgage
Assets for a Series include ARMs that permit the borrower to
convert to a long-term fixed interest rate loan, the Master
Servicer, Servicer, or PMBS Servicer, as applicable, may, if
specified in the related Prospectus Supplement, be obligated to
repurchase any Loan so converted. Any such conversion and
repurchase would reduce the average weighted life of the
Certificates of the related Series.
Foreclosures and Payment Plans. The number of foreclosures
and the principal amount of the Mortgage Loans comprising or
underlying the Mortgage Assets which are foreclosed in relation
to the number of Mortgage Loans which are repaid in accordance
with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and
that of the related Series of Certificates. Servicing decisions
made with respect to the Mortgage Loans, including the use of
payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may
also have an impact upon the payment patterns of particular
Mortgage Loans. In particular, the return to Holders of
Certificates who purchased their Certificates at a premium, if
any, and the yield on a Class of Interest Weighted Certificates
may be adversely affected by servicing policies and decisions
relating to foreclosures.
Due on Sale Clauses. The acceleration of prepayment as a
result of certain transfers of the Mortgaged Property securing a
Loan is another factor affecting prepayment rates. The Mortgage
Loans constituting or underlying the Mortgage Assets may include
"due-on-sale" clauses. Except as otherwise described in the
Prospectus Supplement for a Series, the PMBS Servicer of Mortgage
Loans underlying Private Mortgage-Backed Securities and the
Master Servicer or the Servicer of Mortgage Loans constituting or
underlying the Mortgage Assets for a Series will be required, to
the extent it knows of any conveyance or prospective conveyance
of the related residence by any borrower, to enforce any
"due-on-sale" clause applicable to the related Loan under the
circumstances and in the manner it enforces such clauses with
respect to other similar loans in its portfolio.
Optional Termination. If so specified in the related
Prospectus Supplement, the entity specified therein may cause an
early termination of the related Trust Fund by its repurchase of
the remaining Mortgage Assets therein. See "DESCRIPTION OF THE
CERTIFICATES-Optional Termination."
THE TRUST FUNDS
General
The Trust Fund for each Series will be held by the Trustee
for the benefit of the related Certificateholders. Each Trust
Fund will consist of (a) the Mortgage Assets; (b) amounts held
from time to time in the Collection Account and the Certificate
Account established for such Series; (c) Mortgaged Property which
secured a Loan and which is acquired on behalf of the
Certificateholders by foreclosure, deed in lieu of foreclosure or
repossession; (d) any reserve fund for such Series, if specified
in the related Prospectus Supplement; (e) the Servicing
Agreements, if any, relating to Mortgage Loans in the Trust Fund;
(f) any special hazard insurance policy or other credit support
relating to the Series; (g) investments held in any fund or
account or any Guaranteed Investment Contract and, if so
specified in the Prospectus Supplement, income from the
reinvestment of such funds; and (h) any other instrument or
agreement relating to the Trust Fund and specified in the related
Prospectus Supplement (which may include an interest rate swap
agreement or an interest rate cap agreement or similar agreement
issued by a bank, insurance company or savings and loan
association).
To the extent specified in the related Prospectus
Supplement, certain amounts ("Retained Interests") which are
received with respect to a Private Mortgage-Backed Security or
Loan comprising the Mortgage Assets for a Series will not be
included in the Trust Fund for such Series, but will be retained
by or payable to the originator, Servicer or seller of such
Private Mortgage-Backed Security or Loan, free and clear of the
interest of Certificateholders under the related Pooling and
Servicing Agreement.
Mortgage Assets in the Trust Fund for a Series may consist
of any combination of the following to the extent and as
specified in the related Prospectus Supplement: (a) Private
Mortgage-Backed Securities or (b) Mortgage Loans, or
participation interests therein. Mortgage Loans which comprise
the Mortgage Assets will be purchased by the Depositor directly
or through an affiliate in the open market or in privately
negotiated transactions. Participation interests in Mortgage
Loans may be purchased by the Depositor, or an affiliate,
pursuant to a participation agreement. See "THE POOLING AND
SERVICING AGREEMENTS-Assignment of Mortgage Assets."
Private Mortgage-Backed Securities
General Private Mortgage-Backed Securities may consist of
(a) mortgage pass-through certificates, evidencing an undivided
interest in a pool of Mortgage Loans, (b) collateralized mortgage
obligations secured by Mortgage Loans or (c) pass-through
certificates representing beneficial interests in Agency
Securities. All Private Mortgage-Backed Securities will be
publicly registered or otherwise exempt from applicable private
placement restrictions. Private Mortgage-Backed Securities will
have been issued pursuant to a pooling and servicing agreement,
an indenture or similar agreement (a "PMBS Agreement"). The
seller/servicer of the underlying Mortgage Loans will have
entered into the PMBS Agreement with the trustee under such PMBS
Agreement (the "PMBS Trustee"). The PMBS Trustee or its agent,
or a custodian, will possess the Mortgage Loans underlying such
Private Mortgage-Backed Security. Mortgage Loans underlying a
Private Mortgage-Backed Security will be serviced by a servicer
(the "PMBS Servicer") directly or by one or more subservicers who
may be subject to the supervision of the PMBS Servicer. The PMBS
Servicer will be an FNMA or FHLMC approved servicer and, if FHA
Loans underlie the Private Mortgage-Backed Securities, approved
by HUD as an FHA mortgagee. Any Private Mortgage-Backed Security
will have been acquired in a secondary transaction and not from
the issuer or an affiliate of the issuer of such Private
Mortgage-Backed Security, and each Private Mortgage-Backed
Security will evidence an interest in, or will be secured by a
pledge of, Mortgage Loans that conform to the descriptions of
Mortgage Loans contained herein.
The issuer of the Private Mortgage-Backed Securities (the
"PMBS Issuer") will be a financial institution or other entity
engaged generally in the business of mortgage lending, a public
agency or instrumentality of a state, local or federal
government, or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts and acquiring
and selling housing loans to such trusts, and selling beneficial
interests in such trusts. The PMBS Issuer may be an affiliate of
the Depositor. The obligations of the PMBS Issuer will generally
be limited to certain representations and warranties with respect
to the assets conveyed by it to the related trust. Unless
otherwise specified in the related Prospectus Supplement, the
PMBS Issuer will not have guaranteed any of the assets conveyed
to the related trust or any of the Private Mortgage-Backed
Securities issued under the PMBS Agreement. Additionally,
although the Mortgage Loans underlying the Private
Mortgage-Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Mortgage-Backed
Securities themselves will not be so guaranteed.
Distributions of principal and interest will be made on the
Private Mortgage-Backed Securities on the dates specified in the
related Prospectus Supplement. The Private Mortgage-Backed
Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal
and interest distributions will be made on the Private
Mortgage-Backed Securities by the PMBS Trustee or the PMBS
Servicer. The PMBS Issuer or the PMBS Servicer may have the
right to repurchase assets underlying the Private Mortgage-Backed
Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Mortgage Loans. The Mortgage Loans underlying
the Private Mortgage-Backed Securities may consist of fixed rate,
level payment, fully amortizing Mortgage Loans, ARMs, or Mortgage
Loans having balloon or other special payment features. Mortgage
Loans will be secured by Multifamily Property. Except as
otherwise specified in the related Prospectus Supplement, (i) no
Mortgage Loan will have had a Loan-to-Value Ratio at origination
in excess of 100%, (ii) each Mortgage Loan will have had an
original term to stated maturity of not less than 10 years and
not more than 40 years, (iii) each Mortgage Loan will be required
to be covered by a standard hazard insurance policy (which may be
a blanket policy), and (iv) each Mortgage Loan will be covered by
a title insurance policy.
Credit Support Relating to Private Mortgage-Backed
Securities. Credit support in the form of reserve funds,
subordination of other private mortgage certificates issued under
the PMBS Agreement, letters of credit, insurance policies or
other types of credit support may be provided with respect to the
Mortgage Loans underlying the Private Mortgage-Backed Securities
or with respect to the Private Mortgage-Backed Securities
themselves. The type, characteristics and amount of credit
support, if any, will be a function of certain characteristics of
the Mortgage Loans and other factors and will have been
established for the Private Mortgage-Backed Securities on the
basis of requirements of the Rating Agency which assigned a
rating to the Private Mortgage-Backed Securities.
Additional Information. The Prospectus Supplement for a
Series for which the Trust Fund includes Private Mortgage-Backed
Securities will specify (i) the aggregate approximate principal
amount and type of the Private Mortgage-Backed Securities to be
included in the Trust Fund, (ii) certain characteristics of the
Mortgage Loans which comprise the underlying assets for the
Private Mortgage-Backed Securities including (A) the payment
features of such Mortgage Loans (i.e., whether they are fixed
rate or adjustable rate and whether they provide for fixed level
payments or other payment features), (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
Mortgage Loans, and (D) the minimum and maximum stated maturities
of the underlying Mortgage Loans at origination, (iii) the
maximum original term-to-stated maturity of the Private Mortgage-
- -Backed Securities, (iv) the weighted average term-to-stated
maturity of the Private Mortgage-Backed Securities, (v) the
pass-through or certificate rate or ranges thereof for the
Private Mortgage-Backed Securities, (vi) the weighted average
pass-through or certificate rate of the Private Mortgage-Backed
Securities, (vii) the PMBS Issuer, the PMBS Servicer (if other
than the PMBS Issuer) and the PMBS Trustee for such Private
Mortgage-Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance
policies, letters of credit or guarantees relating to the
Mortgage Loans underlying the Private Mortgage-Backed Securities
or to such Private Mortgage-Backed Securities themselves,
(ix) the terms on which the underlying Mortgage Loans for such
Private Mortgage-Backed Securities may, or are required to, be
purchased prior to their stated maturity or the stated maturity
of the Private Mortgage-Backed Securities, (x) the lien priority
of the Mortgage Loans and (xi) the terms on which Mortgage Loans
may be substituted for those originally underlying the Private
Mortgage-Backed Securities.
The Mortgage Loans
General. The Trust Fund for a Series may consist of
Mortgage Loans or participation interests therein. Mortgage
Loans comprising the Mortgage Assets and Mortgage Loans in which
participation interests are conveyed to the Trustee are both
referred to herein as the "Mortgage Loans." The Mortgage Loans
comprising the Mortgage Assets will have been originated by
Quality Mortgage USA, Inc. or other affiliates of the Depositor,
or by other mortgage lenders which are FNMA- or FHLMC-approved
sellers, servicers, and, in the case of FHA Loans, approved by
HUD as an FHA mortgagee. The Mortgage Loans may include FHA
Loans. The Mortgage Loans may have fixed interest rates or
adjustable interest rates and may provide for fixed level
payments or Mortgage Loans with other payment characteristics as
described below and under "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" herein or in the related Prospectus Supplement.
ARMs may have a feature which permits the borrower to convert the
rate thereon to a long-term fixed rate. The Mortgage Loans may
be secured by mortgages or deeds of trust or other similar
security instruments creating a first or second lien on Mortgaged
Property.
The Mortgaged Properties will be Multifamily Property (i.e.,
multifamily residential rental properties consisting of five or
more dwelling units). Multifamily Property may include mixed
commercial and residential structures and may consist of property
securing FHA-insured Mortgage Loans made to help finance
construction or rehabilitation of the related multifamily rental
or cooperative housing for low- or moderate-income or displaced
families. Each Multifamily Property will be located on land
owned in fee simple by the borrower or on land leased by the
borrower for a term at least two years greater than the term of
the related Mortgage Loan. The fee interest in any leased land
will be subject to the lien securing the related Mortgage Loan.
See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS."
If so specified in the related Prospectus Supplement,
Mortgage Loans relating to real estate projects under
construction may be included in the Mortgage Assets for a Series.
The related Prospectus Supplement will set forth the procedures
and timing for making disbursements from construction reserve
funds as portions of the related real estate project are
completed. If permitted by applicable law, the Mortgage Pool may
also include Mortgaged Properties acquired by foreclosure or by
deed-in-lieu of foreclosure ("REO Property"). To the extent
specified in the related Prospectus Supplement, the Servicer or
the Master Servicer may establish and maintain a trust account or
accounts to be used in connection wiht REO Properties or other
Mortgaged Properties being operated by it or on its behalf on
behalf of the Trust Estate or the Trust Fund, as the case may be,
by the mortgagor as debtor-in-possession or otherwise. In
addition, the Mortgage Pool for a particular Series may include
Mortgage Loans which consist of cash flow mortgages, installment
contracts, mortgage loans with equity features or other mortgage
loans described in the related Prospectus Supplement.
The characteristics of the Mortgage Loans comprising or
underlying the Mortgage Assets for a Series may vary to the
extent that credit support is provided in levels satisfactory to
the Rating Agency which assigns a rating to a Series of
Certificates. Unless otherwise specified in the related
Prospectus Supplement for a Series, the following selection
criteria shall apply with respect to the Mortgage Loans
comprising the Mortgage Assets:
(a) no Mortgage Loan will have had a Loan-to-Value
Ratio at origination in excess of 100%;
(b) each Mortgage Loan must have an original term to
maturity of not less than 10 years and not more than 40
years; and
(c) no Mortgage Loan may be included unless a title
insurance policy or, in lieu thereof, an attorney's opinion
of title, and a standard hazard insurance policy (which may
be a blanket policy) is in effect with respect to the
Mortgaged Property securing such Mortgage Loan.
The initial Loan-to-Value Ratio of any Mortgage Loan
represents the ratio of the principal amount of the Mortgage Loan
outstanding at the origination of such loan divided by the fair
market value of the mortgaged property, as shown in the appraisal
prepared in connection with origination of the Mortgage Loan (the
"Appraised Value"). The fair market value of the Mortgaged
Property securing any Mortgage Loan is the lesser of the purchase
price paid by the borrower or the Appraised Value of such
Mortgaged Property.
Unless otherwise specified in the related Prospectus
Supplement, the ARMs will provide for a fixed initial mortgage
rate for either the first 6, 12, 24, 36 or 84 Scheduled Payments.
Thereafter, the Mortgage Rates are subject to periodic adjustment
based, subject to the applicable limitations, on changes in the
relevant Index described in the applicable Prospectus Supplement,
to a rate equal to the Index plus the Gross Margin, which is a
fixed percentage spread over the Index established contractually
for each ARM, at the time of its origination. An ARM may be
convertible into a fixed-rate Mortgage Loan. To the extent
specified in the related Prospectus Supplement, any ARM so
converted may be subject to repurchase by the Servicer or Master
Servicer.
ARMs have features that are relatively new for the
residential lending market in the United States. In particular,
adjustable mortgage rates can cause payment increases that some
borrowers may find difficult to make. However, each of the ARMs
provides that its mortgage rate may not be adjusted to a rate
above the applicable lifetime mortgage rate cap (the "Lifetime
Mortgage Rate Cap") or below the applicable lifetime minimum
mortgage rate (the "Minimum Mortgage Rate"), if any, for such
ARM. In addition, certain of the ARMs provide for limitations on
the maximum amount by which their mortgage rates may adjust for
any single adjustment period (the "Maximum Mortgage Rate
Adjustment"). Some ARMs are payable in self-amortizing payments
of principal and interest. Other ARMs ("Negatively Amortizing
ARMs") instead provide for limitations on changes in the
Scheduled Payment on such ARMs to protect borrowers from payment
increases due to rising interest rates. Such limitations can
result in Scheduled Payments which are greater or less than the
amount necessary to amortize a Negatively Amortizing ARM by its
original maturity at the mortgage rate in effect during any
particular adjustment period. In the event that the Scheduled
Payment is not sufficient to pay the interest accruing on a
Negatively Amortizing ARM, then the Deferred Interest is added to
the principal balance of such ARM causing the negative
amortization thereof, and will be repaid through future Scheduled
Payments. If specified in the related Prospectus Supplement,
Negatively Amortizing ARMs may provide for the extension of their
original stated maturity to accommodate changes in their mortgage
rate. The relevant Prospectus Supplement will specify whether
the ARMs comprising or underlying the Mortgage Assets are
Negatively Amortizing ARMs.
Unless otherwise specified in the related Prospectus
Supplement, the index applicable to any ARMs comprising the
Mortgage Assets (the "Index") will be one-month LIBOR, six-month
LIBOR, the three-year Treasury Index, the one-year Treasury
Index, the six-month Treasury Index or the Eleventh District
Costs of Funds Index. If applicable, the Prospectus Supplement
for each Series will specify the Index to be used with respect to
any Mortgage Loans underlying such Series.
Each Mortgage Loan may be fully amortizing or require a
substantial payment (a "Balloon Payment") due on its stated
maturity date, in each case as described in the related
Prospectus Supplement. Each such Mortgage Loan may contain
prohibitions on prepayment (a "Lock-out Period" and the date of
expiration thereof, a "Lock-out Date") or require payment of a
premium or a yield maintenance penalty (a "Prepayment Premium")
in connection with a prepayment, in each case as described in the
related Prospectus Supplement. In the event that holders of any
Class or Classes of Certificates offered hereby will be entitled
to all or a portion of any Prepayment Premiums collected in
respect of Mortgage Loans the related Prospectus Supplement will
specify the method or methods by which any such amounts will be
allocated.
Mortgage Loans secured by Multifamily Properties are
markedly different from owner-occupied single family home
mortgage loans. The repayment of loans secured by Multifamily
Properties is typically dependent upon the successful operation
of such property rather than upon the liquidation value of the
real estate. Unless otherwise specified in the Prospectus
Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the lender may look only to the
net operating income from the property for repayment of the
mortgage debt, and not to any other of the Mortgagor's assets, in
the event of the Mortgagor's default. Lenders typically look to
the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of
default on such loan. The "Debt Service Coverage Ratio" of a
Mortgage Loan at any given time is the ratio of the net operating
income for a twelve-month period to the annualized scheduled
payments on the Mortgage Loan. "Net operating income" means, for
any given period, unless otherwise specified in the related
Prospectus Supplement, the total operating revenues derived from
a Mortgage Property during such period, minus the total operating
expenses incurred in respect of such Mortgage Properties during
such period other than (i) non-cash items such as depreciation
and amortization, (ii) capital expenditures and (iii) debt
service on loans secured by the Mortgaged Properties. The net
operating income of Mortgaged Properties will fluctuate over time
and may be sufficient or insufficient to the cover debt service
on the related Mortgage Loan at any given time.
The related Prospectus Supplement for each Series will
provide information with respect to the Mortgage Loans as of the
Cut-off Date, including, among other things, (a) the aggregate
principal balance of the Mortgage Loans; (b) the weighted average
mortgage rate on the Mortgage Loans, and, in the case of ARMs,
the weighted average of the current mortgage rates and the
Lifetime Mortgage Rate Caps, if any; (c) the average principal
balance of the Mortgage Loans; (d) the weighted average remaining
term-to-stated maturity of the Mortgage Loans and the range of
remaining terms-to-stated maturity; (e) the range of
Loan-to-Value Ratios of the Mortgage Loans; (f) the relative
percentage (by principal balance as of the Cut-off Date) of
Mortgage Loans that are ARMs, (g) any special hazard insurance
policy or other credit support relating to the Mortgage Loans;
and (h) the geographic distribution of the Mortgaged Properties
securing the Mortgage Loans. The related Prospectus Supplement
will also specify any other limitations on the types or
characteristics of Mortgage Loans which may comprise or underlie
the Mortgage Assets for a Series.
If information of the nature described above respecting the
Mortgage Loans is not known to the Depositor at the time the
Certificates are initially offered, more general information of
the nature described above will be provided in the Prospectus
Supplement and the final specific information will be set forth
in a Current Report on Form 8-K to be available to investors on
the date of issuance of the related Series and to be filed with
the Commission within 15 days after the initial issuance of such
Certificates.
Forward Commitments: Pre-Funding Account
If specified in the Prospectus Supplement relating to any
Series, the Trustee or the Master Servicer may, on behalf of the
related Trust Fund, enter into an agreement (each, a "Forward
Purchase Agreement") with the Depositor whereby the Depositor
will agree to transfer additional Mortgage Loans to such Trust
Fund following the date on which such Trust Fund is established
and the related Certificates are issued. The Trust Fund may
enter into Forward Purchase Agreements to permit the acquisition
of additional Mortgage Loans that could not be delivered by the
Depositor or have not formally completed the origination process,
in each case prior to the date on which the Certificates are
delivered to the Certificateholders (the "Closing Date"). Any
Forward Purchase Agreement will require that any Mortgage Loans
so transferred to a Trust Fund conform to the requirements
specified in such Forward Purchase Agreement. If a Forward
Purchase Agreement is to be utilized, the Trustee will be
required to deposit in a segregated account (each, a "Pre-Funding
Account") all or a portion of the proceeds received by the
Trustee in connection with the sale of one or more classes of
Certificates of the related Series; the additional Mortgage Loans
will be transferred to the related Trust Fund in exchange for
money released to the Depositor from the related Pre-Funding
Account. Each Forward Purchase Agreement will set a specified
period during which any such transfers must occur. The Forward
Purchase Agreement or the related Agreement will require that, if
all moneys originally deposited to such Pre-Funding Account are
not so used by the end of such specified period, then any
remaining moneys will be applied as a mandatory prepayment of the
related class or classes of Certificates as specified in the
related Prospectus Supplement. The specified period for the
acquisition by a Trust Fund of additional Mortgage Loans will not
exceed three months from the date such Trust Fund is established.
Collection Account and Certificate Account
A separate Collection Account for each Series will be
established by the Master Servicer in the name of the Trustee for
deposit of all distributions received with respect to the
Mortgage Assets for such Series, all Advances, the amount of cash
to be initially deposited therein, if any, reinvestment income
thereon and certain other amounts required to be deposited
therein pursuant to the Pooling and Servicing Agreement. Any
reinvestment income or other gain from investments of funds in
the Collection Account will be credited to such Collection
Account, and any loss resulting from such investments will be
charged to such Collection Account. Such reinvestment income
may, however, be payable to the Master Servicer or to a Servicer
as additional servicing compensation. See "SERVICING OF MORTGAGE
LOANS" and "THE POOLING AND SERVICING AGREEMENTS-Investment of
Funds." In such a case, such reinvestment income would not be
included in calculation of the Available Distribution Amount.
See "DESCRIPTION OF THE CERTIFICATES-Distributions on the
Certificates."
Funds on deposit in the Collection Account will be available
for deposit into the Certificate Account for certain payments
provided for in the Pooling and Servicing Agreement. Amounts in
the Collection Account constituting reinvestment income which is
payable to the Master Servicer as additional servicing compensa-
tion or for the reimbursement of advances or expenses, amounts in
respect of any Servicing Fee, Retained Interest, and amounts to
be deposited into any reserve fund will generally not be included
in determining amounts to be remitted to the Trustee for deposit
into the Certificate Account.
A separate Certificate Account will be established by the
Trustee or by the Master Servicer, in either case in the name of
the Trustee for the benefit of the Certificateholders into which
all funds received from the Master Servicer and all required
withdrawals from any reserve funds for such Series will be
deposited, pending distribution to the Certificateholders. Any
reinvestment income or other gain from investments of funds in
the Certificate Account will be credited to the Certificate
Account and any loss resulting from such investments will be
charged to such Certificate Account. Such reinvestment income,
may, however, be payable to the Master Servicer as additional
servicing compensation. On each Distribution Date, all funds on
deposit in the Certificate Account, subject to certain permitted
withdrawals by the Trustee as set forth in the Pooling and
Servicing Agreement, will be available for remittance to the
Certificateholders; provided, that if it is specified in the
related Prospectus Supplement that the Certificate Account will
be maintained by the Master Servicer in the name of the Trustee,
then, prior to each Distribution Date, funds in the Certificate
Account will be transferred to a separate account established by
and in the name of the Trustee from which the funds on deposit
therein will, subject to permitted withdrawals by the Trustee as
specified above, be available for remittance to the
Certificateholders. See also "THE POOLING AND SERVICING
AGREEMENTS-Certificate Account."
Other Funds or Accounts
A Trust Fund may include certain other funds and accounts or
a security interest in certain funds and accounts for the purpose
of, among other things, paying certain administrative fees and
expenses of the Trust Fund and accumulating funds pending their
distribution. Certain funds may be established with the Trustee
with respect to other Mortgage Loans having special payment
features included in the Trust Fund in addition to or in lieu of
any such similar funds to be held by the Servicer. See
"SERVICING OF MORTGAGE LOANS-Payments on Mortgage Loans; Deposits
to Collection Accounts."
LOAN UNDERWRITING PROCEDURES AND STANDARDS
Underwriting Standards
The Depositor expects that all Mortgage Loans comprising the
Mortgage Assets for a Series will have been originated in
accordance with the underwriting procedures and standards
described herein. Any material variations from the underwriting
procedures and standards described herein will be described in
the related Prospectus Supplement. The originator of the
Mortgage Loans (or another entity specified in the related
Prospectus Supplement) will make representations and warranties
concerning compliance with such underwriting procedures and stan-
dards.
Mortgage Loans will have been originated by Quality Mortgage
USA, Inc., or other affiliates of the Depositor, or a mortgage
lender which is a savings and loan association, savings bank,
commercial bank, credit union, insurance company or similar
institution which is supervised and examined by a federal or
state authority or by a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Sections 203 and 211 of
the National Housing Act or a wholly-owned subsidiary thereof.
The originator of a Loan will have applied underwriting
procedures intended to evaluate the borrower's credit standing
and repayment ability and the value and adequacy of the related
property as collateral. FHA Loans will have been originated in
compliance with the underwriting policies of FHA.
Each borrower will have been required to complete an
application designed to provide to the original lender pertinent
credit information about the borrower. As part of the
description of the borrower's financial condition, the borrower
will have furnished, among other things, information with respect
to its assets, liabilities, income, credit history, employment
history and personal information, and an authorization to apply
for a credit report which summarizes the borrower's credit
history with local merchants and lenders and any record of
bankruptcy. If the borrower was self-employed, the borrower will
have been required to submit copies of recent tax returns. The
borrower may also have been required to authorize verifications
of deposits at financial institutions where the borrower had
demand or savings accounts. Information concerning operating
income and expenses will have been obtained from the borrower
showing operating income and expenses during the preceding three
calendar years. Certain considerations may cause an originator
of Mortgage Loans to depart from these guidelines. For example,
when two individuals co-sign the loan documents, the incomes and
expenses of both individuals may be included in the computation.
The adequacy of the property financed by the related Loan as
security for repayment of such Loan will generally have been
determined by appraisal in accordance with pre-established
appraisal procedure guidelines for appraisals established by or
acceptable to the originator. Appraisers may be staff appraisers
employed by the Loan originator or independent appraisers
selected in accordance with pre-established guidelines
established by the Loan originator. The appraisal procedure
guidelines will have required that the appraiser or an agent on
its behalf to personally inspect the property and to verify that
it was in good condition and that construction, if new, had been
completed. The appraisal will have been based upon a market data
analysis of recent sales of comparable properties and, when
deemed applicable, a replacement cost analysis based on the
current cost of constructing or purchasing a similar property.
To the extent specified in the related Prospectus
Supplement, the Depositor may purchase Mortgage Loans (or
participation interests therein) for inclusion in a Trust Fund
that are underwritten under standards and procedures which vary
from and are less stringent than those described herein. For
instance, Mortgage Loans may be underwritten under a "limited
documentation program," if specified in the Prospectus
Supplement. With respect to such Mortgage Loans, minimal
investigation into the borrowers' credit history and income
profile is undertaken by the originator and such Mortgage Loans
may be underwritten primarily on the basis of an appraisal of the
Mortgaged Property and Loan-to-Value Ratio on origination. Thus,
if the Loan-to-Value Ratio is less than a percentage specified in
the related Prospectus Supplement, the originator may forego
certain aspects of the review relating to monthly income, and
traditional ratios of monthly or total expenses to gross income
may not be applied.
In addition, Mortgage Loans may have been originated in
connection with a governmental program under which underwriting
standards were significantly less stringent and designed to
promote home ownership or the availability of affordable
residential rental property notwithstanding higher risks of
default and losses. The related Prospectus Supplement will
specify the underwriting standards applicable to such Mortgage
Loans.
The underwriting standards applied by the Mortgage Loan
originator require that the underwriting officers be satisfied
that the value of the property being financed, as indicated by an
appraisal, currently supports and is anticipated to support in
the future the outstanding loan balance, and provides sufficient
value to mitigate the effects of adverse shifts in real estate
values. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS."
Loss Experience
The general appreciation of real estate values experienced
in the past has been a factor in limiting the general loss
experience on multifamily mortgage loans. However, there can be
no assurance that the past pattern of appreciation in value of
the real property securing such Mortgage Loans will continue.
Further, there is no assurance that appreciation of real estate
values generally will limit loss experiences on non-traditional
housing such as Multifamily Property. Similarly, no assurance
can be given that the value of the Mortgaged Property securing a
Mortgage Loan has remained or will remain at the level existing
on the date of origination of such Mortgage Loan. If the
residential real estate market should experience an overall
decline in property values such that the outstanding balances of
the Mortgage Loans and any secondary financing on the Mortgaged
Properties securing such Mortgage Loans become equal to or
greater than the value of such Mortgaged Properties, then the
actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage
lending industry. See "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS."
Mortgage Loans secured by Multifamily Property may also be
more susceptible to losses due to changes in local and regional
economic conditions than Mortgage Loans secured by single family
property. For example, unemployment resulting from an economic
downturn in local industry may sharply affect occupancy rates.
Also, interest rate fluctuations can make home ownership a more
attractive alternative to renting, causing occupancy rates and
market rents to decline. New construction can create an
oversupply, particularly in a market that has experienced high
vacancy rates.
To the extent that losses resulting from delinquencies,
losses and foreclosures or repossession of Mortgaged Property
with respect to Mortgage Loans included in the Mortgage Assets
for a Series of Certificates are not covered by the methods of
credit support or the insurance policies described herein or in
the related Prospectus Supplement, such losses will be borne by
Holders of the Certificates of such Series. Even where credit
support covers all losses resulting from delinquency and
foreclosure or repossession, the effect of foreclosures and
repossessions may be to increase prepayment experience on the
Mortgage Assets, thus reducing average weighted life and
affecting yield to maturity. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS."
Representations and Warranties
Unless otherwise specified in the related Prospectus
Supplement or in the Pooling and Servicing Agreement, the
Depositor will represent and warrant to the Trustee with respect
to the Mortgage Loans comprising the Mortgage Assets in a Trust
Fund, upon delivery of the Mortgage Loans to the Trustee
hereunder, among other things, that, based upon representations
and warranties of the originator of the Mortgage Loans: (i) the
information set forth in the Final Mortgage Loan Schedule is
complete, true and correct as of the Cut-off Date; (ii) it had
good title to the Mortgage Note and the Mortgage and it was the
sole owner of each of the Mortgage Loans free and clear of any
and all liens, claims, pledges, charges or security interests of
any nature (other than any junior lien on the Mortgaged Property
encumbered by the related Mortgage) and has full right and
authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the same;
(iii) each Mortgage evidences a valid and enforceable first or
second lien on the property therein described, except for Liens
for real estate taxes and special assessments not yet due and
payable and, covenants, conditions and restrictions, rights of
way, easements and other matters of the public record as of the
date of recording which are acceptable to mortgage lending
institutions generally, or which are specifically referred to or
otherwise considered in the appraisal made for the originator of
the Mortgage Loan, or which do not adversely affect the appraised
value of the Mortgaged Property as set forth in such appraisal,
and other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage; (iv) no
instrument of release or waiver has been executed in connection
with the Mortgage Loan, and no Mortgagor has been released, in
whole or in part, except in connection with an assumption
agreement which has been approved by the primary mortgage
guaranty insurer, if any, and which has been delivered to the
Trustee; (v) to the best of the Depositor's knowledge, there is
no proceeding pending or threatened for the total or partial
condemnation of the Mortgaged Property, nor is such a proceeding
currently occurring, and as of the Closing Date such property to
the best of the Depositor's knowledge, is free of material damage
and is in at least adequate repair; (vi) to the best of the
Depositor's knowledge, there are no mechanics' or similar liens
or claims which have been filed for work, labor or material (and,
to the best of the Depositor's knowledge, no rights are
outstanding that under law could give rise to such lien)
affecting the Mortgaged Property which are, or may be, liens
prior or equal to, the lien of the Mortgage (except those that
are insured by the original title insurance policy; (vii) to the
best of the Depositor's knowledge, all of the improvements which
were included for the purpose of determining the appraised value
of the Mortgaged Property lie wholly within the boundaries and
building restriction lines of such property or are insured
against, and no improvements on adjoining properties encroach
upon the Mortgaged Property, unless, in either case, an agreement
permitting such encroachment is recorded in the applicable real
property records and such agreement was taken into account in
conducting the appraisal of the Mortgaged Property; (viii) the
Depositor has no knowledge of any circumstances or conditions
with respect to the Mortgage, the Mortgaged Property, the
Mortgagor or the Mortgagor's credit standing which would cause
investors to regard the Mortgage Loan as an unacceptable
investment, cause the Mortgage Loan to become delinquent, or
materially and adversely affect the value or marketability of the
Mortgage Loan; (ix) to the best of the Depositor's knowledge, no
improvement considered in determining the appraisal value located
on or being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation. All inspections, licenses
and certificates required to be made or issued with respect to
the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates,
have been made or obtained from the appropriate authorities and
the Mortgaged Property is lawfully occupied under applicable law;
(x) each appraisal is on a form acceptable to FNMA or FHLMC with
such riders as are acceptable to FNMA and FHLMC, as the case may
be; (xi) the Mortgage Note and the related Mortgage are genuine,
and, to the best of the Depositor's knowledge, each is the legal,
valid and binding obligation of the maker thereof, enforceable in
accordance with its terms, such enforceability being subject to
bankruptcy, insolvency, moratorium or other laws affecting the
rights of creditors generally, and to general principles of
equity. To the best of the Depositor's knowledge, all parties to
the Mortgage Note and the Mortgage had legal capacity to execute
the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage have been duly and properly executed by such parties;
(xii) any and all requirements of any federal, state or local law
including, without limitation, usury, truth-in-lending, real
estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage
Loan have been complied with in all material respects; (xiii) the
proceeds of the Mortgage Loan have been fully disbursed, there is
no requirement for future advances thereunder and any and all
requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor
have been complied with. All costs, fees and expenses incurred
in making, or closing or recording the Mortgage Loans were paid;
(xiv) a lender's policy of title insurance or a commitment
(binder) to issue the same was effective on the date of the
origination of each Mortgage Loan, each such policy is valid and
remains in full force and effect and each such policy was issued
by a title insurer acceptable to FNMA or FHLMC and in a form
acceptable to FNMA or FHLMC; (xv) all improvements upon the
Mortgaged Property are insured by a generally acceptable insurer
against loss by fire, hazards of extended coverage and such other
hazards as are customary in the area where the Mortgaged Property
is located, pursuant to insurance policies conforming to the
requirements of the related Pooling and Servicing Agreement;
(xvi) there is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the
Mortgagor to pay the unpaid principal of or interest on such
Mortgage Note, and any applicable right of rescission has
expired; (xvii) the Mortgage Loan was originated by the Depositor
or by a savings and loan association, savings bank, commercial
bank, credit union, insurance company, or similar institution
which is supervised and examined by a Federal or State authority,
or by a mortgagee approved by the Secretary of HUD or
subsequently acquired by the Depositor from such originator;
(xviii) the Mortgage contains a customary "due on sale" clause;
(xix) the Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of
the benefits of the security, including, (y) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and
(z) otherwise by judicial foreclosure. The Depositor has no
knowledge of any homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the
Mortgaged Property as a trustee's sale or the right to foreclose
the Mortgage; (xx) with respect to each Mortgage constituting a
deed of trust, a trustee, duly qualified if required under
applicable law to serve as such, has been properly designated and
currently so serves and is named in such Mortgage, and no fees or
expenses are or will become payable by the Certificateholders to
the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor; and (xxi) any
other representations and warranties respecting the Mortgage
Loans specified in the related Prospectus Supplement or the
related Pooling and Servicing Agreement.
Upon the discovery of the breach of any representation or
warranty made by the Depositor in respect of a Loan that
adversely affects the payments of principal and interest on the
Loan or otherwise adversely and materially affects the value of
such Loan, the Depositor will be obligated to cure such breach in
all material respects, repurchase such Loan from the Trustee, or
deliver a Qualified Substitute Mortgage Loan as described below
under "THE POOLING AND SERVICING AGREEMENTS-Assignment of
Mortgage Assets." See "RISK FACTORS-Limited Obligations and
Assets of the Depositor." The PMBS Trustee (in the case of
Private Mortgage-Backed Securities) or the Trustee, as
applicable, will be required to enforce this obligation following
the practices it would employ in its good faith business judgment
were it the owner of such Loan. If so specified in the related
Prospectus Supplement, the Depositor may be obligated to enforce
such obligations rather than the Trustee or PMBS Trustee.
SERVICING OF MORTGAGE LOANS
General
Customary servicing functions with respect to Mortgage Loans
constituting the Mortgage Assets in the Trust Fund will be
provided by the Master Servicer directly or through one or more
servicers (the "Servicers") subject to supervision by the Master
Servicer. If the Master Servicer is not directly servicing the
Mortgage Loans, then the Master Servicer will (i) administer and
supervise the performance by the Servicers of their servicing
responsibilities under their servicing agreements ("Servicing
Agreements") with the Master Servicer, (ii) maintain any standard
or special hazard insurance policy required for the related
Mortgage Loans and (iii) advance funds as described below under
"Advances." If the Master Servicer services the Mortgage Loans
through Servicers as its agents, the Master Servicer will be
ultimately responsible for the performance of all servicing
activities, including those performed by the Servicers
notwithstanding its delegation of certain responsibilities to
such Servicers.
The Master Servicer will be a party to the Pooling and
Servicing Agreement for any Series for which Mortgage Loans
comprise the Mortgage Assets and may be a party to a
Participation Agreement executed with respect to any
Participation Certificates which constitute the Mortgage Assets.
The Master Servicer may be the Depositor or an affiliate of the
Depositor. The Master Servicer will be paid a Servicing Fee for
the performance of its services and duties under each Pooling and
Servicing Agreement as specified in the related Prospectus
Supplement. Each Servicer, if any, will be entitled to receive a
portion of the Servicing Fee. In addition, the Master Servicer
or Servicer may be entitled to retain late charges, assumption
fees and similar charges to the extent collected from mortgagors.
If a Servicer is terminated by the Master Servicer, the servicing
function of the Servicer will be either transferred to a
substitute Servicer or performed by the Master Servicer. The
Master Servicer will be entitled to retain the portion of the
Servicing Fee paid to the Servicer under a terminated Servicing
Agreement if the Master Servicer elects to perform such servicing
functions itself.
The Master Servicer, at its election, may pay itself the
Servicing Fee for a Series with respect to each Mortgage Loan
either by (a) withholding the Servicing Fee from any scheduled
payment of interest prior to the deposit of such payment in the
Collection Account for such Series, (b) withdrawing the Servicing
Fee from the Collection Account after the entire Scheduled
Payment has been deposited in the Collection Account, or
(c) requesting that the Trustee pay the Servicing Fee out of
amounts in the Certificate Account.
Collection Procedures; Escrow Accounts
The Master Servicer will make reasonable efforts to collect
all payments required to be made under the Mortgage Loans and
will, consistent with the Pooling and Servicing Agreement for a
Series and any applicable insurance policies and other credit
supports, follow such collection procedures as it follows with
respect to comparable loans held in its own portfolio.
Consistent with the above, the Master Servicer may, in its
discretion, (i) waive any assumption fee, late payment charge, or
other charge in connection with a Loan and (ii) arrange with a
mortgagor a schedule for the liquidation of delinquencies by
extending the Due Dates for Scheduled Payments on such Loan.
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will not establish and maintain
escrow accounts ("Escrow Accounts") in which payments by
borrowers to pay taxes, assessments, mortgage and hazard
insurance premiums, and other comparable items will be deposited.
Deposits to and Withdrawals from the Collection Account
The Collection Account will be an account maintained (i) at
a depository institution or trust company, the long-term
unsecured debt obligations of which at the time of any deposit
therein are rated within the four highest rating categories by
each Rating Agency rating the Certificates of such Series or
(ii) in an account or accounts the deposits in which are insured
to the maximum extent available by the FDIC or which are secured
in a manner meeting requirements established by each Rating
Agency, or (iii) in which such accounts are insured by the FDIC
(to the limits established by the FDIC), the uninsured deposits
in which are otherwise secured that, as evidenced by an opinion
of counsel delivered to the Trustee, the Certificateholders have
a claim with respect to the funds in such account or a perfected
first security interest against any collateral (which shall be
limited to Eligible Investments) securing such funds that is
superior to claims of any other depositors or creditors of the
depository institution or trust company with which such account
is maintained, so long as such account shall not adversely affect
the rating on the Certificates or (iv) any other account
acceptable to each Rating Agency rating the Certificates of the
related Series.
If so specified in the related Prospectus Supplement, the
Collection Account may be maintained as an interest-bearing
account, or the funds held therein may be invested, pending
remittance to the Trustee, in Eligible Investments. Unless
otherwise specified in the related Prospectus Supplement, the
Master Servicer will be entitled to receive as additional
compensation any interest or other income earned on funds in the
Collection Account.
The Master Servicer will deposit into the Collection Account
for each Series on the Business Day following the Closing Date
any amounts representing Scheduled Payments due after the related
Cut-off Date but received by the Master Servicer on or before the
related Cut-off Date, and thereafter, after the date of receipt
thereof, the following payments and collections received or made
by it (other than in respect of principal of and interest on the
related Mortgage Loans due on or before such Cut-off Date):
(i) All payments on account of principal, including
prepayments, on such Mortgage Loans net of any portion of
such payments that represent recoveries of nonrecoverable
Advances;
(ii) All payments on account of interest on such
Mortgage Loans net of any portion thereof retained by the
related Servicer (including the Master Servicer), if any, as
servicing compensation on the Mortgage Loans in accordance
with the related Pooling and Servicing Agreement;
(iii) All Insurance Proceeds and all amounts received by
the Master Servicer in connection with the liquidation of
defaulted Mortgage Loans or property acquired in respect
thereof, whether through foreclosure sale or otherwise,
including payments in connection with such Mortgage Loans
received from the mortgagor, other than amounts required to
be paid to the mortgagor pursuant to the terms of the
applicable Mortgage or otherwise pursuant to law
("Liquidation Proceeds"), exclusive of proceeds to be
applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures, net of
expenses incurred by the Master Servicer (or the related
Servicer) in connection with the liquidation of any
defaulted Mortgage Loan ("Liquidation Expenses"); unpaid
servicing compensation and nonrecoverable Advances in
accordance with the related Pooling and Servicing Agreement;
(iv) All proceeds received of any Mortgage Loans
pursuant to the related Pooling and Servicing Agreement;
(v) All amounts required to be deposited therein in
connection with any losses on Eligible Investments pursuant
to the related Pooling and Servicing Agreement;
(vi) All Advances for such Series made by the Master
Servicer or a Servicer pursuant to the related Pooling and
Servicing Agreement; and
(vii) All other amounts required to be deposited therein
pursuant to the related Pooling and Servicing Agreement.
The Master Servicer will be permitted, from time to time, to
make withdrawals from the Collection Account for each Series for
the following purposes:
(i) to reimburse itself for Advances for such Series
made by it pursuant to the related Pooling and Servicing
Agreement; the Master Servicer's right to reimburse itself
being limited to amounts received on or in respect of
particular Mortgage Loans (including, for this purpose,
Liquidation Proceeds and amounts representing proceeds of
insurance policies covering the related Mortgaged Property)
which represent late recoveries of Scheduled Payments
respecting which any such Advance was made;
(ii) to reimburse itself for any Advances for such
Series that the Master Servicer determines in good faith it
will be unable to recover from amounts representing late
recoveries of Scheduled Payments respecting which such
Advance was made or from Liquidation Proceeds or the
proceeds of insurance policies;
(iii) to reimburse itself from Liquidation Proceeds for
Liquidation Expenses and for amounts expended by it in good
faith in connection with the restoration of damaged
Mortgaged Property and, to the extent that Liquidation
Proceeds after such reimbursement are in excess of the
outstanding principal balance of the related Loan, together
with accrued and unpaid interest thereon at the applicable
weighted average Certificate Rate to the Due Date next
succeeding the date of its receipt of such Liquidation
Proceeds, to pay to itself out of such excess the amount of
any unpaid servicing compensation with respect to the
related Mortgage Loan and to pay any unpaid servicing
compensation to the Servicer;
(iv) to pay to itself as servicing compensation that
portion of any payment as to interest that equals the
Servicing Fee with respect to such Mortgage Loan for the
period with respect to which such interest payment was made,
and, as additional servicing compensation, earnings on or
investment income with respect to funds credited to the
Collection Account;
(v) to reimburse itself from Insurance Proceeds for
insurance expenses and to pay any unpaid servicing
compensation to itself, such payment of servicing
compensation to be made in accordance with the related
Pooling and Servicing Agreement and being limited to the
amount, if any, by which the aggregate of Liquidation
Proceeds and Insurance Proceeds received in connection with
the liquidation of a defaulted Mortgage Loan is, after the
deduction of insurance expenses, and servicing compensation
payable to the Servicer of such Mortgage Loan, if any, in
excess of the outstanding principal balance of such Mortgage
Loan, together with accrued and unpaid interest thereon at
the applicable weighted average Certificate Rate;
(vi) to pay to itself, a Servicer or the Depositor, as
the case may be, with respect to each Mortgage Loan or
property acquired in respect thereof that has been
repurchased pursuant to the Pooling and Servicing Agreement,
all amounts received thereon and not taken into account in
determining the related outstanding principal balance of
such repurchased Mortgage Loan;
(vii) to reimburse itself or the Depositor for expenses
incurred by and reimbursable to it or the Depositor with
respect to indemnification;
(viii) to make payments to certain Certificateholders in
the manner specified in the Pooling and Servicing Agreement;
(ix) to withdraw any amount deposited in the Collection
Account and not required to be deposited therein; and
(x) to clear and terminate the Collection Account
pursuant to the related Pooling and Servicing Agreement.
Servicing Accounts
In those cases where a Servicer is servicing a Mortgage
Loan, the Servicer will establish and maintain an account (a
"Servicing Account") that will comply with the standards set
forth above, and which is otherwise acceptable to the Master
Servicer. The Servicer is required to deposit into the Servicing
Account all proceeds of Mortgage Loans received by the Servicer,
subject to withdrawal to the extent permitted by the applicable
servicing agreement. On the date specified in the related
Prospectus Supplement, the Servicer will remit to the Master
Servicer all funds held in the Servicing Account with respect to
each Mortgage Loan consisting of an amount equal to the sum of
(i) all amounts received by the Servicer with respect to the
Mortgage Loans serviced by it as of the Servicer Remittance Date,
except (a) any monthly payment prepaid for a Due Date subsequent
to the month in which the Servicer Remittance Date occurs,
(b) any amounts received by such Servicer with respect to such
Mortgage Loans that constitute a late recovery with respect to an
advance previously made by such Servicer with respect to such
Mortgage Loans, and (c) any Retained Interest payable to such
Servicer under the terms of such servicing agreement; (ii) all
partial principal Prepayments received in the calendar month
prior to the month of the Servicer Remittance Date or applied as
of the Due Date in the month of the Servicer Remittance Date;
(iii) all principal Prepayments in full received in the calendar
month prior to the month of the Servicer Remittance Date, in each
case together with interest received thereon through the date of
prepayment at the applicable Mortgage Rate (net of the related
servicing compensation and any Retained Interest payable to such
Servicer under the terms of such servicing agreement) whether or
not received from the Mortgagor; and (iv) all Insurance Proceeds
and Liquidation Proceeds (net of Liquidation Expenses) received
in the calendar month prior to the month of the Servicer
Remittance Date. The Servicer may deduct from each remittance,
as provided above, an amount to the extent not previously paid to
or retained by it. The Servicer may, to the extent described in
the related Prospectus Supplement, be required to advance any
monthly installment of principal and interest that was not
received, less its servicing fee, by the date specified in the
related Prospectus Supplement.
Advances and Limitations Thereon
General. The related Prospectus Supplement will describe
the circumstances under which the Master Servicer or Servicer
will make Advances with respect to delinquent payments on
Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, neither the Master Servicer nor any
Servicer will be obligated to make Advances, and such obligation
may be limited in amount, may be limited to advances received
from the Servicers, if any, or may not be activated until a
certain portion of a specified reserve fund is depleted. If the
Master Servicer is obligated to make Advances, a surety bond or
other credit support may be provided with respect to such
obligation as described in the related Prospectus Supplement.
Advances are intended to provide liquidity and not to guarantee
or insure against losses. Accordingly, any funds advanced are
recoverable by the Servicer or the Master Servicer, as the case
may be, out of amounts received on particular Mortgage Loans
which represent late recoveries of principal or interest,
proceeds of insurance polices or Liquidation Proceeds respecting
which any such Advance was made. If an Advance is made and
subsequently determined to be nonrecoverable from late
collections, proceeds of insurance polices or Liquidation
Proceeds from the related Loan, the Servicer or Master Servicer
will be entitled to reimbursement from other funds in the
Certificate Account, Collection Account or Servicing Account, as
the case may be, or from a specified reserve fund as applicable,
to the extent specified in the related Prospectus Supplement.
Advances in Connection With Prepaid Mortgage Loans. In
addition when a borrower makes a principal prepayment in full
between Due Dates on the related Loan, the borrower will
generally be required to pay interest on the principal amount
prepaid only to the date of such prepayment. If and to the
extent provided in the related Prospectus Supplement, in order
that one or more Classes of the Certificateholders of a Series
will not be adversely affected by any resulting shortfall in
interest, the Master Servicer may be obligated to advance moneys
from its own funds up to an amount otherwise payable to it as
servicing compensation for such month to the extent necessary to
include in its remittance to the Trustee for deposit into the
Certificate Account an amount equal to a full Scheduled Payment
of interest on the related Loan (adjusted to the applicable
weighted average Certificate Rate). Any such principal
prepayment, together with a full Scheduled Payment of interest
thereon at the applicable Certificate Rates (to the extent of
such adjustment or advance), will be distributed to
Certificateholders on the related Distribution Date. If the
amount necessary to include a full Scheduled Payment of interest
as described above exceeds the amount which the Master Servicer
is obligated to advance, as applicable, a shortfall may occur as
a result of a prepayment in full. See "YIELD, PREPAYMENT AND
MATURITY CONSIDERATIONS."
Maintenance of Insurance Policies and Other Servicing Procedures
Standard Hazard Insurance; Flood Insurance. The Master
Servicer will be required to maintain or to cause the borrower on
each Loan to maintain or will use its best reasonable efforts to
cause each Servicer of a Loan to maintain a standard hazard
insurance policy providing coverage of the standard form of fire
insurance with extended coverage for certain other hazards as is
customary in the state in which the property securing the related
Loan is located. See "DESCRIPTION OF MORTGAGE AND OTHER
INSURANCE." Unless otherwise specified in the related Prospectus
Supplement, coverage will be in an amount at least equal to the
greater of (i) the amount necessary to avoid the enforcement of
any co-insurance clause contained in the policy or (ii) the
outstanding principal balance of the related Loan. The Master
Servicer will also maintain on REO Property that secured a
defaulted Loan and that has been acquired upon foreclosure, deed
in lieu of foreclosure, or repossession, a standard hazard
insurance policy in an amount that is at least equal to the
maximum insurable value of such REO Property. No earthquake or
other additional insurance will be required of any borrower or
will be maintained on REO Property acquired in respect of a
defaulted Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and shall require
such additional insurance. When, at the time of origination of a
Loan, the property securing that Loan is located in a federally
designated special flood hazard area, the Master Servicer will
cause to be maintained or use its best reasonable efforts to
cause the Servicer to maintain with respect to such property
flood insurance as required under the Flood Disaster Protection
Act of 1973, to the extent available, or as described in the
related Prospectus Supplement.
Any amounts collected by the Master Servicer or the
Servicer, as the case may be, under any such policies of
insurance (other than amounts to be applied to the restoration or
repair of the Mortgaged Property, released to the borrower in
accordance with normal servicing procedures or used to reimburse
the Master Servicer for amounts to which it is entitled to
reimbursement) will be deposited in the Collection Account. In
the event that the Master Servicer obtains and maintains a
blanket policy insuring against hazard losses on all of the
Mortgage Loans, written by an insurer then acceptable to each
Rating Agency which assigns a rating to such Series, it will
conclusively be deemed to have satisfied its obligations to cause
to be maintained a standard hazard insurance policy for each Loan
or related REO Property. This blanket policy may contain a
deductible clause, in which case the Master Servicer will, in the
event that there has been a loss that would have been covered by
such policy absent such deductible clause, deposit in the
Collection Account the amount not otherwise payable under the
blanket policy because of the application of such deductible
clause.
Special Hazard Insurance Policy. If, and to the extent
specified in the related Prospectus Supplement, the Master
Servicer will maintain a special hazard insurance policy, in the
amount set forth in the related Prospectus Supplement, in full
force and effect with respect to the Mortgage Loans. The Master
Servicer will agree to pay the premium for any special hazard
insurance policy on a timely basis. If the special hazard
insurance policy is canceled or terminated for any reason (other
than the exhaustion of total policy coverage), the Master
Servicer will exercise its best reasonable efforts to obtain from
another insurer a replacement policy comparable to the special
hazard insurance policy with a total coverage which is equal to
the then existing coverage of the terminated special hazard
insurance policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated
special hazard insurance policy, the amount of coverage under the
replacement policy will, unless otherwise specified in the
related Prospectus Supplement, be reduced to a level such that
the applicable premium does not exceed 150% of the cost of the
special hazard insurance policy that was replaced. Any amounts
collected by the Master Servicer under the special hazard
insurance policy in the nature of insurance proceeds will be
deposited in the Collection Account (net of amounts to be used to
repair, restore or replace the related property securing the Loan
or to reimburse the Master Servicer (or a Servicer) for related
amounts owed to it). Certain characteristics of the special
hazard insurance policy are described under "DESCRIPTION OF
MORTGAGE AND OTHER INSURANCE-Hazard Insurance on the Mortgage
Loans."
FHA Insurance. To the extent specified in the related
Prospectus Supplement, all or a portion of the Mortgage Loans may
be insured by the FHA. The Master Servicer will be required to
take such steps as are reasonably necessary to keep such
insurance and guarantees in full force and effect. See
"DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-Mortgage Insurance
on the Mortgage Loans."
Presentation of Claims; Realization Upon Defaulted Mortgage Loans
The Master Servicer, on behalf of the Trustee and the
Certificateholders, will be required to present or cause to be
presented, claims with respect to any standard hazard insurance
policy or special hazard insurance policy, and to the FHA, if
applicable in respect of any FHA insurance respecting defaulted
Mortgage Loans.
The Master Servicer will use its reasonable best efforts to
foreclose upon, repossess or otherwise comparably convert the
ownership of the real properties securing such of the related
Mortgage Loans as come into and continue in default and as to
which no satisfactory arrangements can be made for collection of
delinquent payments. In connection with such foreclosure or
other conversion, the Master Servicer will follow such practices
and procedures as it deems necessary or advisable and as are
normal and usual in its servicing activities with respect to
comparable loans serviced by it. However, the Master Servicer
will not be required to expend its own funds in connection with
any foreclosure or towards the restoration of the property unless
it determines: (i) that such restoration or foreclosure will
increase the Liquidation Proceeds in respect of the related
Mortgage Loan available to the Certificateholders after
reimbursement to itself for such expenses and (ii) that such
expenses will be recoverable by it either through Liquidation
Proceeds or the proceeds of insurance. Notwithstanding anything
to the contrary herein, in the case of a Trust Fund for which a
REMIC election has been made, the Master Servicer shall not
liquidate any collateral acquired through foreclosure later than
one year after the acquisition of such collateral. While the
holder of Mortgaged Property acquired through foreclosure can
often maximize its recovery by providing financing to a new
purchaser, the Trust Fund will have no ability to do so and
neither the Master Servicer nor any Servicer will be required to
do so.
Similarly, if any property securing a defaulted Mortgage
Loan is damaged and proceeds, if any, from the related standard
hazard insurance policy or the applicable special hazard
insurance policy, if any, are insufficient to restore the damaged
property to a condition sufficient to permit recovery under any
FHA insurance, neither the Master Servicer nor any Servicer will
be required to expend its own funds to restore the damaged
property unless it determines (i) that such restoration will
increase the Liquidation Proceeds in respect of the Mortgage Loan
after reimbursement of the expenses incurred by such Servicer or
the Master Servicer and (ii) that such expenses will be
recoverable by it through proceeds of the sale of the property or
proceeds of the related FHA insurance.
The market value of any property obtained in foreclosure or
by deed in lieu of foreclosure with respect to a Mortgage Loan
secured by Multifamily Property will be based substantially on
the operating income obtained by renting the dwelling units. As
a default on a Mortgage Loan secured by Multifamily Property is
likely to have occurred because operating income, net of
expenses, is insufficient to make debt service payments on the
related Mortgage Loan, it can be anticipated that the market
value of such property will be less than anticipated when such
Loan was originated. To the extent that equity does not cushion
the loss in market value and such loss is not covered by other
credit support, a loss may be experienced by the related Trust
Fund.
Enforcement of Due-on-Sale Clauses
When any Mortgaged Property is about to be conveyed by the
borrower, the Master Servicer will, to the extent it has
knowledge of such prospective conveyance and prior to the time of
the consummation of such conveyance, exercise the Trustee's right
to accelerate the maturity of such Loan under the applicable
"due-on-sale" clause, if any, unless the Master Servicer
reasonably believes that such clause is not enforceable under
applicable law. If such conditions are not met or the Master
Servicer reasonably believes that enforcement of a due-on-sale
clause will not be enforceable, the Master Servicer is authorized
to accept from or enter into an assumption agreement, on behalf
of the Trustee, with the person to whom such property has been or
is about to be conveyed, pursuant to which such person becomes
liable under the Loan and pursuant to which the original borrower
is released from liability and such person is substituted as the
borrower and becomes liable under the Loan. Any fee collected in
connection with an assumption will be retained by the Master
Servicer as additional servicing compensation. The terms of a
Loan may not be changed in connection with an assumption except
that, if the terms of the Loan so permit, and subject to certain
other conditions, the interest rate may be increased (but not
decreased) to a prevailing market rate. Unless otherwise
specified in the related Prospectus Supplement,
Certificateholders would not benefit from any such increase.
Servicing Compensation and Payment of Expenses
The Master Servicer or any Servicer will be entitled to a
servicing fee in an amount to be determined as specified in the
related Prospectus Supplement. The servicing fee may be fixed or
variable, as specified in the related Prospectus Supplement. The
Master Servicer or any Servicer will also be entitled to
additional servicing compensation, which may include, as
specified in the related Prospectus Supplement, assumption fees,
late payment charges, or excess proceeds following disposition of
property in connection with defaulted Mortgage Loans.
Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will pay the fees including,
without limitation, the payment of the fees and expenses of the
Trustee and independent accountants, payment of insurance policy
premiums and the cost of credit support, if any, payment of
expenses incurred in enforcing the obligations of Servicers and
in preparation of reports to Certificateholders. Certain of
these expenses may be reimbursable pursuant to the terms of the
Pooling and Servicing Agreement from Liquidation Proceeds and the
proceeds of insurance policies and, in the case of enforcement of
the obligations of Servicers, from any recoveries in excess of
amounts due with respect to the related Mortgage Loans or from
specific recoveries of costs.
The Master Servicer will be entitled to reimbursement for
certain expenses incurred by it in connection with the
liquidation of defaulted Mortgage Loans. The related Trust Fund
will suffer no loss by reason of such expenses to the extent
claims are paid under related insurance policies or from the
Liquidation Proceeds. If claims are either not made or paid
under the applicable insurance policies or if coverage thereunder
has been exhausted, the related Trust Fund will suffer a loss to
the extent that Liquidation Proceeds, after reimbursement of the
Master Servicer's expenses, are less than the outstanding
principal balance of and unpaid interest on the related Loan
which would be distributable to Certificateholders. In addition,
the Master Servicer will be entitled to reimbursement of
expenditures incurred by it in connection with the restoration of
property securing a defaulted Loan, such right of reimbursement
being prior to the rights of the Certificateholders to receive
any related proceeds of insurance policies, Liquidation Proceeds
or amounts derived from other credit supports. The Master
Servicer is also entitled to reimbursement from the Collection
Account and the Certificate Account for Advances.
When a borrower makes a principal prepayment in full between
Due Dates on the related Loan, the borrower will generally be
required to pay interest on the amount prepaid only to the date
of prepayment. If and to the extent provided in the related
Prospectus Supplement, in order that one or more Classes of the
Certificateholders of a Series will not be adversely affected by
any resulting shortfall in interest, the amount of the Servicing
Fee may be reduced, to the extent necessary to include in the
Master Servicer's remittance to the Trustee for deposit into the
Certificate Account, an amount equal to a full scheduled payment
of interest on the related Loan (adjusted to the applicable
weighted average Certificate Rate). Any such principal
prepayment, together with a full Scheduled Payment of interest
thereon at the applicable Certificate Rates (to the extent of
such adjustment or advance), will be distributed to
Certificateholders on the related Distribution Date. If the
amount necessary to include a full Scheduled Payment of interest
as described above exceeds the amount of Servicing Fee, a
shortfall to Certificateholders may occur as a result of a
prepayment in full. See "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS."
The rights of the Master Servicer to receive funds from the
Collection Account or the Certificate Account for a Series,
whether as the Servicing Fee or other compensation, or for the
reimbursement of Advances, expenses or otherwise, are not
subordinate to the rights of Certificateholders of such Series.
Evidence as to Compliance
The Pooling and Servicing Agreement for each Series will
provide that each year, a firm of independent public accountants
will furnish a statement to the Trustee to the effect that such
firm has examined certain documents and records relating to the
servicing of the Mortgage Loans by the Master Servicer and that,
on the basis of such examination, such firm is of the opinion
that the servicing has been conducted in compliance with the
Pooling and Servicing Agreement except for (i) such exceptions as
such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement.
The Pooling and Servicing Agreement for each Series will
also provide for delivery to the Trustee for such Series of an
annual Statement signed by an officer of the Master Servicer to
the effect that the Master Servicer has fulfilled its obligations
under the Pooling and Servicing Agreement throughout the
preceding calendar year.
Certain Matters Regarding the Master Servicer
The Master Servicer for each Series will be identified in
the related Prospectus Supplement. The Master Servicer may be
the Depositor or an affiliate of the Depositor and may have other
business relationships with the Depositor and its affiliates.
Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer may not resign from its
obligations and duties under the Pooling and Servicing Agreement
except upon its determination that its duties thereunder are no
longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor Master
Servicer has assumed the Master Servicer's obligations and duties
under the Pooling and Servicing Agreement.
In the event of an Event of Default under the Pooling and
Servicing Agreement, the Master Servicer may be replaced by the
Trustee or a successor Master Servicer. See "THE POOLING AND
SERVICING AGREEMENTS-Rights upon Events of Default."
Each Pooling and Servicing Agreement will also provide that
neither the Master Servicer, nor any director, officer, employee
or agent of the Master Servicer, will be under any liability to
the related Trust Fund or the Certificateholders for any action
taken or for failing to take any action in good faith pursuant to
the Pooling and Servicing Agreement or for errors in judgment;
provided, however, that neither the Master Servicer nor any such
person will be protected against any breach of warranty or
representations made under the Pooling and Servicing Agreement or
the failure to perform its obligations in compliance with any
standard of care set forth in the Pooling and Servicing Agreement
or liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance
of their duties or by reason of reckless disregard of their
obligations and duties thereunder. Each Pooling and Servicing
Agreement will further provide that the Master Servicer and any
director, officer, employee or agent of the Master Servicer is
entitled to indemnification from the related Trust Fund and will
be held harmless against any loss, liability or expense incurred
in connection with any legal action relating to the Pooling and
Servicing Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance,
bad faith or negligence in the performance of duties thereunder
or by reason of reckless disregard of obligations and duties
thereunder, In addition, the Pooling and Servicing Agreement
provides that the Master Servicer is not under any obligation to
appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Pooling
and Servicing Agreement which, in its opinion, may involve it in
any expense or liability. The Master Servicer may, in its
discretion, undertake any such action which it may deem necessary
or desirable with respect to the Pooling and Servicing Agreement
and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event,
the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs, and liabilities of
the Trust Fund and the Master Servicer will be entitled to be
reimbursed therefor out of the Collection Account (or the
Certificate Account, if applicable).
CREDIT SUPPORT
General
For any Series, credit support may be provided with respect
to one or more Classes thereof or the related Mortgage Assets.
Credit support may be in the form of a letter of credit, the
subordination of one or more Classes of the Certificates of such
Series, the establishment of one or more reserve funds, use of a
pool insurance policy, bankruptcy bond, repurchase bond or
special hazard insurance policy, certificate guarantee insurance,
the use of cross-support features or another method of credit
support described in the related Prospectus Supplement, or any
combination of the foregoing, in any case, in such amounts and
having such terms and conditions as are acceptable to each Rating
Agency which assigns a rating to the Certificates of the related
Series.
The credit support 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 at the
Certificate Rate. If losses occur which exceed the amount
covered by credit support or which are not covered by the credit
support, Certificateholders will bear their allocable share of
deficiencies. See "THE POOLING AND SERVICING
AGREEMENTS-Deficiency Event." If credit support is provided with
respect to a Series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the
amount payable under such credit support, (b) any conditions to
payment thereunder not otherwise described herein, (c) the
conditions under which the amount payable under such credit
support may be reduced and under which such credit support may be
terminated or replaced and (d) the material provisions of any
agreement relating to such credit support. Additionally, the
related Prospectus Supplement will set forth certain information
with respect to the issuer of any third-party credit support,
including (a) a brief description of its principal business
activities, (b) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or
licensed to do business, (c) if applicable, the identity of
regulatory agencies which exercise primary jurisdiction over the
conduct of its business and (d) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the
date specified in the Prospectus Supplement.
Subordinate Certificates; Subordination Reserve Fund
One or more Classes of a Series may be Subordinate
Certificates. If so specified in the related Prospectus
Supplement, the rights of the Subordinate Certificateholders to
receive distributions of principal and interest from the
Certificate Account on any Distribution Date will be subordinated
to such rights of the Senior Certificateholders to the extent of
the then applicable Subordinated Amount as defined in the related
Prospectus Supplement. The Subordinated Amount will generally
decrease whenever amounts otherwise payable to the Subordinate
Certificateholders are paid to the Senior Certificateholders
(including amounts withdrawn from the Subordination Reserve Fund,
if any, and paid to the Senior Certificateholders), and will
increase whenever there is distributed to the Subordinate
Certificateholders amounts in respect of which subordination
payments have previously been paid to the Senior
Certificateholders (which will occur when subordination payments
in respect of delinquencies and certain other deficiencies have
been recovered).
A Series may include a Class or Subordinate Certificates
entitled to receive cash flows remaining after distributions made
to all other Classes. Such right will effectively be subordinate
to the rights of other Certificateholders, but will not be
limited to the Subordinated Amount. If so specified in the
related Prospectus Supplement, the subordination of a Class may
apply only in the event of certain types of losses not covered by
insurance policies or other credit support, such as losses
arising from damage to property securing a Loan not covered by
standard hazard insurance policies, losses resulting from the
bankruptcy of a borrower and application of certain provisions of
the Bankruptcy Code, or losses resulting from the denial of
insurance coverage due to fraud or misrepresentation in
connection with the origination of a Loan.
With respect to any Series which includes one or more
Classes of Subordinate Certificates, a Subordination Reserve Fund
may be established. The Subordination Reserve Fund, if any, will
be funded with cash, a letter of credit, a demand note or
Eligible Reserve Fund Investments, or by the retention of amounts
of principal or interest otherwise payable to Holders of
Subordinate Certificates, or both, as specified in the related
Prospectus Supplement. The Subordination Reserve Fund will not
be a part of the Trust Fund, unless otherwise specified in the
related Prospectus Supplement. If the Subordination Reserve Fund
is not a part of the Trust Fund, the Trustee will have a security
interest therein on behalf of the Senior Certificateholders.
Moneys will be withdrawn from the Subordination Reserve Fund to
make distributions of principal of or interest on Senior
Certificates under the circumstances set forth in the related
Prospectus Supplement.
Moneys deposited in any Subordination Reserve Fund will be
invested in Eligible Reserve Fund Investments. Any reinvestment
income or other gain from such investments will be credited to
the Subordination Reserve Fund for such Series, and any loss
resulting from such investments will be charged to such
Subordination Reserve Fund. Amounts in any Subordination Reserve
Fund in excess of the Required Reserve Fund Balance may be
periodically released to the Subordinate Certificateholders under
the conditions and to the extent specified in the related
Prospectus Supplement. Additional information concerning any
Subordination Reserve Fund will be set forth in the related
Prospectus Supplement, including the amount of any initial
deposit to such Subordination Reserve Fund, the Required Reserve
Fund Balance to be maintained therein, the purposes for which
funds in the Subordination Reserve Fund may be applied to make
distributions to Senior Certificateholders and the employment of
reinvestment earnings on amounts in the Subordination Reserve
Fund, if any.
Cross-Support Features
If the Mortgage Assets for a Series are divided into
separate Asset Groups, the beneficial ownership of which is
evidenced by a separate Class or Classes of a Series, credit
support may be provided by a cross support feature which requires
that distributions be made on Senior Certificates evidencing the
beneficial ownership of one Asset Group prior to distributions on
Subordinate Certificates evidencing the beneficial ownership
interest in another Asset Group within the Trust Fund. The
related Prospectus Supplement for a Series which includes a
cross-support feature will describe the manner and conditions for
applying such cross-support feature.
Insurance
Credit support with respect to a Series may be provided by
various forms of insurance policies, subject to limits on the
aggregate dollar amount of claims that will be payable under each
such insurance policy, with respect to all Mortgage Loans
comprising or underlying the Mortgage Assets for a Series, or
such of the Mortgage Loans as have certain characteristics. Such
insurance policies include standard hazard insurance, and may
include, if specified in the related Prospectus Supplement, a
special hazard insurance policy covering certain risks not
covered by standard hazard insurance policies, a repurchase bond
covering the repurchase of a Mortgage Loan for which hazard
insurance coverage has been denied due to misrepresentations in
connection with the organization of the related Mortgage Loan, or
other insurance covering other risks associated with the
particular type of Loan. See "DESCRIPTION OF MORTGAGE AND OTHER
INSURANCE." Copies of the actual special hazard insurance policy
or repurchase bond, if any, relating to the Mortgage Loans
comprising the Mortgage Assets for a Series will be filed with
the Commission as an exhibit to a Current Report on Form 8-K to
be filed within 15 days of issuance of the Certificates of the
related Series.
Letter of Credit
The letter of credit, if any, with respect to a Series of
Certificates will be issued by the bank or financial institution
specified in the related Prospectus Supplement (the "L/C Bank").
Under the letter of credit, the L/C Bank will be obligated to
honor drawings thereunder in an aggregate fixed dollar amount,
net of unreimbursed payments thereunder, equal to the percentage
specified in the related Prospectus Supplement of the aggregate
principal balance of the Mortgage Loans on the related Cut-off
Date or of one or more Classes of Certificates. If so specified
in the related Prospectus Supplement, the letter of credit may
permit drawings in the event of losses not covered by insurance
policies or other credit support, such as losses arising from
damage not covered by standard hazard insurance policies, losses
resulting from the bankruptcy of a borrower and the application
of certain provisions of the Bankruptcy Code, or losses resulting
from denial of insurance coverage due to misrepresentations in
connection with the origination of a Loan. The amount available
under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments thereunder. The obligations
of the L/C Bank under the letter of credit for each Series of
Certificates will expire at the earlier of the date specified in
the related Prospectus Supplement or the termination of the Trust
Fund. See "DESCRIPTION OF THE CERTIFICATES-Optional Termination"
and "THE POOLING AND SERVICING AGREEMENTS-Termination." A copy of
the letter of credit for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K to be
filed within 15 days of issuance of the Certificates of the
related Series.
Certificate Guarantee Insurance
Certificate Guarantee Insurance, if any, with respect to a
Series of Certificates will be provided by one or more insurance
companies. Such Certificate Guarantee Insurance will guarantee,
with respect to one or more Classes of Certificates of the
related Series, timely distributions of interest and full
distributions of principal on the basis of a schedule of
principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. If so specified
in the related Prospectus Supplement, the Certificate Guarantee
Insurance will also guarantee against any payment made to a
Certificateholder which is subsequently recovered as a "voidable
preference" payment under the Bankruptcy Code. A copy of the
Certificate Guarantee Insurance for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related Series.
Reserve Funds
One or more Reserve Funds may be established with respect to
a Series, in which cash, a letter of credit, Eligible Reserve
Fund Investments, a demand note or a combination thereof, in the
amounts, if any, to be funded over time by depositing therein a
specified amount of the distributions received on the related
Mortgage Assets as specified in the related Prospectus
Supplement.
Amounts on deposit in any reserve fund for a Series,
together with the reinvestment income thereon, will be applied by
the Trustee for the purposes, in the manner, and to the extent
specified in the related Prospectus Supplement. A Reserve Fund
may be provided to increase the likelihood of timely payments of
principal of and interest on the Certificates, if required as a
condition to the rating of such Series by each Rating Agency
rating such Series, or to reduce the likelihood of Special
Distributions with respect to any Series. Reserve Funds may be
established to provide limited protection, in an amount
satisfactory to each Rating Agency which assigns a rating to the
Certificates, against certain types of losses not covered by
insurance policies or other credit support, such as losses
arising from damage not covered by standard hazard insurance
policies, losses resulting from the bankruptcy of a borrower and
the application of certain provisions of the Bankruptcy Code or
losses resulting from denial of insurance coverage due to fraud
or misrepresentation in connection with the origination of a
Loan. Following each Distribution Date amounts in such Reserve
Fund in excess of any required reserve fund balance may be
released from the Reserve Fund under the conditions and to the
extent specified in the related Prospectus Supplement and will
not be available for further application by the Trustee.
Moneys deposited in any Reserve Funds will be invested in
Eligible Reserve Fund Investments. Any reinvestment income or
other gain from such investments will be credited to the related
Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such
income may be payable to the Master Servicer or a Servicer as
additional servicing compensation. See "SERVICING OF Mortgage
Loans" and "THE POOLING AND SERVICING AGREEMENTS-Investment of
Funds." The Reserve Fund, if any, for a Series will not be a
part of the Trust Fund unless otherwise specified in the related
Prospectus Supplement.
Additional information concerning any Reserve Fund will be
set forth in the related Prospectus Supplement, including the
initial balance of such Reserve Fund, the required Reserve Fund
balance to be maintained, the purposes for which funds in the
Reserve Fund may be applied to make distributions to
Certificateholders and use of investment earnings from the
Reserve Fund, if any.
DESCRIPTION OF MORTGAGE AND OTHER INSURANCE
The following descriptions of special hazard insurance
policies, standard hazard insurance policies, repurchase bonds
and other insurance and the respective coverages thereunder are
general descriptions only and do not purport to be complete.
Mortgage Insurance on the Mortgage Loans
General. Unless otherwise specified in the related
Prospectus Supplement, Mortgage Loans will not be covered by a
pool insurance policy or primary mortgage insurance policy.
To the extent losses on a defaulted or foreclosed Mortgage
Loan are not covered by credit support for such Series, such
losses, if any, would affect payments to Certificateholders. In
addition, certain hazard risks will not be insured and the
occurrence of such hazards could adversely affect payments to the
Certificateholders.
FHA Insurance. The FHA is responsible for administering
various federal programs, including mortgage insurance,
authorized under the Housing Act, as amended, and the United
States Housing Act of 1937, as amended. To the extent specified
in the related Prospectus Supplement, all or a portion of the
Mortgage Loans may be insured by the FHA. The Master Servicer or
the Servicer, as the case may be, will be required to take such
steps as are reasonably necessary to keep such insurance in full
force and effect.
Hazard Insurance on the Mortgage Loans
Standard Hazard Insurance Policies. 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 for property of the type securing the related
Mortgage Loans. In general, the standard form of fire and
extended coverage policy will cover physical damage to or
destruction of, the improvements on the property caused by fire,
lightning, explosion, smoke, windstorm, hail, riot, strike and
civil commotion, subject to the conditions and exclusions
particularized in each policy. Because the standard hazard
insurance policies relating to the Mortgage Loans will be
underwritten by different hazard insurers and will cover
properties located in various states, such policies will not
contain identical terms and conditions. The basic terms,
however, generally will be determined by state law and generally
will be similar. Most such policies typically will not cover any
physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, earth movement
(including earthquakes, landslides, and mud-flows), nuclear
reaction, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing
list is merely indicative of certain kinds of uninsured risks and
is not intended to be all-inclusive. Uninsured risks not covered
by a special hazard insurance policy or other form of credit
support will adversely affect distributions to
Certificateholders. When a property securing a Loan is located
in a flood area identified by HUD pursuant to the Flood Disaster
Protection Act of 1973, as amended, the Master Servicer will be
required to cause flood insurance to be maintained with respect
to such property, to the extent available.
The standard hazard insurance policies covering properties
securing Mortgage Loans typically will contain a coinsurance"
clause which, in effect, will require the insured at all times to
carry hazard insurance of a specified percentage (generally 80%
to 90%) of the full replacement value of the dwellings,
structures and other improvements on the Mortgaged Property 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 hazard 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 on the
Mortgaged Property. Since the amount of hazard insurance to be
maintained on the improvements securing the Mortgage Loans
declines as the principal balances owing thereon decrease, and
since the value of residential real estate in the areas which the
Mortgaged Property is located fluctuates in value over time, the
effect of this requirement in the event of partial loss may be
that hazard insurance proceeds will be insufficient to restore
fully the damage to the Mortgaged Property.
Special Hazard Insurance Policy. Although the terms of such
policies vary to some degree, a special hazard insurance policy
typically provides that, where there has been damage to property
securing a defaulted or foreclosed Loan (title to which has been
acquired by the insured) and to the extent such damage is not
covered by the standard hazard insurance policy or any flood
insurance policy, if applicable, required to be maintained with
respect to such property, or in connection with partial loss
resulting from the application of the coinsurance clause in a
standard hazard insurance policy, the special hazard insurer will
pay the lesser of (i) the cost of repair or replacement of such
property or (ii) upon transfer of the property to the special
hazard insurer, the unpaid principal balance of such Loan at the
time of acquisition of such property by foreclosure or deed in
lieu of foreclosure, plus accrued interest to the date of claim
settlement and certain expenses incurred by the Master Servicer
or the Servicer with respect to such property. If the unpaid
principal balance 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
property. Any amount paid as the cost of repair of the property
will reduce coverage by such amount. Special hazard insurance
policies typically do not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design,
faulty workmanship or materials (except under certain
circumstances), nuclear reaction, flood (if the mortgaged
property is in a federally designated flood area), chemical
contamination and certain other risks.
Other Hazard-Related Insurance; Liability Insurance.
Certain additional insurance policies may be required with
respect to the Multifamily Property; for example, general
liability insurance for bodily injury and property damage, steam
boiler coverage where a steam boiler or other pressure vessel is
in operation, and rent loss insurance to cover operating income
losses following damage or destruction of the Mortgaged Property.
The related Prospectus Supplement will specify the required types
and amounts of additional insurance, if any, and describe the
general terms of such insurance and conditions to payment
thereunder.
Repurchase Bond
If so specified in the related Prospectus Supplement, the
Depositor or Master Servicer will be obligated to repurchase any
Loan (up to an aggregate dollar amount specified in the related
Prospectus Supplement) for which insurance coverage is denied due
to dishonesty, misrepresentation or fraud in connection with the
origination or sale of such Loan. Such obligation may be secured
by a surety bond guaranteeing payment of the amount to be paid by
the Depositor or the Master Servicer.
THE POOLING AND SERVICING AGREEMENTS
The following summaries describe certain provisions of the
Pooling and Servicing Agreements. The summaries do not purport
to be complete and are subject to, and qualified in their
entirety by reference to, the provisions of the Pooling and
Servicing Agreements. Where particular provisions or terms used
in the Pooling and Servicing Agreements are referred to, such
provisions or terms are as specified in the Pooling and Servicing
Agreements.
Assignment of Mortgage Assets
General. The Depositor will transfer, convey and assign to
the Trustee all right, title and interest of the Depositor in the
Mortgage Assets and other property to be included in the Trust
Fund for a Series. Such assignment will include all principal
and interest due on or with respect to the Mortgage Assets after
the Cutoff Date specified in the related Prospectus Supplement
(except for any Retained Interests). The Trustee will,
concurrently with such assignment, execute and deliver the
Certificates.
Assignment of Private Mortgage-Backed Securities. The
Depositor will cause Private Mortgage-Backed Securities to be
registered in the name of the Trustee (or its nominee or
correspondent). The Trustee (or its agent or correspondent) will
have possession of any certificated Private Mortgage-Backed
Securities. The Trustee will generally not be in possession of
or be assignee of record of any underlying assets for a Private
Mortgage-Backed Security. See "THE TRUST FUNDS-Private
Mortgage-Backed Securities." Each Private Mortgage-Backed
Security will be identified in a schedule appearing as an exhibit
to the related Pooling and Servicing Agreement (the "Mortgage
Certificate Schedule"), which will specify the original principal
amount, outstanding principal balance as of the Cut-off Date,
annual pass-through rate or interest rate and maturity date for
each Private Mortgage-Backed Security conveyed to the Trustee.
In the Pooling and Servicing Agreement, the Depositor will
represent and warrant to the Trustee regarding the Private
Mortgage-Backed Securities: (i) that the information contained
in the Mortgage Certificate Schedule is true and correct in all
material respects; (ii) that, immediately prior to the conveyance
of the Private Mortgage-Backed Securities, the Depositor had good
title thereto, and was the sole owner thereof (subject to any
Retained Interests); (iii) that there has been no other sale by
it of such Private Mortgage-Backed Securities and (iv) that there
is no existing lien, charge, security interest or other
encumbrance (other than any Retained Interest) on such Private
Mortgage Backed Securities.
Assignment of Mortgage Loans. In addition, the Depositor
will, as to each Mortgage Loan, deliver or cause to be delivered
to the Trustee, or, as specified in the related Prospectus
Supplement, the Custodian, the Mortgage Note endorsed without
recourse to the order of the Trustee or in blank, the original
Mortgage with evidence of recording indicated thereon (except for
any Mortgage not returned from the public recording office, in
which case a copy of such Mortgage will be delivered, together
with a certificate that the original of such mortgage was
delivered to such recording office) and an assignment of the
Mortgage in recordable form. The Trustee or the Custodian will
hold such documents in trust for the benefit of the
Certificateholders.
The Depositor will, at the time of delivery of the
Certificates, cause assignments to the Trustee of the Mortgage
Loans to be recorded in the appropriate public office for real
property records, except in states where, in the opinion of
counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the Mortgage Loan. If
specified in the related Prospectus Supplement, the Depositor
will cause such assignments to be so recorded within the time
after delivery of the Certificates as is specified in the related
Prospectus Supplement, in which event, the Pooling and Servicing
Agreement may, as specified in the related Prospectus Supplement,
require the Depositor to repurchase from the Trustee any Mortgage
Loan required to be recorded but not recorded within such time,
at the price described above with respect to repurchase by reason
of defective documentation. The enforcement of the repurchase
obligation will generally constitute the sole remedy available to
the Certificateholders or the Trustee for the failure of a
Mortgage Loan to be recorded.
Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Trust Agreement (the "Mortgage
Loan Schedule"). Such Mortgage Loan Schedule will specify with
respect to each Mortgage Loan: the original principal amount and
unpaid principal balance as of the Cut-off Date; the current
interest rate; the current Scheduled Payment of principal and
interest; the maturity date of the related mortgage note; if the
Mortgage Loan is an ARM, the Lifetime Mortgage Rate Cap, if any,
and the current Index; and, if the Mortgage Loan is a Mortgage
Loan with other than fixed Scheduled Payments and level
amortization, the terms thereof.
Assignment of Participation Certificates. The Depositor
will cause any Participation Certificates obtained under a
participation agreement to be assigned to the Trustee by
delivering to the Trustee the Participation Certificate, which
will be reregistered in the name of the Trustee. The Trustee
will generally not be in possession of or be assignee of record
with respect to the Mortgage Loans represented by the
Participation Certificate. Each Participation Certificate will
be identified in a "Participation Certificate Schedule" which
will specify the original principal balance, outstanding
principal balance as of the Cut-off Date, pass-through rate and
maturity date for each Participation Certificate. In the Pooling
and Servicing Agreement, the Depositor will represent and warrant
to the Trustee regarding the Participation Certificate: (i) that
the information contained in the Participation Certificate
Schedule is true and correct in all material respects; (ii) that,
immediately prior to the conveyance of the Participation
Certificates, the Depositor had good title to and was sole owner
of the Participation Certificate; (iii) that there has been no
other sale by it of such Participation Certificate and (iv) that
such Participation Certificate is not subject to any existing
lien, charge, security interest or other encumbrance (other than
any Retained Interests).
Repurchase and Substitution of Non-Conforming Mortgage Loans
If any document in the Loan file delivered by the Depositor
to the Trustee is found by the Trustee within 90 days of the
execution of the related Pooling and Servicing Agreement (or
promptly after the Trustee's receipt of any document permitted to
be delivered after the Closing Date) to be defective in any
material respect and the related Servicer does not cure such
defect within 60 days from the date the Depositor was notified of
the defect by the Trustee, or within such other period specified
in the related Prospectus Supplement, the related Servicer, if
and to the extent it is obligated to do so under the related
servicing agreement will, not later than 90 days, or within such
other period specified in the related Prospectus Supplement, from
the date the Depositor was notified of the defect by the Trustee,
repurchase the related Mortgage Loan or any property acquired in
respect thereof from the Trustee at a price equal to the
outstanding principal balance of such Mortgage Loan (or, in the
case of a foreclosed Mortgage Loan, the outstanding principal
balance of such Mortgage Loan immediately prior to foreclosure),
plus accrued and unpaid interest to the date of the next
scheduled payment on such Mortgage Loan at the related weighted
average Certificate Rate.
If so specified in the related Prospectus Supplement, the
Depositor may, rather than repurchase the Loan as described
above, remove such Loan from the Trust Fund (the "Deleted Loan")
and substitute in its place one or more other Mortgage Loans
(each, a "Qualified Substitute Mortgage Loan") provided, however,
that (i) with respect to a Trust Fund for which no REMIC election
is made, such substitution must be effected within 90 days of the
date of initial issuance of the Certificates and (ii) with
respect to a Trust Fund for which a REMIC election is made, the
Trustee must have received a satisfactory opinion of counsel that
such substitution will not cause the Trust Fund to lose its
status as a REMIC.
Any Qualified Substitute Mortgage Loan will have, on the
date of substitution, (i) an outstanding principal balance, after
deduction of all Scheduled Payments due in the month of
substitution, not in excess of the outstanding principal balance
of the Deleted Loan (the amount of any shortfall to be deposited
to the Certificate Account in the month of substitution for
distribution to Certificateholders), (ii) an interest rate not
less than (and not more than 2% greater than) the interest rate
of the Deleted Loan, (iii) a remaining term-to-stated maturity
not greater than (and not more than one year less than) that of
the Deleted Loan, and will (iv) comply with all of the
representations and warranties set forth in the applicable
agreement as of the date of substitution.
The above-described cure, repurchase or substitution
obligations constitute the sole remedies available to the
Certificateholders or the Trustee for a material defect in a Loan
document.
The Depositor will make representations and warranties with
respect to Mortgage Loans which comprise the Mortgage Assets for
a Series. See "LOAN UNDERWRITING PROCEDURES AND
STANDARDS-Representations and Warranties." If the related
Servicer cannot cure a breach of any such representations and
warranties in all material respects within 60 days after
notification by the Master Servicer of such breach, and if such
breach is of a nature that adversely affects the payments of
principal and interest on the Loan or otherwise adversely and
materially affects the value of such Loan, the Servicer is
obligated to substitute or repurchase the affected Mortgage Loan
if such Servicer is required to do so under the applicable
servicing agreement.
Reports to Certificateholders
The Master Servicer will prepare and will forward or will
provide to the Trustee for forwarding to each Certificateholder
on each Distribution Date, or as soon hereafter as is
practicable, a statement setting forth, to the extent applicable
to any Series as specified in the related Pooling and Servicing
Agreement, among other things:
(i) as applicable, either (A) the amount of such
distribution allocable to principal on the Mortgage Assets,
separately identifying the aggregate amount of any principal
prepayments included therein and the amount, if any,
advanced by the Master Servicer or by a Servicer or (B) the
amount of the principal distribution in reduction of stated
principal amount (or Compound Value) of each Class and the
aggregate unpaid principal amount (or Compound Value) of
each Class following such distribution;
(ii) as applicable, either (A) the amount of such
distribution allocable to interest on the Mortgage Assets
and the amount, if any, advanced by the Master Servicer or a
Servicer or (B) the amount of the interest distribution;
(iii) the amount of servicing compensation with respect
to the Mortgage Assets paid during the Due Period commencing
on the Due Date to which such distribution relates and the
amount of servicing compensation during such period
attributable to penalties and fees;
(iv) with respect to Compound Interest Certificates,
prior to the Accrual Termination Date in addition to the
information specified in (i)(B) above, the amount of
interest accrued on such Certificates during the related
Interest Accrual Period and added to the Compound Value
thereof;
(v) in the case of Floating Interest Certificates, the
Floating Rate applicable to the distribution being made;
(vi) if applicable, the amount of any shortfall (i.e.,
the difference between the aggregate amounts of principal
and interest which Certificateholders would have received if
there were sufficient eligible funds in the Certificate
Account and the amounts actually distributed);
(vii) if applicable, the number and aggregate principal
balances of Mortgage Loans delinquent for (A) two
consecutive payments and (B) three or more consecutive
payments, as of the close of business on the Determination
Date to which such distribution relates;
(viii) if applicable, the book value of any REO Property
acquired on behalf of Certificateholders through
foreclosure, grant of a deed in lieu of foreclosure or
repossession as of the close of business on the Business Day
preceding the Distribution Date to which such distribution
relates;
(ix) if applicable, the amount of coverage under any
special hazard insurance policy as of the close of business
on the applicable Distribution Date;
(x) in the case of any other credit support described
in the related Prospectus Supplement, the amount of coverage
of such credit support as of the close of business on the
applicable Distribution Date;
(xi) in the case of any Series which includes a
Subordinate Class, the Subordinated Amount, if any,
determined as of the related Determination Date and if the
distribution to the Senior Certificateholders is less than
their required distribution, the amount of the shortfall;
(xii) the amount of any withdrawal from any applicable
Reserve Fund included in amounts actually distributed to
Certificateholders and the remaining balance of each Reserve
Fund (including any Subordination Reserve Fund), if any, on
such Distribution Date, after giving effect to distributions
made on such date; and
(xiii) such other information as specified in the related
Pooling and Servicing Agreement.
In addition, within a reasonable period of time after the
end of each calendar year the Master Servicer will furnish to
each Certificateholder of record at any time during such calendar
year a report summarizing the items provided to
Certificateholders as specified in the Pooling and Servicing
Agreement to enable Certificateholders to prepare their tax
returns including, without limitation, the amount of original
issue discount accrued on the Certificates, if applicable.
Information in the Distribution Date and annual reports provided
to the Certificateholders will not have been examined and
reported upon by an independent public accountant. However, the
Master Servicer will provide to the Trustee a report by
independent public accountants with respect to the Master
Servicer's servicing of the Mortgage Loans. See "SERVICING OF
MORTGAGE LOANS-Evidence as to Compliance."
Investment of Funds
The Certificate Account, Collection Account or Custodial
Account, if any, and any other funds and accounts for a Series
that may be invested by the Trustee or by the Master Servicer or
by the Servicer, if any, can be invested only in Eligible
Investments acceptable to each Rating Agency rating such Series,
which may include, without limitation, (i) direct obligations of,
and obligations fully guaranteed by, the United States of
America, or any agency of the United States of America, the
obligations of which are backed by the full faith and credit of
the United States of America; (ii) general obligations of or
obligations guaranteed by any state of the United States of
America or the District of Columbia receiving one of the two
highest long-term rating of each Rating Agency, or such lower
ratings as will not result in the downgrading or withdrawal of
the ratings then assigned to the Certificates by each Rating
Agency; (iii) commercial paper which is then rated in the highest
commercial paper rating categories of each Rating Agency, or such
lower category as will not result in the downgrading or
withdrawal of the ratings then assigned to the Certificates by
each Rating Agency; (iv) certificates of deposit, demand or time
deposits, federal funds or bankers' acceptances issued by any
depository institution or trust company incorporated under the
laws of the United States of America or of any state thereof and
subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or
long term debt obligations of such depository institution or
trust company (or in the case of the principal depository
institution in a holding company system, the commercial paper or
long term debt obligations of such holding company) are then
rated in the highest rating category of each Rating Agency, in
the case of commercial paper, or in the second highest category
in the case of long term debt obligations; (v) demand or time
deposits or certificates of deposit issued by any bank or trust
company or savings and loan association and fully insured by the
FDIC; (vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation which do not adversely
affect the rating on the Certificates of such Series at the time
of the issuance of or investing in such guaranteed reinvestment
agreements; (vii) repurchase obligations with respect to any
security described in (i) and (ii) above or any other security
issued or guaranteed by an agency or instrumentality of the
United States of America, in either case entered into with a
depository institution or trust company (acting as principal)
described in (iv) above; (viii) securities bearing interest or
sold at a discount issued by any corporation incorporated under
the laws of the United States of America or any state thereof
which, at the time of such investment or contractual commitment
providing for such investments are then rated in one of the two
highest categories of each Rating Agency, or in such lower rating
category as will not result in the downgrading or withdrawal of
the ratings then assigned to the Certificates of such Series by
each Rating Agency; and (ix) such other investments which do not
adversely affect the rating on the Certificates of such Series as
confirmed in writing by each Rating Agency.
Funds held in a Reserve Fund or Subordinated Reserve Fund
may be invested in certain Eligible Reserve Fund Investments
which may include Eligible Investments, mortgage loans, mortgage
pass-through or participation securities, mortgage-backed bonds
or notes or other investments to the extent specified in the
related Prospectus Supplement.
Eligible Investments or Eligible Reserve Fund Investments
with respect to a Series will include only obligations or
securities that mature on or before the date on which the amounts
in the Collection Account are required to be remitted to the
Trustee and amounts in the Certificate Account, any Reserve Fund
or the Subordinated Reserve Fund for such Series are required or
may be anticipated to be required to be applied for the benefit
of Certificateholders of such Series.
If so provided in the related Prospectus Supplement, the
reinvestment income from the Subordination Reserve Fund, other
Reserve Fund, Servicer Account, Collection Account or the
Certificate Account may be property of the Master Servicer or a
Servicer and not available for distributions to
Certificateholders. See "SERVICING OF MORTGAGE LOANS."
Event of Default
Events of Default under the Pooling and Servicing Agreement
for each Series include (i) any failure by the Master Servicer to
distribute to Certificateholders of such Series any required
payment which continues unremedied for five business days, or one
business day for certain other required payments, after the
giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor for such Series, or to the Master
Servicer and the Trustee by the Holders of Certificates of such
Series evidencing not less than 25% of the aggregate outstanding
principal amount of the Certificates for such Series, (ii) any
failure by the Master Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
Pooling and Servicing Agreement which continues unremedied for 60
days (or 15 days in the case of a failure to maintain any
insurance policy required to be maintained pursuant to the
Pooling and Servicing Agreement) after the giving of written
notice of such failure to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer and the Trustee by the
Holders of Certificates of such Series evidencing not less than
25% of the aggregate outstanding principal amount of the
Certificates and (iii) certain events in insolvency, readjustment
of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by the Master Servicer indicating
its insolvency, reorganization or inability to pay its
obligations.
Rights Upon Event of Default
So long as an Event of Default remains unremedied under the
Pooling and Servicing Agreement for a Series, the Trustee for
such Series or Holders of Certificates of such Series evidencing
not less than 25% of the aggregate outstanding principal amount
of the Certificates for such Series (the first 25% who provide
such notice) or the Depositor may terminate all of the rights and
obligations of the Master Servicer as servicer under the Pooling
and Servicing Agreement and in and to the Mortgage Loans (other
than its right as a Certificateholder under the Pooling and
Servicing Agreement which rights the Master Servicer will retain
under all circumstances), whereupon the Trustee will succeed to
all the responsibilities, duties and liabilities of the Master
Servicer under the Pooling and Servicing Agreement and will be
entitled to reasonable servicing compensation not to exceed the
applicable servicing fee, together with other servicing
compensation in the form of assumption fees, late payment charges
or otherwise as provided in the Pooling and Servicing Agreement.
If, however, the RTC or the FDIC is appointed as the receiver for
the Master Servicer, and no Event of Default other than such
receivership or insolvency exists, the RTC or the FDIC may have
the power to prevent either the Trustee or the Certificateholders
from effecting a transfer of servicing.
In the event that the Trustee is unwilling or unable so to
act, it may select, or petition a court of competent jurisdiction
to appoint, any established mortgage loan servicing institution
the appointment of which does not adversely affect the then
current rating of the Certificates of the related Series to act
as successor Master Servicer under the provisions of such Pooling
and Servicing Agreement relating to the servicing of the Mortgage
Loans. The successor Master Servicer would be entitled to
reasonable servicing compensation in an amount not to exceed the
Servicing Fee as set forth in the related Prospectus Supplement,
together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise, as provided
in the Pooling and Servicing Agreement.
During the continuance of any Event of Default under the
Pooling and Servicing Agreement for a Series, the Trustee for
such Series will have the right to take action to enforce its
rights and remedies and to protect and enforce the rights and
remedies of the Certificateholders of such Series, and Holders of
Certificates evidencing not less than 25% of the aggregate
outstanding principal amount of the Certificates for such Series
may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising
any trust or power conferred upon that Trustee. However, the
Trustee will not be under any obligation to pursue any such
remedy or to exercise any of such trusts or powers unless such
Certificateholders have offered the Trustee reasonable security
or indemnity against the cost, expenses and liabilities which may
be incurred by the Trustee therein or thereby. Also, the Trustee
may decline to follow any such direction if the Trustee
determines that the action or proceeding so directed may not
lawfully be taken or would involve it in personal liability or be
unjustly prejudicial to the non-assenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such
Holder's status as a Certificateholder, will have any right under
the Pooling and Servicing Agreement for such Series to institute
any proceeding with respect to the Trust Agreement, unless such
Holder previously has given to the Trustee for such Series
written notice of default and unless the Holders of Certificates
evidencing not less than 25% of the aggregate outstanding
principal amount of the Certificates for such Series have made
written request upon the Trustee to institute such proceeding in
its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for 60 days has
neglected or refused to institute any such proceeding.
Deficiency Event
A "Deficiency Event" with respect to the Certificates of a
Series as to which such term is applicable (as set forth in the
related Prospectus Supplement) is defined in the Pooling and
Servicing Agreement as being the inability of the Trustee to
distribute to Holders of one or more Classes of Certificates of
such Series (other than any Class of Subordinate Certificates
prior to the time that the Available Distribution Amount is
reduced to zero), in accordance with the terms thereof and the
Pooling and Servicing Agreement, any distribution of principal or
interest thereon when and as distributable, in each case because
of the insufficiency for such purpose of the funds then held in
the related Trust Fund.
Upon the occurrence of a Deficiency Event, the Trustee or
other party named in the related Pooling and Servicing Agreement
is required to determine whether or not the application on a
monthly basis (regardless of the frequency of regular
Distribution Dates) of all future Scheduled Payments on the
Mortgage Assets included in the related Trust Fund and other
amounts receivable with respect to such Trust Fund towards
payments on such Certificates in accordance with the priorities
as to distributions of principal and interest set forth in such
Certificates will be sufficient to make distributions of interest
at the applicable Certificate Rates and to distribute in full the
principal amount of each such outstanding Certificate on or
before its respective Stated Maturity.
The Trustee (or other specified party) will obtain and rely
upon an opinion or report of a firm of independent accountants of
recognized national reputation as to the sufficiency of the
amounts receivable with respect to such Trust Fund to make such
distributions on the Certificates, which opinion or report will
be conclusive evidence as to such sufficiency. Pending the
making of any such determination, distributions on the
Certificates will continue to be made in accordance with their
terms.
In the event that the Trustee (or other specified party)
makes a determination of sufficiency, the Trustee will apply all
amounts received in respect of the related Trust Fund (after
payment of fees and expenses of the Trustee and accountants for
the Trust Fund) to distributions on the Certificates of such
Series in accordance with their terms, except that such
distributions will be made monthly and without regard to the
amount of principal that would otherwise be distributable on any
Distribution Date. Under certain circumstances following such
positive determination, the Trustee may resume making
distributions on such Certificates expressly in accordance with
their terms.
If the Trustee (or other specified party) is unable to make
the positive determination described above, the Trustee will
apply all amounts received in respect of the related Trust Fund
(after payment of Trustee and accountants' fees and expenses) to
monthly distributions on the Certificates of such Series pro
rata, without regard to the priorities as to distribution of
principal set forth in such Certificates, and such Certificates
will, to the extent permitted by applicable law, accrue interest
at the highest Certificate Rate borne by any Certificate of such
Series (excluding any Class of Interest Weighted Certificates or
any Class with a Floating Rate that varies inversely with a
current Index) or, with respect to each Class of Floating
Interest Certificates, at the weighted average Certificate Rate,
calculated on the basis of the maximum interest rat& applicable
to such Class on the original principal amount of the
Certificates of that Class (excluding any Class of Interest
Weighted Certificates or any Class with a Floating Rate that
varies inversely with a current Index). In such event, the
Holders evidencing not less than at least 66% or more of the
aggregate outstanding principal amount of the Certificates of
such Series may direct the Trustee to sell the related Trust
Fund, any such direction being irrevocable and binding upon the
Holders of all Certificates of such Series and upon the owners of
the residual interests in such Trust Fund. In the absence of
such a direction, the Trustee may not sell all or any portion of
such Trust Fund.
The Trustee
The identity of the commercial bank, savings and loan
association or trust company named as the Trustee for each Series
of Certificates will be set forth in the related Prospectus
Supplement. The entity serving as Trustee may have normal
banking relationships with the Depositor or the Master Servicer.
In addition, for the purpose of meeting the legal requirements of
certain local jurisdictions, the Trustee will have the power to
appoint co-trustees or separate trustees of all or any part of
the Trust Fund relating to a Series of Certificates. In the
event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Pooling
and Servicing Agreement relating to such Series will be conferred
or imposed upon the Trustee and each such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations
solely at the direction of the Trustee. The Trustee may also
appoint agents to perform any of the responsibilities of the
Trustee, which agents shall have any or all of the rights,
powers, duties and obligations of the Trustee conferred on them
by such appointment; provided that the Trustee shall continue to
be responsible for its duties and obligations under the Pooling
and Servicing Agreement.
Duties of the Trustee
The Trustee makes no representations as to the validity or
sufficiency of the Pooling and Servicing Agreement, the
Certificates or of any Mortgage Asset or related documents. If
no Event of Default (as defined in the related Pooling and
Servicing Agreement) has occurred, the Trustee is required to
perform only those duties specifically required of it under the
Pooling and Servicing Agreement. Upon receipt of the various
certificates, statements, reports or other instruments required
to be furnished to it, the Trustee is required to examine them to
determine whether they are in the form required by the related
Pooling and Servicing Agreement. However, the Trustee will not
be responsible for the accuracy or content of any such documents
furnished by it or the Certificateholders to the Master Servicer
under the Pooling and Servicing Agreement.
The Trustee may be held liable for its own negligent action
or failure to act, or for its own willful misconduct; provided,
however, that the Trustee will 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
Certificateholders in an Event of Default, see "Rights Upon Event
of Default" above. The Trustee is not required to expend or risk
its own funds or otherwise incur any financial liability in the
performance of any of its duties under a Pooling and Servicing
Agreement, or in the exercise of any of its rights or powers, if
it has reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
Resignation of Trustee
The Trustee may, upon written notice to the Depositor,
resign at any time, in which event the Depositor will be
obligated to use its best efforts to appoint a successor Trustee.
If no successor Trustee has been appointed and has accepted the
appointment within 30 days after giving such notice of
resignation, the resigning Trustee may petition any court of
competent jurisdiction for appointment of a successor Trustee.
The Trustee may also be removed at any time (i) by the Depositor,
if the Trustee ceases to be eligible to continue as such under
the Pooling and Servicing Agreement, (ii) if the Trustee becomes
insolvent, (iii) if a tax is imposed or threatened with respect
to the Trust Fund by any state in which the Trustee or the Trust
Fund held by the Trustee pursuant to the Pooling and Servicing
Agreement is located, or (iv) by the Holders of Certificates
evidencing over 50% of the aggregate outstanding principal amount
of the Certificates in the Trust Fund upon 30 days' advance
written notice to the Trustee and to the Depositor. 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.
Certificate Account
The Trustee will establish a separate account (the
"Certificate Account") in its name as Trustee for the
Certificateholders, or if it is so specified in the related
Prospectus Supplement, the Certificate Account may be established
by the Master Servicer in the name of the Trustee. If specified
in the related Prospectus Supplement, the Certificate Account may
be maintained as an interest bearing account or the funds held
therein may be invested, pending disbursement to
Certificateholders of the related Series, pursuant to the terms
of the terms of the Pooling and Servicing Agreement, in Eligible
Investments. The Master Servicer will be entitled to receive as
additional compensation, any interest or other income earned on
funds in the Certificate Account. There will be deposited into
the Certificate Account monthly all funds received from the
Master Servicer and required withdrawals from any reserve funds.
The Trustee is permitted from time to time to make withdrawals
from the Certificate Account for each Series to remove amounts
deposited therein in error, to pay to the Master Servicer any
reinvestment income on funds held in the Certificate Account to
the extent it is entitled, to remit to the Master Servicer its
Servicing Fee, assumption or substitution fees, late payment
charges and other mortgagor charges, reimbursement of Advances
and expenses, to make deposits to any reserve fund, to make
regular distributions to the Certificateholders, to clear and
terminate the Certificate Account and to make other withdrawals
as required or permitted by the related Pooling and Servicing
Agreement.
Expense Reserve Fund
If specified in the Prospectus Supplement relating to a
Series, the Depositor may deposit on the related Closing Date in
an account to be established with the Trustee (the "Expense
Reserve Fund") cash or Eligible Investments which will be
available to pay anticipated fees and expenses of the Trustee or
other agents. The Expense Reserve Fund for a Series may also be
funded over time through the deposit therein of all or a portion
of cash flow, to the extent described in the related Prospectus
Supplement. The Expense Reserve Fund, if any, will not be part
of the Trust Fund held for the benefit of the Holders. Amounts
on deposit in any Expense Reserve Fund will be invested in one or
more Eligible Investments.
Amendment of Pooling and Servicing Agreement
The Pooling and Servicing Agreement for each Series of
Certificates may be amended by the Depositor, the Master
Servicer, and the Trustee with respect to such Series, without
notice to or consent of the Certificateholders (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein
which may be defective or inconsistent with any other provision
therein, (iii) to make any other provisions with respect to
matters or questions arising under such Pooling and Servicing
Agreement which are not inconsistent with any other provisions of
such Pooling and Servicing Agreement or (iv) to comply with any
requirements imposed by the Code; provided that such amendment
(other than pursuant to clause (iv) above) will not adversely
affect in any material respect the interests of any
Certificateholders of such Series. The Pooling and Servicing
Agreement for each Series may also be amended by the Trustee, the
Master Servicer and the Depositor with respect to such Series
with the consent of the Holders possessing not less than 66-2/3%
of the aggregate outstanding principal amount of the Certificates
of each Class of such Series affected thereby, for the purpose of
adding any provisions to or changing in any manner or eliminating
any of the provisions of such Pooling and Servicing Agreement or
modifying in any manner the rights of Certificateholders of such
Series; provided, however, that no such amendment may (i) reduce
the amount or delay the timing of payments on any Certificate
without the consent of the Holder of such Certificate;
(ii) adversely affect the REMIC status, if a REMIC election has
been made, for the related Trust Fund of a Series; or
(iii) reduce the aforesaid percentage of aggregate outstanding
principal amount of Certificates of each Class, the Holders of
which are required to consent to any such amendment without the
consent of the Holders of 100% of the aggregate outstanding
principal amount of each Class of Certificates affected thereby.
Voting Rights
The related Prospectus Supplement will set forth the method
of determining allocation of voting rights with respect to a
Series, if other than as set forth herein.
List of Certificateholders
Upon written request of three or more Certificateholders of
record of a Series for purposes of communicating with other
Certificateholders with respect to their rights under the Pooling
and Servicing Agreement or under the Certificates for such
Series, which request is accompanied by a copy of the
communication which such Certificateholders propose to transmit,
the Trustee will afford such Certificateholders access during
business hours to the most recent list of Certificateholders of
that Series held by the Trustee.
No Pooling and Servicing Agreement will provide for the
holding of any annual or other meeting of Certificateholders.
REMIC Administrator
With respect to any Series, preparation of certain reports
and certain other administrative duties with respect to the Trust
Fund may be performed by a REMIC administrator, who may be an
affiliate of the Depositor.
Termination
The obligations created by the Pooling and Servicing
Agreement for a Series will terminate upon the distribution to
Certificateholders of all amounts distributable to them pursuant
to such Pooling and Servicing Agreement after (i) the later of
the final payment or other liquidation of the last Mortgage Loan
remaining in the Trust Fund for such Series or the disposition of
all property acquired upon foreclosure or deed in lieu of
foreclosure in respect of any Mortgage Loan or (ii) the
repurchase by the Master Servicer from the Trustee for such
Series of all Mortgage Loans at that time subject to the Pooling
and Servicing Agreement and all property acquired in respect of
any Mortgage Loan, as described below. The Pooling and Servicing
Agreement for each Series permits, but does not require, the
Master Servicer to repurchase from the Trust Fund for such Series
all remaining Mortgage Loans at a price equal to 100% of the
aggregate principal balances of such Mortgage Loans, plus accrued
interest at the applicable weighted average Certificate Rate
through the last day of the Due Period in which repurchase occurs
plus the lesser of (A) the appraised value of any such property
and (B) the Stated Principal Balance of the Mortgage Loan
relating to such property. The exercise of such right will
effect early retirement of the Certificates of such Series, but
the Master Servicer's right to so purchase is subject to the
aggregate principal balances of the Mortgage Loans at the time of
repurchase being less than a fixed percentage, to be set forth in
the related Prospectus Supplement, of the Cut-off Date Aggregate
Principal Balance. In no event, however, will the trust created
by the Pooling and Servicing Agreement continue beyond the
expiration of 21 years from the death of the last survivor of
certain persons identified therein. For each Series, the Master
Servicer or the Trustee, as applicable, will give written notice
of termination of the Pooling and Servicing Agreement to each
Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at an office
or agency specified in the notice of termination. If so provided
in the related Prospectus Supplement for a Series, the Depositor
or another entity may effect an optional termination of the Trust
Fund under the circumstances described in such Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES-Optional
Termination."
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains summaries of certain legal
aspects of housing 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 properties
securing the housing loans are situated. The summaries are
qualified in their entirety by reference to the applicable
federal and state laws governing the Mortgage Loans.
Mortgages
The Mortgage Loans comprising or underlying the Mortgage
Assets for a Series will be secured by either mortgages or deeds
of trust or deeds to secure debt, depending upon the prevailing
practice in the state in which the property subject to a Mortgage
Loan is located. The filing of a mortgage, deed of trust or deed
to secure debt creates a lien or title interest upon the real
property covered by such instrument and represents the security
for the repayment of an obligation that is customarily evidenced
by a promissory note. It is not prior to the lien for real
estate taxes and assessments or other charges imposed under
governmental police powers and may also be subject to other
liens, such as mechanic's and materialmen's liens, pursuant to
the laws of the jurisdiction in which the Mortgaged Property is
located. Priority with respect to such instruments depends on
their terms and in some cases the term of separate subordination
or intercreditor agreements, the knowledge of the parties to the
mortgage and generally on the order of recording with the
applicable state, county or municipal office. There are two
parties to a mortgage, the mortgagor, who is the
borrower/homeowner or the land trustee (as described below), and
the mortgagee, who is the lender. Under the mortgage instrument,
the mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, there are three parties
because title to the property is held by a land trustee under a
land trust agreement of which the borrower/homeowner is the
beneficiary. At origination of a mortgage loan, the borrower
executes a separate undertaking to make payments on the mortgage
note. A deed of trust transaction normally has three parties,
the trustor, who is the borrower/homeowner, the beneficiary, who
is the lender, and the trustee, a third-party grantee. Under a
deed of trust, the trustor grants the property, irrevocably until
the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation. The mortgagee's
authority under a mortgage and the trustee's authority under a
deed of trust are governed by the law of the state in which the
real property is located, the express provisions of the mortgage
or deed of trust, and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
Foreclosure on Mortgages
Foreclosure of a deed of trust is generally accomplished by
a non-judicial trustee's sale under a specific provision in the
deed of trust which authorizes the trustee to sell the property
upon any default by the borrower under the terms of the note or
deed of trust. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any
person who has recorded a request for a copy of a notice of
default and notice of sale. In addition, the trustee in some
states must provide notice to any other individual having an
interest in the real property, including any junior lienholders.
The trustor, borrower, or any person having a junior encumbrance
on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and
expenses incurred in enforcing the obligation. Generally, state
law controls the amount of foreclosure expenses and costs,
including attorney's fees, which may be recovered by a lender.
If the deed of trust is not reinstated, a notice of sale must be
posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be
posted on the property, recorded and sent to all parties having
an interest in the real property.
An action to foreclose a mortgage is an action to recover
the mortgage debt by enforcing the mortgagee's rights under the
mortgage. It is regulated by statutes and rules and subject
throughout to the court's equitable powers. Generally, a
mortgagor is bound by the terms of the mortgage note and the
mortgage as made and cannot be relieved from his default if the
mortgagee has exercised his rights in a commercially reasonable
manner. However, since a foreclosure action historically was
equitable in nature, the court may exercise equitable powers to
relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was
neither willful nor in bad faith or the mortgagee's action
established a waiver, fraud, bad faith, or oppressive or
unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under certain
circumstances a court of equity may relieve the mortgagor from an
entirely technical default where such default was not willful.
A foreclosure action is subject to most of the delays and
expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring up to several years to complete.
Moreover, a foreclosure sale may be challenged after it has been
concluded on the grounds that it was conducted in a manner that
did not fully comply with applicable laws, or that the sale price
was the result of collusion or other improper practices.
Similarly, a suit against the debtor on the mortgage note may
take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at
the same time.
In case of foreclosure under either a mortgage or a deed of
trust, the sale by the referee or other designated officer or by
the trustee is a public sale. However, because of the difficulty
potential third party purchasers at the sale have in determining
the exact status of title and because the physical condition of
the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the
property at a foreclosure sale. Regardless of the price paid at
a foreclosure sale, the United States Supreme Court in BFP v.
Resolution Trust Corporation, as Receiver for Imperial Federal
Savings and Loan Association, et al., determined that a sale
conclusively will be deemed to have been for an amount equal to
the "reasonably equivalent value" of the foreclosed property, so
long as all the requirements of the State's foreclosure law have
been complied with. If these requirements are not met, the sale
may be attacked within up to three years after a bankruptcy
filing by the debtor, and even longer under state law, on a
number of grounds, including that the sale resulted in a
fraudulent conveyance or violated other applicable laws. It is
common for the lender to purchase the property from the trustee
or referee for an amount which may be equal to the principal
amount of the mortgage or deed of trust plus accrued and unpaid
interest and the expenses of foreclosure, in which event the
mortgagor's debt will be extinguished or the lender may purchase
for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such a
judgment is available. Thereafter, the lender will assume the
burdens of ownership, including obtaining casualty insurance,
paying taxes and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender
will commonly obtain the services of a real estate broker and pay
the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the
receipt of any mortgage guaranty insurance proceeds.
The proceeds received by the referee or trustee from the
sale are applied first to the costs, fees and expenses of sale
and then in satisfaction of the indebtedness secured by the
mortgage or deed of trust under which the sale was conducted.
Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in
order of their priority, whether or not the borrower is in
default. Any additional proceeds are generally payable to the
mortgagor or trustor. The payment of the proceeds to the holders
of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal
proceedings.
The purposes of a foreclosure action are to enable the
mortgagee to realize upon its security and to bar the mortgagor,
and all persons who have an interest in the property which is
subordinate to the foreclosing mortgagee, from their "equity of
redemption." The doctrine of equity of redemption provides that,
until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure
sale, those having an interest which is subordinate to that of
the foreclosing mortgagee have an equity of redemption and may
redeem the property by paying the entire debt with interest. In
addition, in some states, when a foreclosure action has been
commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must be made
parties and duly summoned to the foreclosure action in order for
their equity of redemption to be barred.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or
foreclosure of a mortgage, the trustor or mortgagor and
foreclosed junior lienors are given a statutory period in which
to redeem the property from the foreclosure sale. The right of
redemption should be distinguished from the equity of redemption,
which is a nonstatutory right that must be exercised prior to the
foreclosure sale. In some states, redemption may occur only upon
payment of the entire principal balance of the loan, accrued
interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the
foreclosed property. The right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure
or sale under a deed of trust. Consequently, the practical
effect of a right of redemption is to force the lender to retain
the property and pay the expenses of ownership until the
redemption period has run. In some states, there is no right to
redeem property after a trustee's sale under a deed of trust.
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 is a personal judgment
against the former borrower equal in most cases to the difference
between the net amount realized upon the public sale of the real
property and the amount due to the lender. Other statutes
require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal
action against the borrower. In certain other states, the lender
has the option of bringing a personal action against the borrower
on the debt without first exhausting such security; however in
some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may
be precluded from exercising remedies with respect to the
security. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that
lenders will usually proceed against the security first rather
than bringing a personal action against the borrower. Finally,
other statutory provisions limit any deficiency judgment against
the former borrower following a judicial sale to the excess of
the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining
a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale. Certain state
laws also place a limitation on the mortgagee with respect to
late payment charges.
Federal Bankruptcy and Other Laws Affecting Creditors'
Rights. In addition to laws limiting or prohibiting deficiency
judgments, numerous other statutory provisions, including the
federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of the secured
lender to realize upon collateral and/or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law,
the filing of a petition acts as a stay against the enforcement
of remedies for collection of a debt. Moreover, a court with
federal bankruptcy jurisdiction may permit a debtor through a
Chapter 13 under the Bankruptcy Code rehabilitative plan to cure
a monetary default with respect to a loan on a debtor's residence
by paying arrearages within a reasonable time period and
reinstating the original loan payment schedule even though the
lender accelerated the loan and the lender has taken all steps to
realize upon his security (provided no sale of the property has
yet occurred) prior to the filing of the debtor's Chapter 13
petition. Some courts with federal bankruptcy jurisdiction have
approved plans, based on the particular facts of the
reorganization case, that effected the curing of a loan default
by permitting the obligor to pay arrearages over a number of
years.
Courts with federal bankruptcy jurisdiction have also
indicated that the terms of a loan secured by property of the
debtor may be modified if the borrower has filed a petition under
Chapter 13. These courts have suggested that such modifications
may include reducing the amount of each monthly payment, changing
the rate of interest, altering the repayment schedule and
reducing the lender's security interest to the value of the
residence, thus leaving the lender a general unsecured creditor
for the difference between the value of the residence and the
outstanding balance of the loan. Federal bankruptcy law and
limited case law indicate that the foregoing modifications could
not be applied to the terms of a loan secured exclusively by
property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its
security, to the extent the value of the security exceeds the
debt, plus post-petition interest, attorney's fees and costs.
In a Chapter 11 case under the Bankruptcy Code, the lender
is precluded from foreclosing without authorization from the
bankruptcy court. The lender's lien may be transferred to other
collateral and/or be limited in amount to the value of the
lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may
be adjusted to market rates and the priority of the loan may be
subordinated to bankruptcy court-approved financing. The
bankruptcy court can, in effect, invalidate due-on-sale clauses
through confirmed Chapter 11 plans of reorganization.
The Bankruptcy Code recognizes priority to certain tax liens
over the lender's security. This may delay or interfere with the
enforcement of rights in respect of a defaulted Loan. In
addition, substantive requirements are imposed upon lenders in
connection with the origination and the servicing of mortgage
loans by numerous federal and some state consumer protection
laws. The 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 impose specific
statutory liabilities upon lenders who originate loans and who
fail to comply with the provisions of the law. In some cases,
this liability may affect assignees of the loans.
Junior Liens; Rights of Senior Lienholders
The rights of the Trust Fund (and therefore the
Certificateholders) as beneficiary under a junior deed of trust
or as mortgagee under a junior mortgage are subordinate to those
of the mortgagee or beneficiary under the senior mortgage or deed
of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds
and to cause the property securing the junior 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 holders thereof assert their subordinate interest in a
property in foreclosure litigation or satisfy the defaulted
senior loan. As discussed more fully below, in many states a
junior mortgagee or beneficiary may satisfy a defaulted senior
loan in full, or 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.
The standard form of the mortgage or deed of trust used by
most institutional lenders confers on the mortgagee or
beneficiary the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such
proceeds and awards to any indebtedness secured by the mortgage
or deed of trust, in such order as the mortgagee or beneficiary
may determine. Thus, in the event improvements on the property
are damaged or destroyed by fire or other casualty, or in the
event the property is taken by condemnation, the mortgagee or
beneficiary under the underlying first mortgage or deed of trust
will have the prior right to collect any insurance proceeds
payable under a hazard insurance policy and any award of damages
in connection with the condemnation and to apply the same to the
indebtedness secured by the first mortgage or deed of trust.
Proceeds in excess of the amount of first mortgage indebtedness
will, in most cases, be applied to the indebtedness of a junior
mortgage or trust deed.
The form of mortgage or deed of trust used by most
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 made under the mortgage or deed of trust,
notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of
the mortgage or deed of trust and the date of the future advance,
and notwithstanding that the mortgagee or beneficiary had actual
knowledge of such 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 has actual knowledge of the intervening junior mortgages or
deeds of trust and other liens, the advance will be subordinate
to such intervening junior mortgages or deeds of trust and other
liens. Priority of advances under the clause rests, in many
other states, on state statutes giving priority to all advances
made under the loan agreement to a "credit limit" amount stated
in the recorded mortgage.
Another provision typically found in the form of the
mortgage or deed of trust used by most institutional lenders
obligates 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 the mortgage or
deed 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.
Due-on-sale Clauses in Mortgage Loans
A note, mortgage or deed of trust relating to the Mortgage
Loans generally contains a "due-on-sale" clause permitting
acceleration of the maturity of a loan if the borrower transfers
its interest in the property. In recent years, court decisions
and legislative actions placed substantial restrictions on the
right of lenders to enforce such clauses in many states. By
virtue, however, of the Garn St. Germain Depository Institutions
Act of 1982 (the "Garn Act") effective October 15, 1982 (which
purports to preempt state laws which prohibit the enforcement of
due-on-sale clauses byu providing among other matters, that
"due-on-sale" clauses in certain laons made after the effective
date of the Garn Act are enforceable, within certain limitations
as set forth in the Garn Act and the regulations promulgated
thereunder) the Servicer or the Master Servicer may nevertheless
be able to accelerate many of the Mortgage Loans that contain a
"due-on-sale" provision upon transfer of an interest in the
property subject to the Mortgage Loans, regardless of the
Servicer's or the Master Servicer's ability to demonstrate that a
sale threatens its legitimate security interest.
Enforceability of Prepayment and Late Payment Fees
Forms of notes, mortgages and deeds of trust used by lenders
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 the 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 are typically retained by servicers as additional
servicing compensation.
Equitable Limitations on Remedies
In connection with lenders' attempts to realize upon their
security, courts have invoked general equitable principles. The
equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan
documents. Examples of judicial remedies that have been
fashioned include 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 that lenders reinstate loans or recast payment schedules
in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have
limited the right of a lender to realize upon his security if the
default under the security agreement is not monetary, such as the
borrower's failure to adequately maintain the property or the
borrower's execution of secondary financing affecting the
property. Finally, some courts have been faced with the issue of
whether or not federal or state constitutional provisions
reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition
to the statutorily-prescribed minimums. For the most part, these
cases have upheld the notice provisions as being reasonable or
have found that, in cases involving the sale by a trustee under a
deed of trust or by a mortgagee under a mortgage having a power
of sale, there is insufficient state action to afford
constitutional protections to the borrower.
The Mortgage Loans may include a debt-acceleration clause,
which permits the lender to accelerate the debt upon a monetary
default of the borrower, after the applicable cure period. The
courts of all states will enforce clauses providing for
acceleration in the event of a material payment default.
However, courts of any state, exercising equity jurisdiction, may
refuse to allow a lender to foreclose a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or
unjust and the circumstances would render the acceleration
unconscionable.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, enacted in March 1980 ("Title V"),
provides that state usury limitations shall not apply to certain
types of residential [first] [second] mortgage loans originated
by certain lenders after March 31, 1980. The OTS, as successor
to the Federal Home Loan Bank Board, is authorized to issue rules
and regulations and to publish interpretations governing
implementation of Title V authorizes any state to reimpose
interest rate limits by adopting, before April 1, 1983, a state
law, or by certifying that the voters of such state have voted in
favor of any provision, constitutional or otherwise, which
expressly rejects an application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline.
In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount
points or other charges on mortgage loans covered by Title V. In
any state in which application of Title V has been expressly
rejected or a provision limiting discount points or other charges
is adopted, no Mortgage Loans originated after the date of such
state action will be eligible as Mortgage Assets if such Mortgage
Loans bear interest or provide for discount points or charges in
excess of permitted levels.
Adjustable Interest Rate Mortgage Loans
ARMs originated by non-federally chartered lenders have
historically been subject to a variety of restrictions. Such
restrictions differed from state to state, resulting in
difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender
complied with applicable law. These difficulties were alleviated
substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that,
notwithstanding any state law to the contrary, state chartered
banks may originate "alternative mortgage instruments" (including
ARMs) in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of
alternative mortgage instruments by national banks; state
chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the
National Credit Union Administration with respect to origination
of alternative mortgage instruments by federal credit unions and
all other nonfederally chartered housing creditors, including
state-chartered savings and loan associations; and statechartered
savings banks and mortgage banking companies may originate
alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board, as
succeeded by the OTS, with respect to origination of alternative
mortgage instruments by federal savings and loan associations.
Title VIII provides that any state may reject applicability of
the provisions of Title VIII by adopting, prior to October 15,
1985, a law or constitutional provision expressly rejecting the
applicability of such provisions. Certain states have taken such
action.
Environmental Legislation
Real property pledged as security to a lender may be subject
to certain environmental risks. Under the laws of certain
states, contamination of a property may give to a lien on the
property to assure the costs of clean-up. In several states,
such a lien has priority over the lien of an existing mortgage
against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), a
lender may be liable, as an "owner" or "operator," for costs of
addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or
employees of the lender have become sufficiently involved in the
operations of the borrower, regardless of whether or not the
environmental damage or threat was caused by a prior owner. A
lender also risks such liability on foreclosure of the Mortgaged
Property. Excluded from CERCLA's definition of "owner" or
"operator," however, is a person "who without participating in
the management of the facility, holds indicia of ownership
primarily to protect his security interest." On April 29, 1992,
the United States Environmental Protection Agency ("EPA") issued
a final rule intended to protect lenders from liability under
CERCLA. This rule was in response to a 1990 decision of the
United States Court of Appeals for the Eleventh Circuit, United
States v. Fleet Factors Corp., which narrowly construed the
security interest exemption under CERCLA to hold lenders liable
if they had the capacity to influence their borrower's management
of hazardous waste. While the scope of permissible activities in
which a lender may engage to protect its security interest is
still uncertain and the rule will not protect a lender against
liability under other laws or theories, EPA's rule provides
conditions under which a lender may demonstrate that it holds
indicia of ownership primarily to protect its security interest
and does not participate in the management of the facility. If a
lender is or becomes liable, it can bring an action for
contribution against the owner or operator who created the
environmental hazard, but that person or entity may be bankrupt
or otherwise judgment proof. Such clean-up costs may be
substantial. It is possible that such costs could become a
liability of the Trust Estate and occasion a loss to
Certificateholders in certain circumstances described above if
such remedial costs were incurred.
At the time the Mortgage Loans were originated, it is
possible that no environmental assessment or a very limited
environmental assessment of the Mortgaged Properties was
conducted.
The Pooling and Servicing Agreement or Servicing Agreement,
as applicable, will provide that the Master Servicer or the
Servicer, as applicable, acting on behalf of the Trust Fund, may
not acquire title to a Mortgaged Property underlying a Loan or
take over its operation unless the Master Servicer or the
Servicer, as applicable, as previously determined, based upon a
report prepared by a person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with
applicable environmental laws and regulations or, if not, that
taking such actions as are necessary to bring the Mortgaged
Property in compliance therewith is reasonably likely to produce
a greater recovery on a present value basis than not taking such
actions and (ii) there are no circumstances or conditions present
that have resulted in any contamination or if such circumstances
or conditions are present for which such action could be
required, taking such actions with respect to the Mortgaged
Property is reasonably likely to produce a greater recovery on a
present value basis that not taking such actions.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the anticipated
material federal income tax consequences of the purchase,
ownership and disposition of the Certificates offered hereunder.
This discussion is directed solely to those persons who are the
original holders of the Certificate and who hold the Certificates
as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986 (the "Code") and does not purport
to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which
(such as banks, insurance companies, tax-exempt organizations and
foreign investors) may be subject to special rules. Further, the
authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing
interpretations, which could apply retroactively. Taxpayers
should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where
the anticipated tax treatment has been discussed herein. In
addition to the federal income tax consequences described herein,
potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition
of the Certificates. See "State and Other Tax Consequences."
Certificateholders are advised to consult their own tax advisors
concerning the federal, state, local or other tax consequences to
them of the purchase, ownership and disposition of the
Certificates offered hereunder.
The Federal income tax consequences of an investment in a
Certificate of a Series or a Class thereof will vary depending on
the characteristics of such Certificate. The following
discussion addresses securities of two general types:
(i) certificates ("REMIC Certificates") representing interests in
a Trust Fund, or a portion thereof, which the Trustee will
covenant to elect to have treated as a real estate mortgage
investment conduit ("REMIC") under Sections 860A through 860G
(the "REMIC Provisions") of the Code and (ii) certificates
("Grantor Trust Certificates") representing certain interests in
a Trust Fund ("Grantor Trust Fund") which the Master Servicer or
the Trustee will covenant not to elect to have treated as a
REMIC. The Prospectus Supplement for each series of Certificates
will indicate whether a REMIC election (or elections) will be
made for the related Trust Fund and, if such an election is to be
made, will identify all "regular interests" and the "residual
interests" in the REMIC. For purposes of this tax discussion,
references to a "Certificateholder" or a "holder" are to the
beneficial owner of a Certificate.
The following discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history,
existing and proposed regulations thereunder, rulings and court
decisions, all as in effect and existing on the date hereof and
all of which are subject to change at any time, possibly on a
retroactive basis. The following discussion is based in part
upon the rules governing original issue discount that are set
forth in Sections 1271-1273 and 1275 of the Code and in the
Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury
regulations issued thereunder (the "REMIC Regulations"). The OID
Regulations do not adequately address certain issues relevant to,
and in some instances provide that they are not applicable to,
securities such as the Certificates.
REMICs
Classification of REMICs
Upon the issuance of each series of REMIC Certificates,
Counsel to the Depositor will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement, the related Trust Fund
(or each applicable portion thereof) will qualify as a REMIC and
the REMIC Certificates offered with respect thereto will be
considered to evidence ownership of "regular interests" ("REMIC
Regular Certificates") or "residual interests" ("REMIC Residual
Certificates") in that REMIC within the meaning of the REMIC
Provisions.
If an entity electing to be treated as a REMIC fails to
comply with one or more of the ongoing requirements of the Code
for such status during any taxable year, the Code provides that
the entity will not be treated as a REMIC for such year or
thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC
Certificates may not be accorded the status or given the tax
treatment described below. Although the Code authorizes the
Treasury Department to issue regulations providing relief in the
event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be
accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the Trust Fund's income for the period
in which the requirements for such status are not satisfied. The
Pooling and Servicing Agreement with respect to each REMIC will
include provisions designed to maintain the Trust Fund's status
as a REMIC under the REMIC Provisions. It is not anticipated
that the status of any Trust Fund as a REMIC will be terminated.
The following discussion assumes that all requirements for REMIC
qualification will be satisfied by the Trust Fund while there are
any Regular Certificates outstanding.
Qualification as a REMIC
In order for the Trust Fund to qualify as a REMIC, there
must be ongoing compliance on the part of the Trust Fund with the
requirements set forth in the Code. The Trust Fund must fulfill
an asset test, which requires that no more than a de minimis
amount of the assets of the Trust Fund, as of the close of the
third calendar month beginning after the "Startup Day" (which for
purposes of this discussion is the date of issuance of the
Certificates) and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments."
The REMIC Regulations provide a "safe harbor" pursuant to which
the de minimis requirement is met at any time when the aggregate
adjusted basis of the nonqualified assets is less than 1% of the
aggregate adjusted basis of all the Trust Fund's assets. An
entity that fails to meet the safe harbor may nevertheless
demonstrate that it holds no more than a de minimis amount of
nonqualified assets. The Trust Fund must also adopt reasonable
arrangements designed to ensure that "disqualified organizations"
do not hold residual interests and that tax information is
furnished if this restriction is violated.
A qualified mortgage is any obligation (including any
participation or certificate of beneficial ownership therein)
that is principally secured by an interest in real property and,
generally, that is (i) transferred to the Trust Fund on the
Startup Day, (ii) purchased by the Trust Fund within a
three-month period thereafter pursuant to a fixed price contract
in effect on the Startup Day or (iii) received by the REMIC
within such three-month period in replacement for an obligation
transferred to the REMIC on the Startup Day. Qualified mortgages
will also include a regular interest in another REMIC if the
interest is transferred to the Trust Fund on the start-up day in
exchange for regular or residual interests in the Trust Fund. An
obligation is "principally secured by an interest in real
property" if (i) the fair market value of the real property
security is at least 80% of the related Mortgage Loan either at
origination or as of the Startup Day (an original loan-to-value
ratio of not more than 125% with respect to the real property
security) or (ii) substantially all the proceeds of the Mortgage
Loan were used to acquire, improve or protect an interest in real
property that, at the origination date, was the only security for
the Mortgage Loan. In rendering its opinion with respect to
classification of the Trust Fund as a REMIC, Mayer, Brown & Platt
is relying on certain representations in the Agreement and other
documents regarding qualification of the Mortgage Loans as
"qualified mortgages."
Permitted investments include cash flow investments,
qualified reserve assets and foreclosure property. A cash flow
investment is generally an investment of amounts received on or
with respect to qualified mortgages for a temporary period, not
exceeding thirteen months, which investment must earn a return in
the nature of interest. A qualified reserve asset is any
intangible property held for investment that is part of any
reserve reasonably required to be maintained to provide for
payments of expenses or to provide security for payments due on
regular or residual interests that otherwise may be delayed or
defaulted upon because of default (including delinquencies) on
the qualified mortgages or lower than expected reinvestment
returns. Foreclosure property is real property acquired in
connection with the default or imminent default of a qualified
mortgage and generally held for not more than two years, plus
extensions permitted by the Code.
In addition to the foregoing requirements, the various
interests in the Trust Fund also must meet certain requirements.
A REMIC meets the interests test if all of the interests in the
REMIC are either regular interests or residual interests, and
there is one (and only one) class of residual interests (and all
distributions with respect to the residual interests are made pro
rata). A regular interest is an interest in a REMIC that is
issued on the Startup Day with fixed terms, is designated as a
regular interest, unconditionally entitles the holder to receive
a specified principal amount (or other similar amount), and
provides that interest payments (or other similar amounts), if
any, at or before maturity either are payable based on a fixed
rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified
mortgages. A residual interest is an interest in a REMIC other
than a regular interest that is issued on the Startup Day and
that is designated as a residual interest. The REMIC Regulations
provide that an interest in a REMIC may be treated as a regular
interest even if payments with respect to such interest are
subordinated to payments on other interests in the REMIC, and are
dependent on the absence of defaults or delinquencies on
qualified mortgages or permitted investments, lower than
reasonably expected returns on permitted investments, or expenses
incurred by the REMIC. A residual interest is an interest in a
REMIC other than a regular interest that is issued on the Startup
Day and that is designated as a residual interest. The Trust
Fund must also adopt reasonable arrangements designed to ensure
that "disqualified organizations" do not hold residual interests
and that tax information is furnished if this restriction is
violated.
Characterization of Investments in REMIC Certificates
In general, the REMIC Certificates will be "qualifying real
property loans" within the meaning of Section 593(d) of the Code,
"real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code and assets described in Section 7701(a)(19)(C) of the
Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if
95% or more of the assets of the REMIC qualify for any of the
foregoing treatments at all times during a calendar year, the
REMIC Certificates will qualify for the corresponding status in
their entirety for that calendar year. Interest (including
original issue discount) on the REMIC Regular Certificates and
income allocated to the class of REMIC Residual Certificates will
be interest described in Section 856(c)(3)(B) of the Code to the
extent that such Certificates are treated as "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code. In
addition, the REMIC Regular Certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3) of the Code
if transferred to another REMIC on its startup day in exchange
for a regular or residual interest therein. The determination as
to the percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Code will be made with
respect to each calendar quarter based on the average adjusted
basis of each category of the assets held by the REMIC during
such calendar quarter. The REMIC will report those
determinations to Certificateholders in the manner and at the
times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to
Mortgage Loans, payments on Mortgage Loans held pending
distribution on the REMIC Certificates and may include property
acquired by foreclosure held pending sale, and amounts in reserve
accounts. It is unclear whether property acquired by foreclosure
held pending sale, or amounts in reserve accounts would be
considered to be part of the Mortgage Loans, or whether such
assets (to the extent not invested in assets described in the
foregoing sections) otherwise would receive the same treatment as
the Mortgage Loans for purposes of all the foregoing sections.
In addition, in some instances Mortgage Loans may not be treated
entirely as assets described in the foregoing sections. If so,
the related Prospectus Supplement will describe the Mortgage
Loans that may not be so treated. The REMIC Regulations do
provide, however, that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for
purposes of Sections 593(d) and 856(c)(5)(A) of the Code.
Tiered REMIC Structures
For certain series of REMIC Certificates, two or more
separate elections may be made to treat designated portions of
the related Trust Fund as REMICs ("Tiered REMICs") for federal
income tax purposes. Upon the issuance of any such series of
REMIC Certificates, Counsel to the Depositor will deliver its
opinion generally to the effect that, assuming compliance with
all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC
Certificates issued by the Tiered REMICs will be considered to
evidence ownership of REMIC regular interests or REMIC residual
interests in the related REMIC within the meaning of the REMIC
Provisions.
Solely for purposes of determining whether the REMIC
Certificates will be "qualifying real property loans" under
Section 593(d) of the Code, "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code, and "loans secured
by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest
described in Section 856(c)(3)(B) of the Code, the Tiered REMICs
will be treated as one REMIC.
Taxation of Owners of REMIC Regular Certificates
General
Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as
debt instruments issued by the REMIC and not as ownership
interests in the REMIC or its assets. Moreover, holders of REMIC
Regular Certificates that otherwise report income under a cash
method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount
Certain REMIC Regular Certificates may be issued with
"original issue discount" within the meaning of Section 1273(a)
of the Code. Any holders of REMIC Regular Certificates issued
with original issue discount generally will be required to
include original issue discount in income as it accrues, in
accordance with the method described below, in advance of the
receipt of the cash attributable to such income. In addition,
Section 1272(a)(6) of the Code provides special rules applicable
to REMIC Regular Certificates and certain other debt instruments
issued with original issue discount. Regulations have not been
issued under that section.
The Code requires that a prepayment assumption be used with
respect to Mortgage Loans held by a REMIC in computing the
accrual of original issue discount on REMIC Regular Certificates
issued by that REMIC, and that adjustments be made in the amount
and rate of accrual of such discount to reflect differences
between the actual prepayment rate and the prepayment assumption.
The prepayment assumption is to be determined in a manner
prescribed in Treasury regulations; as noted above, those
regulations have not been issued. The Conference Committee
Report (the "Committee Report") accompanying the Tax Reform Act
of 1986 indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular
Certificate must be the same as that used in pricing the initial
offering of such REMIC Regular Certificate. The prepayment
assumption (the "Prepayment Assumption") used in reporting
original issue discount for each series will be consistent with
this standard and will be disclosed in the related Prospectus
Supplement. However, neither the Depositor, any Master Servicer
nor the Trustee will make any representation that the Mortgage
Loans will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular
Certificate will be the excess of its stated redemption price
over its issue price. In general, unless otherwise disclosed in
the applicable Prospectus Supplement, the issue price of a
particular class of REMIC Regular Certificates issued hereunder
will be the first cash price at which a substantial amount of
REMIC Regular Certificates of that class is sold (excluding sales
to bond houses, brokers and underwriters). Under the OID
Regulations, the stated redemption price of a REMIC Regular
Certificate is equal to the total of all payments to be made on
such Certificate other than "qualified stated interest."
"Qualified stated interest" generally includes, among other
rates, interest that is unconditionally payable at least annually
at a single fixed rate, at a "qualified floating rate," or a
combination of a single fixed rate and one or more "qualified
floating rates."
In the case of REMIC Regular Certificates bearing adjustable
interest rates, the determination of the total amount of original
issue discount and the timing of the inclusion thereof will vary
according to the characteristics of such REMIC Regular
Certificates. If the original issue discount rules apply to such
Certificates, the related Prospectus Supplement will describe the
manner in which such rules will be applied with respect to those
Certificates in preparing information returns to the
Certificateholders and the Internal Revenue Service (the "IRS").
Certain classes of the REMIC Regular Certificates may
provide for the first interest payment with respect to such
Certificates to be made more than one month after the date of
issuance, a period which is longer than the subsequent monthly
intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each
monthly period that ends on a Distribution Date, in some cases,
as a consequence of this "long first accrual period," all
interest payments may be required to be included in the stated
redemption price of the REMIC Regular Certificate and accounted
for as original discount. Because interest on REMIC Regular
Certificates must in any event be accounted for under an accrual
method, applying this analysis would result in only a slight
difference in the timing of the inclusion in income of the yield
on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that
begins prior to the Closing Date, a portion of the purchase price
paid for a REMIC Regular Certificate will reflect such accrued
interest. In such cases, information returns to the
Certificateholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued
with respect to periods prior to the Closing Date is treated as
part of the overall cost of such REMIC Regular Certificate (and
not as a separate asset the cost of which is recovered entirely
out of interest received on the next Distribution Date) and that
the portion of the interest paid on the first Distribution Date
in excess of interest accrued for a number of days corresponding
to the number of days from the Closing Date to the first
Distribution Date should be included in the stated redemption
price of such REMIC Regular Certificate. However, the OID
Regulations state that all or some portion of such accrued
interest may be treated as a separate asset the cost of which is
recovered entirely out of interest paid on the first Distribution
Date. It is unclear how an election to do so would be made under
the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue
discount, original issue discount on a REMIC Regular Certificate
will be considered to be de minimis if it is less than 0.25% of
the stated redemption price of the REMIC Regular Certificate
multiplied by its weighted average life. For this purpose, the
weighted average life of the REMIC Regular Certificate is
computed as the sum of the amounts determined, as to each payment
included in the stated redemption price of such REMIC Regular
Certificate, by multiplying (i) the number of complete years
(rounding down for partial years) from the issue date until such
payment is expected to be made (presumably taking into account
the Prepayment Assumption) by (ii) a fraction, the numerator of
which is the amount of payment, and the denominator of which is
the stated redemption price at maturity of such REMIC Regular
Certificate. Under the OID Regulations, original issue discount
of only a de minimis amount (other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or an
initial interest holiday) will be included in income as each
payment of stated principal is made, based on the product of the
total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of such principal
payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID
Regulations also would permit a Certificateholder to elect to
accrue de minimis original issue discount into income currently
based on a constant yield method. See "-Taxation of Owners of
REMIC Regular Certificates-Market Discount" for a description of
such election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is
in excess of a de minimis amount, the holder of such Certificate
must include in ordinary gross income the sum of the "daily
portions" of original issue discount for each day during its
taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date.
In the case of an original holder of a REMIC Regular Certificate,
the daily portions of original issue discount will be determined
as follows.
As to each "accrual period," that is, unless otherwise
stated in the related Prospectus Supplement, each period that
ends on a date that corresponds to a Distribution Date and begins
on the first day following the immediately preceding accrual
period (or in the case of the first such period, begins on the
Closing Date), a calculation will be made of the portion of the
original issue discount that accrued during such accrual period.
The portion of original issue discount that accrues in any
accrual period will equal the excess, if any, of (i) the sum of
(A) the present value, as of the end of the accrual period, of
all of the distributions remaining to be made on the REMIC
Regular Certificate, if any, in future periods and (B) the
distributions made on such REMIC Regular Certificate during the
accrual period of amounts included in the stated redemption
price, over (ii) the adjusted issue price of such REMIC Regular
Certificate at the beginning of the accrual period. The present
value of the remaining distributions referred to in the preceding
sentence will be calculated (i) assuming that distributions on
the REMIC Regular Certificate will be received in future periods
based on the Mortgage Loans being prepaid at a rate equal to the
Prepayment Assumption and (ii) using a discount rate equal to the
original yield to maturity of the Certificate. For these
purposes, the original yield to maturity of the Certificate will
be calculated based on its issue price and assuming that
distributions on the Certificate will be made in all accrual
periods based on the Mortgage Loans being prepaid at a rate equal
to the Prepayment Assumption. The adjusted issue price of a
REMIC Regular Certificate at the beginning of any accrual period
will equal the issue price of such Certificate, increased by the
aggregate amount of original issue discount that accrued with
respect to such Certificate in prior accrual periods, and reduced
by the amount of any distributions made on such REMIC Regular
Certificate in prior accrual periods of amounts included in the
stated redemption price. The original issue discount accruing
during any accrual period, computed as described above, will be
allocated ratably to each day during the accrual period to
determine the daily portion of original issue discount for such
day.
A subsequent purchaser of a REMIC Regular Certificate that
purchases such Certificate at a cost (excluding any portion of
such cost attributable to accrued qualified stated interest) less
than its remaining stated redemption price will also be required
to include in gross income the daily portions of any original
issue discount with respect to such Certificate. However, each
such daily portion will be reduced, if such cost is in excess of
the REMIC Regular Certificate's "adjusted issue price," in
proportion to the ratio such excess bears to the aggregate
original issue discount remaining to be accrued on such REMIC
Regular Certificate. The adjusted issue price of a REMIC Regular
Certificate on any given day equals the sum of (i) the adjusted
issue price (or, in the case of the first accrual period, the
issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of
original issue discount for all days during such accrual period
prior to such day.
Market Discount
A Certificateholder that purchases a REMIC Regular
Certificate at a market discount, that is, in the case of a REMIC
Regular Certificate issued without original issue discount, at a
purchase price less than its remaining stated principal amount,
or in the case of a REMIC Regular Certificate issued with
original issue discount, at a purchase price less than its
adjusted issue price will recognize gain upon receipt of each
distribution representing stated redemption price. In
particular, under Section 1276 of the Code such a
Certificateholder generally will be required to allocate the
portion of each such distribution representing stated redemption
price first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A
Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred
basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable
year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue
discount) and premium in income as interest, based on a constant
yield method. If such an election were made with respect to a
REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all
other debt instruments having market discount that such
Certificateholder acquires during the taxable year of the
election or thereafter, and possibly previously acquired
instruments. Similarly, a Certificateholder that made this
election for a Certificate that is acquired at a premium would be
deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "Taxation of
Owners of REMIC Regular Certificates-Premium." Each of these
elections to accrue interest, discount and premium with respect
to a Certificate on a constant yield method or as interest would
be irrevocable. Investors should consult their own tax advisors
regarding the application of the market discount rules and the
advisability of making any of the elections provided by the Code
relating to the timing of recognition of market discount.
However, market discount with respect to a REMIC Regular
Certificate will be considered to be de minimis for purposes of
Section 1276 of the Code if such market discount is less than
0.25% of the remaining stated redemption price of such REMIC
Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In
interpreting a similar rule with respect to original issue
discount on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied
with respect to market discount, presumably taking into account
the Prepayment Assumption. If market discount is treated as de
minimis under this rule, it appears that the actual discount
would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount." Such treatment would
result in discount being included in income at a slower rate than
discount would be required to be included in income using the
method described above.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal
of which is payable in more than one installment. Until
regulations are issued by the Treasury Department certain rules
described in the Committee Report will apply. The Committee
Report indicates that in each accrual period market discount on
REMIC Regular Certificates should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield
method, (ii) in the case of a REMIC Regular Certificate issued
without original issue discount, in an amount that bears the same
ratio to the total remaining market discount as the stated
interest paid in the accrual period bears to the total amount of
stated interest remaining to be paid on the REMIC Regular
Certificate as of the beginning of the accrual period, or
(iii) in the case of a REMIC Regular Certificate issued with
original issue discount, in an amount that bears the same ratio
to the total remaining market discount as the original issue
discount accrued in the accrual period bears to the total
original issue discount remaining on the REMIC Regular
Certificate at the beginning of the accrual period. Moreover,
the Prepayment Assumption used in calculating the accrual of
original issue discount is also used in calculating the accrual
of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict
what effect such regulations might have on the tax treatment of a
REMIC Regular Certificate purchased at a discount in the
secondary market.
To the extent that REMIC Regular Certificates provide for
monthly or other periodic distributions throughout their term,
the effect of these rules may be to require market discount to be
includible in income at a rate that is not significantly slower
than the rate at which such discount would accrue if it were
original issue discount. Moreover, in any event a holder of a
REMIC Regular Certificate generally will be required to treat a
portion of any gain on the sale or exchange of such Certificate
as ordinary income to the extent of the market discount accrued
to the date of disposition under one of the foregoing methods,
less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC
Regular Certificate may be required to defer a portion of its
interest deductions for the taxable year attributable to any
indebtedness incurred or continued to purchase or carry such
Regular Certificate. For these purposes, the de minimis rule
referred to above applies. Any such deferred interest expense
would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in
income. If such holder elects to include market discount in
income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium
A REMIC Regular Certificate purchased at a cost (excluding
any portion of such cost attributable to accrued qualified stated
interest) greater than its remaining stated redemption price will
be considered to be purchased at a premium. The holder of such a
REMIC Regular Certificate may elect under Section 171 of the Code
to amortize such premium under the constant yield method over the
life of the Certificate. If made, such an election will apply to
all debt instruments having amortizable bond premium that the
holder owns or subsequently acquires. Amortizable premium will
be treated as an offset to interest income on the related debt
instrument rather than as a separate interest deduction. The OID
Regulations also permit Certificateholders to elect to account
for all interest, discount and premium based on a constant yield
method, further treating the Certificateholder as having made the
election to amortize premium generally. See "Taxation of Owners
of REMIC Regular Certificates-Market Discount." The Committee
Report states that the same rules that apply to accrual of market
discount (which rules will require use of a prepayment assumption
in accruing market discount with respect to REMIC Regular
Certificates without regard to whether such Certificates have
original issue discount) will also apply in amortizing bond
premium under Section 171 of the Code.
Effects of Defaults and Delinquencies
Each holder of a REMIC Regular Certificate will be required
to accrue interest and original issue discount with respect to
such Certificates, without giving effect to any reductions in
distributions attributable to defaults or delinquencies on the
Mortgage Loans until it can be established that any such
reduction ultimately will not be recoverable. As a result, the
amount of taxable income reported in any period by the holder of
a REMIC Regular Certificate could exceed the amount of economic
income actually realized by the holder in such period. Although
the holder of a REMIC Regular Certificate eventually will
recognize a loss or reduction in income attributable to
previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear
with respect to the timing and character of such loss or
reduction in income.
Taxation of Owners of REMIC Residual Certificates
General
As residual interests, the REMIC Residual Certificates will
be subject to tax rules that differ significantly from those that
would apply if the REMIC Residual Certificates were treated for
federal income tax purposes as direct ownership interests in the
Mortgage Loans or as debt instruments issued by the REMIC.
Any payments received by a holder of a REMIC Residual
Certificate in connection with the acquisition of such REMIC
Residual Certificate will be taken into account in determining
the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be
includible in income immediately upon its receipt, the IRS might
assert that such payment should be included in income over time
according to an amortization schedule or according to some other
method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such
payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will
be required to report (or the tax liability associated with such
income) may exceed the amount of cash distributions received from
the REMIC for the corresponding period. Consequently, REMIC
Residual Certificateholders should have other sources of funds
sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated
deductions against which income may be offset, subject to the
rules relating to "excess inclusions," residual interests without
"significant value" and "noneconomic" residual interests
discussed below. The fact that the tax liability associated with
the income allocated to REMIC Residual Certificateholders may
exceed the cash distributions received by such REMIC Residual
Certificateholders for the corresponding period may significantly
adversely affect such REMIC Residual Certificateholders'
after-tax rate of return.
Taxable Income of the REMIC
In general, the taxable income of the REMIC will be
determined in the same manner as if the REMIC were an individual
using the accrual method of accounting, with certain adjustments.
Thus, the taxable income of the REMIC will generally reflect a
netting of (i) the income from the Mortgage Loans and other
assets of the REMIC and (ii) the deductions allowed to the REMIC
for interest (including original issue discount) on the REMIC
Regular Certificates (and any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered
hereby), amortization of any premium on the Mortgage Loans, bad
debt losses with respect to the Mortgage Loans and, except as
described below, servicing, administrative and other expenses.
The limitation on miscellaneous itemized deductions imposed on
individuals by Code Section 67 will not be applied at the REMIC
level to such expenses. See "Possible Passthrough of
Miscellaneous Itemized Deductions" below.
For purposes of determining its taxable income, the REMIC
will have an initial aggregate basis in its assets equal to the
sum of the issue prices of all REMIC Certificates (or, if a class
of REMIC Certificates is not sold initially, their fair market
values). Such aggregate basis will be allocated among the
Mortgage Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any
REMIC Certificates offered hereby will be determined in the
manner described above under "-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount." The issue price
of a REMIC Certificate received in exchange for an interest in
the Mortgage Loans or other property will equal the fair market
value of such interests in the Mortgage Loans or other property.
Accordingly, if one or more classes of REMIC Certificates are
retained initially rather than sold, the Trustee may be required
to estimate the fair market value of such interests in order to
determine the basis of the REMIC in the Mortgage Loans and other
property held by the REMIC.
Subject to possible application of the de minimis rules, the
method of accrual by the REMIC of original issue discount income
and market discount income with respect to Mortgage Loans that it
holds will be equivalent to the method for accruing original
issue discount income for holders of REMIC Regular Certificates
(that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at
a market discount must include such market discount in income
currently as it accrues, on a constant yield basis. See
"-Taxation of Owners of REMIC Regular Certificates" above, which
describes a method for accruing such discount income that is
analogous to that required to be used by a REMIC as to Mortgage
Loans with market discount that it holds.
A Mortgage Loan will be deemed to have been acquired with
discount (or premium) to the extent that the REMIC's basis
therein, determined as described above, is less than (or greater
than) its stated redemption price. Any such discount will be
includible in the income of the REMIC as it accrues, in advance
of the cash attributable to such income, under a method similar
to the method described above for accruing original issue
discount on the REMIC Regular Certificates. It is anticipated
that the REMIC will elect under Section 171 of the Code to
amortize any premium on the Mortgage Loans. Premium on any
Mortgage Loan to which such election applies may be amortized
under a constant yield method, presumably taking into account the
Prepayment Assumption. Further, such an election would not apply
to any Mortgage Loan originated on or before September 27, 1985.
Instead, premium on such a Mortgage Loan should be allocated
among the principal payments thereon and be deductible by the
REMIC as those payments become due or upon the prepayment of such
Mortgage Loan.
A REMIC will be allowed deductions for interest (including
original issue discount) on the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) equal to the
deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates
constituting "regular interests" in the REMIC not offered hereby)
were indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under
"-Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount," except that the de minimis rule and the adjustments
for subsequent holders of REMIC Regular Certificates (including
any other class of REMIC Certificates constituting "regular
interests" in the REMIC not offered hereby) described therein
will not apply.
If a class of REMIC Regular Certificates is issued at a
price in excess of the stated redemption price of such class
(such excess "Issue Premium"), the net amount of interest
deductions that are allowed the REMIC in each taxable year with
respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium
that is considered to be amortized or repaid in that year.
Although the matter is not entirely certain, it is likely that
Issue Premium would be amortized under a constant yield method in
a manner analogous to the method of accruing original issue
discount described above under "-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount."
As a general rule, the taxable income of a REMIC will be
determined in the same manner as if the REMIC were an individual
having the calendar year as its taxable year and using the
accrual method of accounting. However, no item of income, gain,
loss or deduction allocable to a prohibited transaction will be
taken into account. See "-Prohibited Transactions and Other
Possible REMIC Taxes" below. Further, the limitation on
miscellaneous itemized deductions imposed on individuals by
Section 67 of the Code (which allows such deductions only to the
extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so
that the REMIC will be allowed deductions for servicing,
administrative and other non-interest expenses in determining its
taxable income. All such expenses will be allocated as a
separate item to the holders of REMIC Certificates, subject to
the limitation of Section 67 of the Code. See "-Possible
Pass-Through of Miscellaneous Itemized Deductions." If the
deductions allowed to the REMIC exceed its gross income for a
calendar quarter, such excess will be the net loss for the REMIC
for that calendar quarter.
Basis Rules, Net Losses and Distributions
The adjusted basis of a REMIC Residual Certificate will be
equal to the amount paid for such Certificate, increased by
amounts included in the income of the REMIC Residual
Certificateholder and decreased (but not below zero) by
distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder may not take into account
any net loss for any calendar quarter to the extent such net loss
exceeds such REMIC Residual Certificateholder's adjusted basis in
its REMIC Residual Certificate as of the close of such calendar
quarter (determined without regard to such net loss). Any loss
that is not currently deductible by reason of this limitation may
be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income
from the REMIC Residual Certificate. The ability of REMIC
Residual Certificateholders to deduct net losses may be subject
to additional limitations under the Code, as to which REMIC
Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be
treated as a non-taxable return of capital to the extent it does
not exceed the holder's adjusted basis in such Certificate. To
the extent a distribution on a REMIC Residual Certificate exceeds
such adjusted basis, it will be treated as gain from the sale of
such Certificate. Holders of certain REMIC Residual Certificates
may be entitled to distributions early in the term of the related
REMIC under circumstances in which their bases in such REMIC
Residual Certificates will not be sufficiently large that such
distributions will be treated as nontaxable returns of capital.
Their bases in such REMIC Residual Certificates will initially
equal the amount paid for such REMIC Residual Certificates and
will be increased by their allocable shares of the taxable income
of the REMIC. However, such basis increases may not occur until
the end of the calendar quarter, or perhaps the end of the
calendar year, with respect to which such REMIC taxable income is
allocated to the REMIC Residual Certificateholders. To the
extent such REMIC Residual Certificateholders' initial bases are
less than the distributions to such REMIC Residual
Certificateholders, and increases in such initial bases either
occur after such distributions or (together with their initial
bases) are less than the amount of such distributions, gain will
be recognized to such REMIC Residual Certificateholders on such
distributions and will be treated as gain from the sale of their
REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual
Certificateholder 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 or upon the sale of its REMIC Residual Certificate. See
"-Sales of REMIC Certificates," below. For a discussion of
possible modifications of these rules that may require
adjustments to income of a holder of a REMIC Residual Certificate
other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC
Residual Certificateholder and the adjusted basis such REMIC
Residual Certificate would have had in the hands of an original
holder, see "-Taxation of Owners of REMIC Residual
Certificates-General."
Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual
Certificate will, with an exception discussed below for certain
REMIC Residual Certificates held by thrift institutions, be
subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC
Residual Certificate for any calendar quarter will be the excess,
if any, of (i) the daily portions of REMIC taxable income
allocable to such REMIC Residual Certificate over (ii) the sum of
the "daily accruals" (as defined below) for each day during such
quarter that such REMIC Residual Certificate was held by the
REMIC Residual Certificateholder. The daily accruals of a REMIC
Residual Certificateholder will be determined by allocating to
each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual
Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For
this purpose, the adjusted issue price of a REMIC Residual
Certificate as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Certificate,
increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with
respect to such REMIC Residual Certificate before the beginning
of such quarter. The issue price of a REMIC Residual Certificate
is the initial offering price to the public (excluding bond
houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal rate" is
an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published
monthly by the IRS.
For REMIC Residual Certificateholders, an excess inclusion
(i) will not be permitted to be offset by deductions, losses or
loss carryovers from other activities, (ii) will be treated as
"unrelated business taxable income" to an otherwise tax-exempt
organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with
respect to the 30% United States withholding tax imposed on
distributions to REMIC Residual Certificateholders that are
foreign investors. See, however, "-Foreign Investors in REMIC
Certificates," below.
As an exception to the general rules described above, thrift
institutions are allowed to offset their excess inclusions with
unrelated deductions, losses or loss carryovers, but only if the
REMIC Residual Certificates are considered to have "significant
value." The REMIC Regulations provide that in order to be
treated as having significant value, the REMIC Residual
Certificates must have an aggregate issue price at least equal to
two percent of the aggregate issue prices of all of the related
REMIC's Regular and Residual Certificates. In addition, based on
the Prepayment Assumption, the anticipated weighted average life
of the REMIC Residual Certificates must equal or exceed 20
percent of the anticipated weighted average life of the REMIC,
based on the Prepayment Assumption and on any required or
permitted clean up calls or required qualified liquidation
provided for in the REMIC's organizational documents. Although
it has not done so, the Treasury also has authority to issue
regulations that would treat the entire amount of income accruing
on a REMIC Residual Certificate as an excess inclusion if the
REMIC Residual Certificates are considered not to have
"significant value." The related Prospectus Supplement will
disclose whether offered REMIC Residual Certificates may be
considered to have "significant value" under the REMIC
Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will have "significant value" will be based
upon certain assumptions, and the Depositor will make no
representation that a REMIC Residual Certificate will have
"significant value" for purposes of the above-described rules.
The above described exception for thrift institutions applies
only to those residual interests held directly by, and
deductions, losses and loss carryovers incurred by, such
institutions (and not by other members of an affiliated group of
corporations filing a consolidated income tax return) or by
certain wholly owned direct subsidiaries of such institutions
formed or operated exclusively in connection with the
organization and operation of one or more REMICs.
In the case of any REMIC Residual Certificates held by a
real estate investment trust, the aggregate excess inclusions
with respect to such Certificates, reduced (but not below zero)
by the real estate investment trust taxable income (within the
meaning of Section 857(b)(2) of the Code, excluding any net
capital gain), will be allocated among the shareholders of such
trust in proportion to the dividends received by such
shareholders from such trust, and any amount so allocated will be
treated as an excess inclusion with respect to a REMIC Residual
Certificate as if held directly by such shareholder. The Code
provides that similar rules will apply to regulated investment
companies, common trust funds and certain cooperatives.
Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, a transfer of a "noneconomic"
REMIC Residual Certificate will be disregarded for all federal
income tax purposes if "a significant purpose of the transfer was
to enable the transferor to impede the assessment or collection
of tax." If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with
respect to the income on such "noneconomic" REMIC Residual
Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is noneconomic unless, based on the Prepayment
Assumption and on any required or permitted clean up calls or
required qualified liquidation provided for in the REMIC's
organizational documents, (1) the present value of the expected
future distributions (discounted using the "applicable Federal
rate" for obligations whose term ends on the close of the last
quarter in which excess inclusions are expected to accrue with
respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) on the REMIC Residual
Certificate equals at least the present value of the expected tax
on the anticipated excess inclusions, and (2) the transferor
reasonably expects that the transferee will receive distributions
with respect to the REMIC Residual Certificate at or after the
time the taxes accrue on the anticipated excess inclusions in an
amount sufficient to satisfy the accrued taxes. Accordingly, all
transfers of REMIC Residual Certificates that may constitute
noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing
Agreement that are intended to reduce the possibility of any such
transfer being disregarded. Such restrictions will require each
party to a transfer to provide an affidavit that no purpose of
such transfer is to impede the assessment or collection of tax,
including certain representations as to the financial condition
of the prospective transferee, as to which the transferor will
also be required to make a reasonable investigation to determine
such transferee's historic payments of its debts and ability to
continue to pay its debts as they come due in the future. Prior
to purchasing a REMIC Residual Certificate, prospective
purchasers should consider the possibility that a purported
transfer of such REMIC Residual Certificate by such a purchaser
to another purchaser at some future date might be disregarded in
accordance with the above-described rules, which would result in
the retention of tax liability by such purchaser.
The related Prospectus Supplement will disclose whether
offered REMIC Residual Certificates may be considered
"noneconomic" residual interests under the REMIC Regulations;
provided, however, that any disclosure that a REMIC Residual
Certificate will not be considered "noneconomic" will be based
upon certain assumptions, and the Depositor will make no
representation that a REMIC Residual Certificate will not be
considered "noneconomic" for purposes of the above-described
rules. See "-Foreign Investors In REMIC Certificates-REMIC
Residual Certificates" below for additional restrictions
applicable to transfers of certain REMIC Residual Certificates to
foreign persons.
Mark-to-Market Rules and Non-Availability of Inventory
Accounting
On December 28, 1993, the IRS released temporary regulations
(the "Mark-to-Market Regulations") relating to the requirement
that a securities dealer mark to market securities held for sale
to customers. This Mark-to-Market requirement applies to all
securities owned by a dealer, except to the extent that the
dealer has specifically identified a security as held for
investment. The Mark-to-Market Regulations provide that for
purposes of this mark-to-market requirement, a "negative value"
REMIC Residual Certificate is not treated as a security and thus
generally may not be marked to market. This exclusion from the
mark-to-market requirement is expanded to include all REMIC
Residual Certificates under proposed Treasury regulations
published January 4, 1995 which provide that any REMIC Residual
Certificate issued after January 4, 1995 will not be treated as a
security and therefore generally may not be marked to market.
Prospective purchasers of a REMIC Residual Certificate should
consult their tax advisors regarding the possible application of
the mark-to-market requirement to REMIC Residual Certificates.
The IRS has recently issued Revenue Ruling 95-81, which
provides that taxpayers may not use an inventory method of
accounting to account for residual interests in a REMIC.
Possible Pass-Through of Miscellaneous Itemized Deductions
Fees and expenses of a REMIC generally will be allocated to
the holders of the REMIC Residual Certificates. The applicable
Treasury regulations indicate, however, that in the case of a
REMIC that is similar to a single class grantor trust, all or a
portion of such fees and expenses should be allocated to the
holders of the related REMIC Regular Certificates. Unless
otherwise stated in the related Prospectus Supplement, such fees
and expenses will be allocated to holders of the related REMIC
Residual Certificates in their entirety and not to the holders of
the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees
and expenses in accordance with the preceding discussion, if any
holder thereof is an individual, estate or trust, or a
"pass-through entity" beneficially owned by one or more
individuals, estates or trusts, (i) an amount equal to such
individual's, estate's or trust's share of such fees and expenses
will be added to the gross income of such holder and (ii) such
individual's, estate's or trust's share of such fees and expenses
will be treated as a miscellaneous itemized deduction allowable
subject to the limitation of Section 67 of the Code, which
permits such deductions only to the extent they exceed in the
aggregate two percent of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of
itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a specified amount will be reduced
by the lesser of (i) 3% of the excess of the individual's
adjusted gross income over such amount or (ii) 80% of the amount
of itemized deductions otherwise allowable for the taxable year.
The amount of additional taxable income reportable by holders of
such Certificates that are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an
individual, estate or trust, or a "pass-through entity"
beneficially owned by one or more individuals, estates or trusts,
no deduction will be allowed for such holder's allocable portion
of servicing fees and other miscellaneous itemized deductions of
the REMIC, even though an amount equal to the amount of such fees
and other deductions will be included in such holder's gross
income. Accordingly, such REMIC Certificates may not be
appropriate investments for individuals, estates or trusts, or
pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors
should carefully consult with their own tax advisors prior to
making an investment in such Certificates.
Sales of REMIC Certificates
If a REMIC Certificate is sold, the selling
Certificateholder will recognize gain or loss equal to the
difference between the amount realized on the sale and its
adjusted basis in the REMIC Regular Certificate. The adjusted
basis of a REMIC Regular Certificate generally will equal the
cost of such REMIC Regular Certificate to such Certificateholder,
increased by income reported by such Certificateholder with
respect to such REMIC Regular Certificate (including original
issue discount and market discount income) and reduced (but not
below zero) by distributions on such REMIC Regular Certificate
received by such Certificateholder and by any amortized premium.
The adjusted basis of a REMIC Residual Certificate will be
determined as described under "-Taxation of Owners of REMIC
Residual Certificates-Basis Rules, Net Losses and Distributions."
Except as provided in the following two paragraphs, any such gain
or loss 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 Section 1221 of the Code.
The Code as of the date of this prospectus provides for a top
marginal tax rate of 39.6% for individuals and a maximum marginal
rate for long-term capital gains of individuals of 28%. No such
rate differential exists for corporations. In addition, the
distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might
otherwise be capital gain will be treated as ordinary income to
the extent such gain does not exceed the excess, if any, of (i)
the amount that would have been includible in the seller's income
with respect to such REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the
"applicable Federal rate" (generally a rate based on an average
of current yields on Treasury securities having a maturity
comparable to that of the Certificate based on the application of
the Prepayment Assumption to such Certificate, which rate is
computed and published monthly by the IRS), determined as of the
date of purchase of such Certificate, over (ii) the amount of
ordinary income actually includible in the seller's income prior
to such sale. In addition, gain recognized on the sale of a
REMIC Regular Certificate by a seller who purchased such
Certificate at a market discount will be taxable as ordinary
income in an amount not exceeding the portion of such discount
that accrued during the period such REMIC Certificate was held by
such holder, reduced by any market discount included in income
under the rules described above under "-Taxation of Owners of
REMIC Regular Certificates-Market Discount and-Premium."
REMIC Certificates will be "evidences of indebtedness"
within the meaning of Section 582(c)(1) of the Code, so that gain
or loss recognized from the sale of a REMIC Certificate by a bank
or thrift institution to which such section applies will be
ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular
Certificate that might otherwise be capital gain may be treated
as ordinary income to the extent that such Certificate is held as
part of a "conversion transaction" within the meaning of Section
1258 of the Code. A conversion transaction generally is one in
which the taxpayer has taken two or more positions in the same or
similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the
time value of the taxpayer's net investment in such transaction.
The amount of gain so realized in a conversion transaction that
is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's
net investment at 120% of the appropriate "applicable Federal
rate" (which rate is computed and published monthly by the IRS)
at the time the taxpayer enters into the conversion transaction,
subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order
to include such net capital gain in total net investment income
for the taxable year, for purposes of the rule that limits the
deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment
income.
Except as may be provided in Treasury regulations yet to be
issued, if the seller of a REMIC Residual Certificate reacquires
a REMIC Residual Certificate, or acquires any other residual
interest in a REMIC or any similar interest in a "taxable
mortgage pool" (as defined in Section 7701(i) of the Code) during
the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the
"wash sale" rules of Section 1091 of the Code. In that event,
any loss realized by the Residual Certificateholder on the sale
will not be deductible, but instead will be added to such REMIC
Residual Certificateholder's adjusted basis in the newly acquired
asset.
Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMICs equal to 100% of the net
income derived from "prohibited transactions" (a "Prohibited
Transaction Tax"). In general, subject to certain specified
exceptions, a prohibited transaction means the disposition of a
Mortgage Loan, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an
asset purchased with the payments on the Mortgage Loans for
temporary investment pending distribution on the REMIC
Certificates. It is not anticipated that any REMIC will engage
in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the
day on which the REMIC issues all of its interests could result
in the imposition of a tax on the REMIC equal to 100% of the
value of the contributed property (a "Contributions Tax"). Each
Pooling and Service Agreement will include provisions designed to
prevent the acceptance of any contributions that would be subject
to such tax.
REMICs also are subject to federal income tax at the highest
corporate rate on "net income from foreclosure property,"
determined by reference to the rules applicable to real estate
investment trusts. "Net income from foreclosure property"
generally means gain from the sale of a foreclosure property that
is inventory property and gross income from foreclosure property
other than qualifying rents and other qualifying income for a
real estate investment trust. Unless otherwise disclosed in the
related Prospectus Supplement, it is not anticipated that any
REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus
Supplement, it is not anticipated that any material state or
local income or franchise tax will be imposed on any REMIC.
Unless otherwise stated in the related Prospectus
Supplement, and to the extent permitted by then applicable laws,
any Prohibited Transactions Tax, Contributions Tax, tax on "net
income from foreclosure property" or state or local income or
franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or Trustee, in either case out of its
own funds, provided that the Master Servicer or the Trustee, as
the case may be, has sufficient assets to do so, and provided
further that such tax arises out of a breach of the Master
Servicer's or the Trustee's obligations, as the case may be,
under the related Pooling and Servicing Agreement and in respect
of compliance with applicable laws and regulations. Any such tax
not borne by the Master Servicer or the Trustee will be charged
against the related Trust Fund, resulting in a reduction in
amounts payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual
Certificates to Certain Organizations.
If a REMIC Residual Certificate is transferred to a
"disqualified organization" (as defined below), a tax would be
imposed in an amount (determined under the REMIC Regulations)
equal to the product of (i) the present value (discounted using
the "applicable Federal rate" for obligations whose term ends on
the close of the last quarter in which excess inclusions are
expected to accrue with respect to the REMIC Residual
Certificate, which rate is computed and published monthly by the
IRS) of the total anticipated excess inclusions with respect to
such REMIC Residual Certificate for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable
to corporations. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is
transferred and must be based on events that have occurred up to
the time of such transfer, the Prepayment Assumption and any
required or permitted clean up calls or required qualified
liquidation provided for in the REMIC's organizational documents.
Such a tax would be generally imposed on the transferor of the
REMIC Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would
instead be imposed on such agent. However, a transferor of a
REMIC Residual Certificate would in no event be liable for such
tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit that the transferee is not a disqualified
organization, and, as of the time of the transfer, the transferor
did not have actual knowledge that such affidavit was false.
Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual
interests in such entity are not held by disqualified
organizations and (ii) information necessary for the application
of the tax described herein will be made available. Restrictions
on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be
included in the related Pooling and Servicing Agreement, and will
be discussed more fully in any Prospectus Supplement relating to
the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below)
includes in income excess inclusions with respect to a REMIC
Residual Certificate and a disqualified organization is the
record holder of an interest in such entity, then a tax will be
imposed on such entity equal to the product of (i) the amount of
excess inclusions on the REMIC Residual Certificate that are
allocable to the interest in the pass-through entity held by such
disqualified organization and (ii) the highest marginal federal
income tax rate imposed on corporations. A pass-through entity
will not be subject to this tax for any period, however, if each
record holder of an interest in such pass-through entity
furnishes to such pass-through entity (i) such holder's social
security number and a statement under penalty of perjury that
such social security number is that of the record holder or (ii)
a statement under penalty of perjury that such record holder is
not a disqualified organization.
For these purposes, a "disqualified organization" means (i)
the United States, any State or political subdivision thereof,
any foreign government, any international organization, or any
agency or instrumentality of the foregoing (not including
instrumentalities described in Section 168(h)(2)(D) of the Code
or the Federal Home Loan Mortgage Corporation), (ii) any
organization (other than a cooperative described in Section 521
of the Code) that is exempt from federal income tax, unless it is
subject to the tax imposed by Section 511 of the Code or (iii)
any organization described in Section 1381(a)(2)(C) of the Code.
For these purposes, a "pass-through entity" means any regulated
investment company, real estate investment trust, trust,
partnership or certain other entities described in Section
860E(e)(6) of the Code. In addition, a person holding an
interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through
entity.
Termination and Liquidation
A REMIC will terminate immediately after the Distribution
Date following receipt by the REMIC of the final payment in
respect of the Mortgage Loans or upon a sale of the REMIC's
assets following the adoption by the REMIC of a plan of complete
liquidation. The last distribution on a REMIC Regular
Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the
last distribution on such REMIC Residual Certificate is less than
the REMIC Residual Certificateholder's adjusted basis in such
Certificate, such REMIC Residual Certificateholder should be
treated as realizing a loss equal to the amount of such
difference, and such loss may be treated as a capital loss. If
the REMIC adopts a plan of complete liquidation, within the
meaning of Section 86OF(a)(4)(A)(i) of the Code, which may be
accomplished by designating in the REMIC's final tax return a
date on which such adoption is deemed to occur, and sells all of
its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subjected to any "prohibited
transactions taxes" solely on account of such qualified
liquidation, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than
the amounts retained to meet claims) to holders of Regular and
Residual Certificates within the 90-day period.
Reporting and Other Administrative Matters
Solely for purposes of the administrative provisions of the
Code, the REMIC will be treated as a partnership and REMIC
Residual Certificateholders will be treated as partners. Unless
otherwise stated in the related Prospectus Supplement, the
Trustee will file REMIC federal income tax returns on behalf of
the REMIC, will generally hold at least a nominal amount of REMIC
Residual Certificates, and will be designated as and will act as
the "tax matters person" with respect to the REMIC in all
respects.
As the tax matters person, the Trustee will, subject to
certain notice requirements and various restrictions and
limitations, generally have the authority to act on behalf of the
REMIC and the REMIC Residual Certificateholders in connection
with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally
be required to report such REMIC items consistently with their
treatment on the related REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the
Trustee, as tax matters person, and the IRS concerning any such
REMIC item. Adjustments made to the REMIC tax return may require
a REMIC Residual Certificateholder to make corresponding
adjustments on its return, and an audit of the REMIC's tax
return, or the adjustments resulting from such an audit, could
result in an audit of a REMIC Residual Certificateholder's
return. No REMIC will be registered as a tax shelter pursuant to
Section 6111 of the Code because it is not anticipated that any
REMIC will have a net loss for any of the first five taxable
years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to
furnish to the related REMIC, in a manner to be provided in
Treasury regulations, with the name and address of such person
and other information.
Reporting of interest income, including any original issue
discount, with respect to REMIC Regular Certificates is required
annually, and may be required more frequently under Treasury
regulations. These information reports generally are required to
be sent to individual holders of REMIC Regular Interests and the
IRS; holders of REMIC Regular Certificates that are corporations,
trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income
information and the information set forth in the following
paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the
later of 30 days after the end of the quarter for which the
information was requested, or two weeks after the receipt of the
request. The REMIC must also comply with rules requiring a REMIC
Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and
the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual
Certificates, including income, excess inclusions, investment
expenses and relevant information regarding qualification of the
REMIC's assets, will be made as required under the Treasury
regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information
reports will include a statement of the adjusted issue price of
the REMIC Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information
required by regulations with respect to computing the accrual of
any market discount. Because exact computation of the accrual of
market discount on a constant yield method would require
information relating to the holder's purchase price that the
Master Servicer will not have, such regulations only require that
information pertaining to the appropriate proportionate method of
accruing market discount be provided. See "-Taxation of Owners
of REMIC Regular Certificates-Market Discount."
The responsibility for complying with the foregoing
reporting rules will be borne by the Trustee.
Backup Withholding With Respect to REMIC Certificates
Payments of interest and principal, as well as payments of
proceeds from the sale of REMIC Certificates, may be subject to
the "backup withholding tax" under Section 3406 of the Code at a
rate of 31% if recipients of such payments fail to furnish to the
payor certain information, including their taxpayer
identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax. Furthermore,
certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not
do so in the proper manner.
Foreign Investors in REMIC Certificates
A REMIC Regular Certificateholder that is not a "United
States person" (as defined below) and is not subject to federal
income tax as a result of any direct or indirect connection to
the United States in addition to its ownership of a REMIC Regular
Certificate will generally not be subject to United States
federal income or withholding tax in respect of a distribution on
a REMIC Regular Certificate, provided that the holder complies to
the extent necessary with certain identification requirements
(including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that
such Certificateholder is not a United States person and
providing the name and address of such Certificateholder). The
foregoing tax exemption may not apply with respect to a Regular
Certificate held by a Residual Certificateholder, or by a
Certificateholder that owns directly or indirectly a 10 percent
or greater interest in, or is a "controlled foreign corporation"
as defined under the Code related to, a mortgagor or a Residual
Certificateholder. The application of these requirements in the
REMIC context is not entirely clear, and foreign investors
seeking to qualify for this exemption should consult their own
tax advisors. If the holder does not qualify for exemption,
distributions of interest, including distributions in respect of
accrued original issue discount, to such holder may be subject to
a tax rate of 30%, subject to reduction under any applicable tax
treaty. For these purposes, "United States person" means a
citizen or resident of the United States, a corporation,
partnership or other entity created or organized in, or under the
laws of, the United States or any political subdivision thereof,
or an estate or trust whose income from sources without the
United States is includible in gross income for United States
federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States. In
addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from
taxation on such United States shareholder's allocable portion of
the interest income received by such controlled foreign
corporation.
Residual Certificateholders that are not United States
persons should assume that distributions of income on their
Residual Certificates will be subject to a 30% withholding tax
(or such lesser rate as may be provided under any applicable tax
treaty). In the case of any income on a Residual Certificate
that is an excess inclusion, however, the rate of withholding
will not be subject to reduction under any applicable tax
treaties. See "-Taxation of Owners of Residual Certificates --
Excess Inclusions," above.
Unless otherwise stated in the related Prospectus
Supplement, transfers of REMIC Residual Certificates to investors
that are not United States persons will be prohibited under the
related Pooling and Servicing Agreement. Certain restrictions
relating to transfers of REMIC Residual Certificates to and by
investors who are not "United States persons" (as defined above)
are also imposed by the REMIC Regulations. If such a transfer is
disregarded, the purported transferor of a REMIC Residual
Certificate continues to remain liable for any taxes due with
respect to the income on such Certificate. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers are advised to
review the transferor and transferee affidavits that are required
to be delivered upon a transfer of a REMIC Residual Certificate
(forms of which are attached to the Pooling and Servicing
Agreement as exhibits thereto) and should consider the
possibility that a purported transfer of such REMIC Residual
Certificate by such purchaser to another purchaser at some future
date might be disregarded, which would result in the retention of
tax liability by such purchaser and the possibility that an
amount equal to the total distributions on such REMIC Residual
Certificate might be withheld to satisfy the United States
federal income tax liability thereon.
Purchase of Both Regular and Residual Certificates
Any Certificateholder holding a "regular interest" in a
REMIC and persons related to such Certificateholders should not
acquire any interest identified as a "residual interest" in the
REMIC and any Certificateholders holding a "residual interest" in
the REMIC and persons related to such Certificateholders should
not acquire any interest identified as a "regular interest" in
the REMIC, without consulting their tax advisors as to any
possible adverse tax consequences.
Grantor Trust Funds
Classification of Grantor Trust Funds
With respect to each series of Grantor Trust Certificates,
Counsel to the Depositor will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the
related Pooling and Servicing Agreement, the related Grantor
Trust Fund will be classified as a grantor trust under subpart E,
part I of subchapter J of the Code and not as a partnership or an
association taxable as a corporation. Accordingly, each holder
of a Grantor Trust Certificate generally will be treated as the
owner of the undivided interest specified in its Certificate in
the Mortgage Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust
Certificate representing an undivided equitable ownership
interest in the principal of the Mortgage Loans constituting the
related Grantor Trust Fund, together with interest thereon at a
pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate." A Grantor Trust Certificate
representing ownership of all or a portion of the difference
between interest paid on the Mortgage Loans constituting the
related Grantor Trust Fund (net of normal administration fees and
any Spread) and interest paid to the holders of Grantor Trust
Fractional Interest Certificates issued with respect to such
Grantor Trust Fund will be referred to as a "Grantor Trust Strip
Certificate." A Grantor Trust Strip Certificate may also
evidence a nominal ownership interest in the principal of the
Mortgage Loans constituting the related Grantor Trust Fund.
Characterization of Investments in Grantor Trust
Certificates
Grantor Trust Fractional Interest Certificates
In the case of Grantor Trust Fractional Interest
Certificates, unless otherwise disclosed in the related
Prospectus Supplement, Counsel to the Depositor will deliver an
opinion, in general, that, to the extent the Grantor Trust holds
assets described in the Code sections set forth below, Grantor
Trust Fractional Interest Certificates will represent interests
in (i) "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) "loans . . . secured by an
interest in real property" within the meaning of Section
7701(a)(19)(C) of the Code; (iii) "obligation[s] (including any
participation or certificate of beneficial ownership therein)
which [are] principally secured by an interest in real property"
within the meaning of Section 86OG(a)(3)(A) of the Code; and (iv)
"real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code. In addition, Counsel to the Depositor will deliver
an opinion that interest on Grantor Trust Fractional Interest
Certificates will, to the same extent, be considered "interest on
obligations secured by mortgages on real property or on interests
in real property" within the meaning of Section 856(c)(3)(B) of
the Code.
Grantor Trust Strip Certificates
Even if Grantor Trust Strip Certificates evidence an
interest in a Grantor Trust Fund consisting of Mortgage Loans
that are "loans . . . secured by an interest in real property"
within the meaning of Section 7701(a)(19)(C) of the Code,
"qualifying real property loans" within the meaning of Section
593(d) of the Code, and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code, and the interest on which is
"interest on obligations secured by mortgages on real property"
within the meaning of Section 856(c)(3)(B) of the Code, it is
unclear whether the Grantor Trust Strip Certificates, and the
income therefrom, will be so characterized. Counsel to the
Depositor will not deliver any opinion on these questions, and
prospective purchasers to which such characterization of an
investment in Grantor Trust Strip Certificates is material should
consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so
characterized.
The Grantor Trust Strip Certificates will be "obligation[s]
(including any participation or certificate of beneficial
ownership therein) which [are] principally secured by an interest
in real property" within the meaning of Section 86OG(a)(3)(A) of
the Code.
Taxation of Owners of Grantor Trust Fractional Interest
Certificates
Holders of a particular series of Grantor Trust Fractional
Interest Certificates generally will be required to report on
their federal income tax returns their shares of the entire
income from the Mortgage Loans (including amounts used to pay
reasonable servicing fees and other expenses) and will be
entitled to deduct their shares of any such reasonable servicing
fees and other expenses. Because of stripped interests, market
or original issue discount, or premium, the amount includible in
income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount
distributable thereon representing interest on the Mortgage
Loans. Under Section 67 of the Code, an individual, estate or
trust holding a Grantor Trust Fractional Interest Certificate
directly or through certain pass-through entities will be allowed
a deduction for such reasonable servicing fees and expenses only
to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted
gross income. In addition, Section 68 of the Code provides that
the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount
will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over such amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for the
taxable year. The amount of additional taxable income reportable
by holders of Grantor Trust Fractional Interest Certificates who
are subject to the limitations of either Section 67 or Section 68
of the Code may be substantial. Further, Certificateholders
(other than corporations) subject to the alternative minimum tax
may not deduct miscellaneous itemized deductions in determining
such holders' alternative minimum taxable income. Although it is
not entirely clear, it appears that in transactions in which
multiple classes of Grantor Trust Certificates (including Grantor
Trust Strip Certificates) are issued, such fees and expenses
should be allocated among the classes of Grantor Trust
Certificates using a method that recognizes that each such class
benefits from the related services. In the absence of statutory
or administrative clarification as to the method to be used, it
currently is intended to base information returns or reports to
the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect
to each period based on the distributions made to each such class
during that period.
The federal income tax treatment of Grantor Trust Fractional
Interest Certificates of any series will depend on whether they
are subject to the "stripped bond" rules of Section 1286 of the
Code. Grantor Trust Fractional Interest Certificates may be
subject to those rules if (i) a class of Grantor Trust Strip
Certificates is issued as part of the same series of Certificates
or (ii) the Depositor or any of its affiliates retains (for its
own account or for purposes of resale) a right to receive a
specified portion of the interest payable on the Mortgage Loans.
Further, the IRS has ruled that an unreasonably high servicing
fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a
stripped coupon. For purposes of determining what constitutes
reasonable servicing fees for various types of mortgages, the IRS
has established certain "safe harbors." The servicing fees paid
with respect to the Mortgage Loans for certain series of Grantor
Trust Certificates may be higher than the "safe harbors" and,
accordingly, may not constitute reasonable servicing
compensation. The related Prospectus Supplement will include
information regarding servicing fees paid to the Master Servicer,
any subservicer or their respective affiliates necessary to
determine whether the preceding "safe harbor" rules apply.
If Stripped Bond Rules Apply
If the stripped bond rules apply, each Grantor Trust
Fractional Interest Certificate will be treated as having been
issued with "original issue discount" within the meaning of
Section 1273(a) of the Code, subject, however, to the discussion
below regarding the treatment of certain stripped bonds as market
discount bonds and the discussion regarding de minimis market
discount. See "-Taxation of Owners Grantor Trust Fractional
Interest Certificates-Market Discount." Under the stripped bond
rules, the holder of a Grantor Trust Fractional Interest
Certificate (whether a cash or accrual method taxpayer) will be
required to report interest income from its Grantor Trust
Fractional Interest Certificate for each month in an amount equal
to the income that accrues on such Certificate in that month
calculated under a constant yield method, in accordance with the
rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional
Interest Certificate will be the excess of such Certificate's
stated redemption price over its issue price. The issue price of
a Grantor Trust Fractional Interest Certificate as to any
purchaser will be equal to the price paid by such purchaser for
the Certificate. The stated redemption price of a Grantor Trust
Fractional Interest Certificate will be the sum of all payments
to be made on such Certificate other than "qualified stated
interest," if any, as well as such Certificate's share of
reasonable servicing fees and other expenses. See "-Taxation of
Owners Grantor Trust Fractional Interest Certificates-If Stripped
Bond Rules Do Not Apply" for a definition of "qualified stated
interest." In general, the amount of such income that accrues in
any month would equal the product of such holder's adjusted basis
in such Grantor Trust Fractional Interest Certificate at the
beginning of such month (See "-Sales of Grantor Trust
Certificates") and the yield of such Certificate to such holder.
Such yield would be computed at the rate (compounded based on the
regular interval between payment dates) that, if used to discount
the holder's share of future payments on the Mortgage Loans,
would cause the present value of those future payments to equal
the price at which the holder purchased such Certificate. In
computing yield under the stripped bond rules, a
Certificateholder's share of future payments on the Mortgage
Loans will not include any payments made in respect of any
ownership interest in the Mortgage Loans retained by the
Depositor, the Master Servicer, any subservicer or their
respective affiliates, but will include such Certificateholder's
share of any reasonable servicing fees and other expenses. There
is considerable uncertainty, however, concerning the application
of Code Section 1272(a)(6) to instruments such as the Grantor
Trust Fractional Interest Certificates. Section 1272(a)(6) of
the Code requires (i) the use of a reasonable prepayment
assumption in accruing original issue discount and (ii)
adjustments in the accrual of original issue discount when
prepayments do not conform to the prepayment assumption, with
respect to certain categories of debt instruments. It is unclear
whether these rules would apply to the Grantor Trust Fractional
Interest Certificates in the absence of Treasury Regulations
providing for the applicability of these rules, although
regulations could be adopted that would apply these provisions to
the Grantor Trust Fractional Interest Certificates. It is also
uncertain, if a prepayment assumption is used, whether the
assumed prepayment rate would be determined based on conditions
at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time
of purchase of the Certificate by that holder.
Certificateholders are advised to consult their own tax advisors
concerning reporting original issue discount in general and, in
particular, whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates.
In the case of a Grantor Trust Fractional Interest
Certificate acquired at a price equal to the principal amount of
the Mortgage Loans allocable to such Certificate, the use or
non-use of a prepayment assumption generally would not have any
significant effect on the yield used in calculating accruals of
interest income. In the case, however, of a Grantor Trust
Fractional Interest Certificate acquired at a discount or premium
(that is, at a price less than or greater than such principal
amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus
accelerate or decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Mortgage
Loan prepays in full, the holder of a Grantor Trust Fractional
Interest Certificate acquired at a discount or a premium
generally will recognize income or loss equal to the difference
between the portion of the prepaid principal amount of the
Mortgage Loan that is allocable to such Certificate and the
portion of the adjusted basis of such Certificate that is
allocable to such Certificateholder's interest in the Mortgage
Loan. If a prepayment assumption is used, it appears that no
separate item of income or loss should be recognized upon a
prepayment. Instead, a prepayment should be treated as a partial
payment of the stated redemption price of the Grantor Trust
Fractional Interest Certificate and accounted for under a method
similar to that described for taking account of original issue
discount on REMIC Regular Certificates. (See "-REMICs-Taxation of
Owners of REMIC Regular Certificates-Original Issue Discount.")
It is unclear whether any other adjustments would be required to
reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
In the absence of statutory or administrative clarification,
it is currently intended to base information reports or returns
to the IRS and Certificateholders in transactions subject to the
stripped bond rules on a prepayment assumption (the "Prepayment
Assumption") that will be disclosed in the related Prospectus
Supplement and on a constant yield computed using a
representative initial offering price for each class of
Certificates. However, neither the Depositor, the Master
Servicer nor the Trustee will make any representation that the
Mortgage Loans will in fact prepay at a rate conforming to such
Prepayment Assumption or any other rate and Certificateholders
should bear in mind that the use of a representative initial
offering price will mean that such information returns or
reports, even if otherwise accepted as accurate by the IRS, will
in any event be accurate only as to the initial
Certificateholders who bought at that price.
Under Treasury regulations Section 1.1286-1, certain
stripped bonds are to be treated as market discount bonds and,
accordingly, any purchaser of such a bond is to account for any
discount on the bond as market discount rather than original
issue discount. This treatment only applies, however, if
immediately after the most recent disposition of the bond by a
person stripping one or more coupons from the bond and disposing
of the bond or coupon (i) there is no original issue discount (or
only a de minimis amount of original issue discount) or (ii) the
annual stated rate of interest payable on the stripped bond is no
more than one percentage point lower than the gross interest rate
payable on the original mortgage loan (before subtracting any
servicing fee or any stripped coupon). If the interest payable
on a Grantor Trust Fractional Interest Certificate is more than
one percentage point lower than the gross interest rate payable
on the Mortgage Loans, the related Prospectus Supplement will
disclose that fact. If the original issue discount or market
discount on a Grantor Trust Fractional Interest Certificate
determined under the stripped bond rules is less than 0.25% of
the stated redemption price multiplied by the weighted average
maturity of the Mortgage Loans, then such original issue discount
or market discount will be considered to be de minimis. Original
issue discount or market discount of only a de minimis amount
will be included in income in the same manner as de minimis
original issue and market discount described in "-Taxation of
Owners of Grantor Trust Fractional Interest Certificates-If
Stripped Bond Rules Do Not Apply" and "-Market Discount."
If Stripped Bond Rules Do Not Apply
Subject to the discussion below on original issue discount,
market discount, and premium, if the stripped bond rules do not
apply to a Grantor Trust Fractional Interest Certificate, the
Certificateholder will be required to report its share of the
interest income on the Mortgage Loans in accordance with such
Certificateholder's normal method of accounting. If the rules
relating to original issue discount, market discount, or premium
are applicable, the amount includible in income on account of a
Grantor Trust Fractional Interest Certificate may differ
significantly from the amount payable thereon from payments of
interest on the Mortgage Loans.
The original issue discount rules will apply to a Grantor
Trust Fractional Interest Certificate to the extent it evidences
an interest in Mortgage Loans issued with original issue
discount. The original issue discount, if any, on the Mortgage
Loans will equal the difference between the stated redemption
price of such Mortgage Loans and their issue price. Under the
OID Regulations, the stated redemption price is equal to the
total of all payments to be made on such Mortgage Loan other than
"qualified stated interest." "Qualified stated interest"
includes interest that is unconditionally payable at least
annually at a single fixed rate, at a "qualified floating rate,"
a combination of a single fixed rate and one or more "qualified
floating rates" or one "qualified inverse floating rate," a
combination of "qualified floating rates" or an "objective rate"
that does not operate in a manner that accelerates or defers
interest payments on such Mortgage Loan. In general, the issue
price of a Mortgage Loan will be the amount received by the
borrower from the lender under the terms of the Mortgage Loan,
less any "points" paid by the borrower, and the stated redemption
price of a Mortgage Loan will equal its principal amount, unless
the Mortgage Loan provides for an initial below market rate of
interest or the acceleration or the deferral of interest
payments.
In the case of Mortgage Loans bearing adjustable or variable
interest rates, the related Prospectus will describe the manner
in which such rules will be applied with respect to those
Mortgage Loans by the Trustee in preparing information returns to
the Certificateholders and the IRS.
Notwithstanding the general definition of original issue
discount, original issue discount will be considered to be de
minimis if such original issue discount is less than 0.25% of the
stated redemption price multiplied by the weighted average
maturity of the Mortgage Loan. For this purpose, the weighted
average maturity of the Mortgage Loan will be computed as the sum
of the amounts determined as to each payment included in the
stated redemption price of such Mortgage Loan, by multiplying (i)
the number of complete years (rounding down for partial years)
from the issue date until such payment is expected to be made by
(ii) a fraction, the numerator of which is the amount of payment
and the denominator of which is the stated redemption price of
the Mortgage Loan. Under the OID Regulations, original issue
discount of only a de minimis amount (other than de minimis
original issue discount attributable to a so called "teaser" rate
or initial interest holiday) will be included in income as each
payment of stated principal is made, based on the product of the
total amount of such de minimis original issue discount and a
fraction, the numerator of which is the amount of each such
payment and the denominator of which is the outstanding stated
Principal amount of the Mortgage Loan. The OID Regulations also
permit a Certificateholder to elect to accrue de minimis original
issue discount into income currently based on a constant yield
method. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-Market Discount" below.
If original issue discount is in excess of a de minimis
amount, all original issue discount with respect to a Mortgage
Loan will be required to be accrued and reported in income each
month, based on a constant yield. The OID Regulations suggest
that no prepayment assumption is appropriate in computing the
yield on prepayable obligations issued with original issue
discount. In the absence of statutory or administrative
clarification, it currently is not intended to base information
reports or returns to the IRS and Certificateholders on the use
of a prepayment assumption in transactions not subject to the
stripped bond rules. However, Section 1272(a)(6) of the Code may
require that a prepayment assumption be made in computing yield
with respect to all mortgage-backed securities.
Certificateholders are advised to consult their own tax advisors
concerning whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust
Fractional Interest Certificates. Certificateholders should
refer to the related Prospectus Supplement with respect to each
series to determine whether and in what manner the original issue
discount rules will apply to the Mortgage Loans held in the
related Grantor Trust Fund.
A purchaser of a Grantor Trust Fractional Interest
Certificate that purchases such Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining
stated redemption price of the Mortgage Loans held in the related
Grantor Trust Fund will also be required to include in gross
income such Certificate's daily portions of any original issue
discount with respect to such Mortgage Loans. However, each such
daily portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of
such Certificate's allocable portion of the aggregate "adjusted
issue prices" of the Mortgage Loans held in the related Grantor
Trust Fund, approximately in proportion to the ratio such excess
bears to such Certificate's allocable portion of the aggregate
original issue discount remaining to be accrued on such Mortgage
Loans. The adjusted issue price of a Mortgage Loan on any given
day equals the sum of (i) the adjusted issue price (or, in the
case of the first accrual period, the issue price) of such
Mortgage Loan at the beginning of the accrual period that
includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such
day. The adjusted issue price of a Mortgage Loan at the
beginning of any accrual period will equal the issue price of
such Mortgage Loan, increased by the aggregate amount of original
issue discount with respect to such Mortgage Loan that accrued in
prior accrual periods, and reduced by the amount of any payments
made on such Mortgage Loan in prior accrual periods of amounts
included in its stated redemption price.
The Trustee will provide to any holder of a Grantor Trust
Fractional Interest Certificate such information as such holder
may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest
Certificates. See "Grantor Trust Reporting" below.
Market Discount
If the stripped bond rules do not apply to the Grantor Trust
Fractional Interest Certificates, a Certificateholder may be
subject to the market discount rules of Sections 1276 through
1278 of the Code to the extent an interest in a Mortgage Loan is
considered to have been purchased at a "market discount," that
is, in the case of a Mortgage Loan issued without original issue
discount, at a purchase price less than its remaining stated
redemption price (as defined above), or in the case of a Mortgage
Loan issued with original issue discount, at a purchase price
less than its adjusted issue price (as defined above). If market
discount is in excess of a de minimis amount (as described
below), the holder generally will be required to include in
income in each month the amount of such discount that has accrued
(under the rules described in the next paragraph) through such
month that has not previously been included in income, but
limited, in the case of the portion of such discount that is
allocable to any Mortgage Loan, to the payment of stated
redemption price on such Mortgage Loan that is received by (or,
in the case of accrual basis Certificateholders, due to) the
Trust Fund in that month. A Certificateholder may elect to
include market discount in income currently as it accrues (under
a constant yield method based on the yield of the Certificate to
such holder) rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply
to all market discount bonds acquired by such Certificateholder
during or after the first taxable year to which such election
applies. In addition, the OID Regulations would permit a
Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and
premium in income as interest, based on a constant yield method.
If such an election were made with respect to a Mortgage Loan
with market discount, the Certificateholder would be deemed to
have made an election to include currently market discount in
income with respect to all other debt instruments having market
discount that such Certificateholder acquires during the taxable
year of the election or thereafter, and possibly previously
acquired instruments. Similarly, a Certificateholder that made
this election for a Certificate acquired at a premium would be
deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "-REMICs
Taxation of Owners of REMIC Regular Certificates-Premium." Each
of these elections to accrue interest, discount and premium with
respect to a Certificate on a constant yield method or as
interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury
Department to issue regulations providing for the method for
accruing market discount on debt instruments, the principal of
which is payable in more than one installment. Until such time
as regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. Under those
rules, in each accrual period, market discount on the Mortgage
Loans should accrue, at the Certificateholder's option: (i) on
the basis of a constant yield method, (ii) in the case of a
Mortgage Loan issued without original issue discount, in an
amount that bears the same ratio to the total remaining market
discount as the stated interest paid in the accrual period bears
to the total stated interest remaining to be paid on the Mortgage
Loan as of the beginning of the accrual period, or (iii) in the
case of a Mortgage Loan issued with original issue discount, in
an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual
period bears to the total original issue discount remaining at
the beginning of the accrual period. The prepayment assumption,
if any, used in calculating the accrual of original issue
discount is to be used in calculating the accrual of market
discount. The effect of using a prepayment assumption could be
to accelerate the reporting of such discount income. Because the
regulations referred to in this paragraph have not been issued,
it is not possible to predict what effect such regulations might
have on the tax treatment of a Mortgage Loan purchased at a
discount in the secondary market.
Because the Mortgage Loans will provide for periodic
payments of stated redemption price, such market discount may be
required to be included in income at a rate that is not
significantly slower than the rate at which such discount would
be included in income if it were original issue discount.
Market discount with respect to Mortgage Loans generally
will be considered to exceed a de minimis amount if it is greater
than 0.25% of the stated redemption price of the Mortgage Loans
multiplied by the number of complete years to maturity remaining
after the date of its purchase. In interpreting a similar rule
with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will
be applied with respect to market discount, presumably taking
into account the prepayment assumption used, if any. The effect
of using a prepayment assumption could be to accelerate the
reporting of such discount income. If market discount is treated
as de minimis under the foregoing rule, it appears that actual
discount would be treated in a manner similar to original issue
discount of a de minimis amount. See "-Taxation of Owners of
Grantor Trust Fractional Interest Certificates-If Stripped Bond
Rules Do Not Apply."
Further, under the rules described in "-REMICs-Taxation of
Owners of REMIC Regular Certificates-Market Discount" above, any
discount that is not original issue discount and exceeds a de
minimis amount may require the deferral of interest expense
deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report
market discount currently as it accrues. This rule applies
without regard to origination dates of the Mortgage Loans.
Premium
If a Certificateholder is treated as acquiring the
underlying Mortgage Loans at a premium, that is, at a price in
excess of their remaining stated redemption price, such
Certificateholder may elect under Section 171 of the Code to
amortize using a constant yield method, the portion of such
premium allocable to Mortgage Loans originated after
September 27, 1985. Amortizable premium is treated as an offset
to interest income on the related debt instrument, rather than as
a separate interest deduction. However, premiums allocable to
Mortgage Loans originated before September 28, 1985 or to
Mortgage Loans for which an amortization election is not made
should be allocated among the payments of stated redemption price
on the Mortgage Loan and be allowed as a deduction as such
payments are made (or, for a Certificateholder using the accrual
method of accounting, when such payments of stated redemption
price are due).
It is unclear whether a prepayment assumption should be used
in computing amortization of premium allowable under Section 171
of the Code. If premium is not subject to amortization using a
prepayment assumption and a Mortgage Loan prepays in full, the
holder of a Grantor Trust Fractional Interest Certificate
acquired at a premium should recognize a loss, equal to the
difference between the portion of the prepaid principal amount of
the Mortgage Loan that is allocable to the Certificate and the
portion of the adjusted basis of the Certificate that is
allocable to the Mortgage Loan. If a prepayment assumption is
used to amortize such premium, it appears that such a loss would
be unavailable. Instead, if a prepayment assumption is used, a
prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that
described for taking account of original issue discount on REMIC
Regular Certificates. See "-REMICs-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect
differences between the prepayment assumption used, if any, and
the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates
Because the "stripped coupon" rules of Section 1286 of the
Code will apply to the Grantor Trust Strip Certificates, income
on the Certificates must be accrued under the original issue
discount provisions of the Code. Except as described above in
"-Taxation of Owners of Grantor Trust Fractional Interest
Certificates-If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued
and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates.
Moreover, the OID Regulations do not include rules relating
specifically to "stripped coupons," although they do provide
general guidance as to how the original issue discount sections
of the Code will generally be applied." Accordingly, holders of
Grantor Trust Strip Certificates should consult their own tax
advisors concerning the method to be used in reporting income or
loss with respect to such Certificates. The discussion below
is subject to the discussion under "-Possible Application of
Proposed Contingent Payment Rules" and assumes that the holder of
a Grantor Trust Strip Certificate will not own any Grantor Trust
Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original
issue discount will be required to be accrued in each month on
the Grantor Trust Strip Certificates based on a constant yield
method. In effect, each holder of Grantor Trust Strip
Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in
such Certificate at the beginning of such month and the yield of
such Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate
by its holder and the payments remaining to be made thereon at
the time of the purchase, plus an allocable portion of the
servicing fees and expenses to be paid with respect to the
Mortgage Loans. See "-Taxation of Owners of Grantor Trust
Fractional Interest Certificates-If Stripped Bond Rules Apply"
above.
As noted above, Section 1272(a)(6) of the Code requires that
a prepayment assumption be used in computing the accrual of
original issue discount with respect to certain categories of
debt instruments, and that adjustments be made in the amount and
rate of accrual of such discount when prepayments do not conform
to such prepayment assumption. Regulations could be adopted
applying those provisions to the Grantor Trust Strip
Certificates. It is unclear whether those provisions would be
applicable to the Grantor Trust Strip Certificates or whether use
of a prepayment assumption may be required or permitted in the
absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment
rate would be determined based on conditions at the time of the
first sale of the Grantor Trust Strip Certificate or, with
respect to any subsequent holder, at the time of purchase of the
Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip
Certificates will be significantly slower if a prepayment
assumption is permitted to be made than if yield is computed
assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base
information returns or reports to the IRS and Certificateholders
on the Prepayment Assumption disclosed in the related Prospectus
Supplement and on a constant yield computed using a
representative initial offering price for each class of
Certificates. However, neither the Depositor nor the Trustee
will make any representation that the Mortgage Loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at
any other rate and Certificateholders should bear in mind that
the use of a representative initial offering price will mean that
such information returns or reports, even if otherwise accepted
as accurate by the IRS, will in any event be accurate only as to
the initial Certificateholders of each series who bought at that
price. Prospective purchasers of the Grantor Trust Strip
Certificates should consult their own tax advisors regarding the
use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the
prepayment of a Mortgage Loan will give rise to a loss to the
holder of a Grantor Trust Strip Certificate. If a Grantor Trust
Strip Certificate is treated as a single instrument (rather than
an interest in discrete mortgage loans) and the effect of
prepayments is taken into account in computing yield with respect
to such Certificate, it appears that no loss may be available as
a result of any particular prepayment unless prepayments occur at
a rate faster than the Prepayment Assumption. However, if a
Grantor Trust Strip Certificate is treated as an interest in
discrete Mortgage Loans, or if the Prepayment Assumption is not
used, then when a Mortgage Loan is prepaid, the holder of a
Grantor Trust Strip Certificate should be able to recognize a
loss equal to the portion of the adjusted issue price of the
Grantor Trust Strip Certificate that is allocable to such
Mortgage Loan.
Possible Application of Proposed Contingent Payment Rules
The coupon stripping rules' general treatment of stripped
coupons is to regard them as newly issued debt instruments in the
hands of each purchaser. To the extent that payments on the
Grantor Trust Strip Certificates would cease if the Mortgage
Loans were prepaid in full, the Grantor Trust Strip Certificates
could be considered to be debt instruments providing for
contingent payments. Under the OID Regulations, debt instruments
providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments,
but no final regulations have been promulgated with respect to
contingent payment debt instruments. Proposed regulations were
promulgated on December 16, 1994 regarding contingent payment
debt instruments. Although the proposed regulations are proposed
to be effective for debt instruments issued on or after the date
that is 60 days after final regulations are published in the
Federal Register, the proposed regulations currently represent
the best available guidance regarding the position of the
Internal Revenue Service as to the appropriate treatment of debt
instruments providing for contingent payments. As in the case of
the OID Regulations, such proposed regulations do not
specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of
Section 1286 of the Code.
If the contingent payment rules under the proposed
regulations were to apply, the holder of a Grantor Trust Strip
Certificate would be required to apply a "noncontingent bond
method." Under that method, the issuer of a Grantor Trust Strip
Certificate would determine a projected payment schedule with
respect to such Grantor Trust Strip Certificate. Holders of
Grantor Trust Strip Certificates would be bound by the issuer's
projected payment schedule, which would consist of all
noncontingent payments and a projected amount for each contingent
payment based on the projected yield (as described below) of the
Grantor Trust Strip Certificate. The projected amount of each
payment would be determined so that the projected payment
schedule reflected the projected yield reasonably expected to be
received by the holder of a Grantor Trust Strip Certificate. The
projected yield referred to above would be a reasonable rate, not
less than the "applicable Federal rate" that, as of the issue
date, reflected general market conditions, the credit quality of
the issuer, and the terms and conditions of the Mortgage Loans.
The holder of a Grantor Trust Strip Certificate would be required
to include as interest income in each month the adjusted issue
price of the Grantor Trust Strip Certificate at the beginning of
the period multiplied by the projected yield, and would add to,
or subtract from, such income any variation between the payment
actually received in such month and the payment originally
projected to be made in such month.
In the absence of final Treasury Regulations relating to
debt instruments providing for contingent payments, the Trust
will not, except as disclosed in a prospectus supplement, provide
to Certificateholders a projected payment schedule under the
"noncontingent bond method." Accordingly, Certificateholders
should consult their tax advisors concerning the possible
application of the contingent payment rules to the Grantor Trust
Strip Certificates.
Sales of Grantor Trust Certificates
Any gain or loss equal to the difference between the amount
realized on the sale or exchange of a Grantor Trust Certificate
and its adjusted basis, recognized on the sale or exchange of a
Grantor Trust Certificate by an investor who holds such
Certificate as a capital asset, will be capital gain or loss,
except to the extent of accrued and unrecognized market discount,
which will be treated as ordinary income, and (in the case of
banks and other financial institutions) except as provided in
Section 582(c) of the Code. The adjusted basis of a Grantor
Trust Certificate generally will equal its cost, increased by any
income reported by the Depositor (including original issue
discount and market discount income) and reduced (but not below
zero) by any previously reported losses, any amortized premium
and by any distributions with respect to such Grantor Trust
Certificate. If the Certificateholder has held the Certificate
for more than 12 months, any such gain will be long term capital
gain. The Code as of the date of this Prospectus provides a top
marginal tax rate of 39.6% for individuals and a maximum marginal
rate for the long-term capital gains of individuals of 28%. No
such rate differential exists for corporations. In addition, the
distinction between a capital gain or loss and ordinary income or
loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate
may be partially or wholly ordinary and not capital in certain
circumstances. Gain attributable to accrued and unrecognized
market discount will be treated as ordinary income, as will gain
or loss recognized by banks and other financial institutions
subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as
ordinary income to the extent that the Grantor Trust Certificate
is held as part of a "conversion transaction" within the meaning
of Section 1258 of the Code. A conversion transaction generally
is one in which the taxpayer has taken two or more positions in
the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is
attributable to the time value of the taxpayer's net investment
in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally
will not exceed the amount of interest that would have accrued on
the taxpayer's net investment at 120% of the appropriate
"applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order
to include such net capital gain in total net investment income
for that taxable year, for purposes of the rule that limits on
the deduction of interest on indebtedness incurred to purchase or
carry property held for investment to a taxpayer's net investment
income.
Grantor Trust Reporting
The Trustee will furnish to each holder of a Grantor Trust
Certificate with each distribution a statement setting forth the
amount of such distribution allocable to principal on the
underlying Mortgage Loans and to interest thereon at the related
Certificate Rate. In addition, within a reasonable time after
the end of each calendar year, based on information provided by
the Master Servicer, the Trustee will furnish to each
Certificateholder during such year such customary factual
information as the Trustee deems necessary or desirable to enable
holders of Grantor Trust Certificates to prepare their tax
returns and will furnish comparable information to the IRS as and
when required by law to do so. Additional guidance is required
from the Internal Revenue Service before it is possible to
determine definitively the proper methods for accruing income on
the Certificates. In the absence of additional guidance, the
Trustee intends to compute and report income on the Certificates
for tax purposes in a manner that it believes to be consistent
with the principles of the Code and the OID Regulations described
above. The Trustee intends in reporting information relating to
original issue discount to holders of Certificates to provide
such information on an aggregate pool-wide basis. Although there
are provisions in the OID Regulations that suggest that the
computation of original issue discount on such a basis is either
appropriate or required, it is possible that investors may be
required to compute original issue discount on a Mortgage
Loan-by-Mortgage Loan 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. Investors should be
aware that it may not be possible to reconstruct after the fact
sufficient Mortgage Loan-by-Mortgage Loan information should the
Internal Revenue Service require computation on that basis.
Because the rules for accruing discount and amortizing premium
with respect to the Grantor Trust Certificates are uncertain in
various respects, there is no assurance the IRS will agree with
the Trustee's information reports of such items of income and
expense. Accordingly, holders of Certificates should consult
their own tax advisors regarding the method for reporting the
amounts received or accrued with respect to the Certificates.
Moreover, such information reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to the
initial Certificateholders that bought their Certificates at the
representative initial offering price used in preparing such
reports.
Backup Withholding
In general, the rules described in "-REMICs-Backup
Withholding" will also apply to Grantor Trust Certificates.
Foreign Investors
In general, the discussion with respect to REMIC Regular
Certificates in "-REMICs-Foreign Investors in REMIC Certificates"
applies to Grantor Trust Certificates except that Grantor Trust
Certificates will, unless otherwise disclosed in the related
Prospectus Supplement, be eligible for exemption from U.S.
withholding tax, subject to the conditions described in such
discussion, only to the extent the related Mortgage Loans were
originated after July 18, 1984.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described
in "Certain Federal Income Tax Consequences," potential investors
should consider the state and local tax consequences of the
acquisition, ownership, and disposition of the Certificates
offered hereunder. State tax law may differ substantially from
the corresponding federal tax law, and this discussion does not
purport to describe any aspect of the tax laws of any state or
other jurisdiction. Therefore, prospective investors should
consult their own tax advisors with respect to the various tax
consequences of investments in the Certificates offered
hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain restrictions on employee
benefit plans ("Plans") subject to ERISA and persons who have
certain specified relationships to such Plans ("Parties in
Interest"). ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA and prohibits certain
transactions between a Plan and Parties in Interest with respect
to such Plans ("Prohibited Transactions"). Under ERISA, any
person who exercises any authority or control respecting the
management or disposition of the assets of a Plan is considered
to be a fiduciary of such Plan (subject to certain exceptions not
here relevant). Similar restrictions also apply to Plans that
are subject to the Code.
The issuer of any Series of Certificates (the "Issuer"), the
Master Servicer, if any, the Servicer, the Trustee or the
provider of any credit support, if any, because of their
activities or the activities of their respective affiliates, may
be considered to be Parties in Interest with respect to certain
Plans. If the Certificates are acquired by a Plan with respect
to which the Issuer, the Master Servicer, if any, the Servicer,
the Trustee or the provider of any credit support, if any, is a
Party in Interest, such transaction would violate the Prohibited
Transaction rules of ERISA and the Code unless such transaction
were subject to one or more statutory or administrative
exemptions such as Prohibited Transaction Class Exemption
("PTCE") 75-1, which exempts certain transactions involving
employee benefit plans and certain broker-dealers, reporting
dealers and banks; PTCE 90-1, which exempts certain transactions
between insurance company pooled separate accounts and Parties in
Interest; PTCE 95-60, which exempts certain transactions entered
into by an insurance company general account; PTCE 91-38, which
exempts certain transactions between bank collective investment
funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified
professional asset manager"; PTCE 96-23, which exempts certain
transactions effected on behalf of a plan by an in-house asset
manager; or any other available exemption. Accordingly, prior to
making an investment in the Securities, an investing Plan should
determine whether the Issuer is a Party in Interest with respect
to such Plan and, if so, whether such transaction is subject to
one or more of statutory or administrative exemptions.
The Certificates of a Series will be treated as "equity" for
purposes of ERISA. Under regulations issued by the Department of
Labor ("DOL") (the "Plan Asset Regulation"), if a Plan makes an
"equity" investment in a corporation, partnership, trust or
certain other entities, the underlying assets and properties of
such entity will be deemed for purposes of ERISA to be assets of
the investing Plan unless certain exceptions set forth in the
regulation apply. One such exception applies if the class of
"equity" interests in question is (i) held by 100 or more
investors who are independent of the Issuer and each other, (ii)
freely transferable, and (iii) sold as part of an offering
pursuant to (a) an effective registration statement under the
Securities Act of 1933, and then subsequently registered under
the Securities Exchange Act of 1934 or (b) an effective
registration statement under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 ("Publicly Offered Securities").
The related Prospectus Supplement for each Series will indicate
whether it is likely that such Series will constitute Publicly
Offered Securities.
If a particular Series is treated as "equity" for purposes
of the Plan Asset Regulation the underlying assets of the Issuer
could be treated as assets of a Plan purchasing Certificates of
such Series. In that case, if the Mortgage Assets securing such
Series include single Mortgage Loans with respect to which the
obligors are Parties in Interest, such transaction would violate
the Prohibited Transaction rules of ERISA and the Code unless
such transaction were subject to one or more statutory or
administrative exemptions such as those described above or any
other available exemption. Accordingly, prior to making an
investment in Certificates of such Series, a Plan investor should
determine whether its investment may result in a Prohibited
Transaction and, if so, whether such transaction is subject to
one or more of the statutory or administrative exemptions.
Furthermore, if the Issuer were deemed to hold plan assets
by reason of a Plan's investment in a Certificate, the persons
providing services with respect to the assets of the Issuer,
including the Mortgage Loans, may be subject to the fiduciary
responsibility provisions of Title I of ERISA and be subject to
the prohibited transactions provisions of ERISA and Section 4975
of the Code with respect to transactions involving such assets
unless such transactions are subject to a statutory or
administrative exemption, such as those described above.
The DOL has granted to certain firms that may be retained as
an underwriter for a Series an administrative exemption (the
"Exemption") from certain of the prohibited transaction rules of
ERISA with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates representing interests
in asset-backed pass through trusts that consist of certain
receivables, loans and other obligations that meet the conditions
and requirements of the Exemption. The obligations covered by
the Exemption include mortgages and interests therein. The
Exemption will apply to the acquisition, holding and resale of
the Securities by a Plan, only if certain conditions (certain of
which are described below) are met.
Among the conditions which must be satisfied for the
Exemption to apply are the following:
1. The acquisition of the Securities by a Plan is on terms
(including the price for the Securities) 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 Securities
acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the Issuer;
3. The Securities acquired by the Plan have received a
rating at the time of such acquisition that is in one of the
three highest generic rating categories from Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc.
or Fitch Investors Service, Inc. (each, a "Rating Agency");
4. The sum of all payments made to the underwriter in
connection with the distribution of the Securities represents not
more than reasonable compensation for underwriting the
Securities. The sum of all payments made to and retained by, the
seller pursuant to the sale of the obligations to the trust
represents not more than the fair market value of such
obligations. The sum of all payments made to and retained by the
servicer represents not more than reasonable compensation for the
servicer's services under the related servicing agreement and
reimbursement of the servicer's reasonable expenses in connection
therewith;
5. The Trustee must not be an affiliate of any other
member of the Restricted Group (as defined below); and
6. The Plan investing in the Securities 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 also must meet the following requirements:
(i) the corpus of the trust must consist solely of
assets of the type which 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
a Rating Agency 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 any Plan's acquisition of
Securities.
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 Securities, at least
fifty (50) percent of each class of Securities in which Plans
have invested is acquired by persons independent of the
Restricted Group and at least fifty (50) 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 (5) percent or less of the fair
market value of the obligations contained in the trust and is not
otherwise a member of a Restricted Group; (iii) the Plan's
investment in Securities does not exceed twenty-five (25) percent
of all of the Securities outstanding after the acquisition, and
(iv) no more than twenty-five (25) percent of the assets of the
Plan with respect to which the obligor is the 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 fiduciaries acting on behalf of
Plans sponsored by the Issuer, the Underwriter, the Trustee, the
Servicer, the Master Servicer, if any, the Special Servicer, if
any, any obligor with respect to obligations included in a Trust
constituting more than five (5) percent of the aggregate
unamortized principal balance of the assets in a Trust, or any
affiliate of such parties (the "Restricted Group"). The
Prospectus Supplement for each Series will indicate whether the
Underwriter for that Series has been granted an Exemption.
There can be no assurance that the Securities will not be
treated as equity interests in the Issuer for purposes of the
Plan Asset Regulation. Moreover, if the Certificates are treated
as equity interests for purposes of ERISA, there can be no
assurance that any of the exceptions set forth in the Plan Asset
Regulations will apply to the purchase of Certificates offered
hereby. As a result, Certificates may not be purchased with plan
assets of any Plan unless the Certificates are either Publicly
Offered Certificates or meet the requirements of the Exemption,
or unless the purchaser is an insurance company purchasing
Certificates with assets of its general account and the exemptive
relief afforded under Section III of PTE 95-60 will apply to such
purchaser's purchase and holding of the Certificates. EACH
PURCHASER OF CERTIFICATES THAT ARE NOT EITHER PUBLICLY OFFERED
SECURITIES OR COVERED BY THE EXEMPTION SHALL BE DEEMED TO
REPRESENT AND WARRANT THAT SUCH CERTIFICATES ARE NOT BEING
PURCHASED WITH PLAN ASSETS OF ANY PLAN OR ARE BEING PURCHASED
WITH THE ASSETS OF AN INSURANCE COMPANY GENERAL ACCOUNT AND THE
PURCHASE AND HOLDING OF THE CERTIFICATES IS EXEMPT UNDER
SECTION III OF PTE 95-60.
Prospective Plan investors should consult with their legal
advisors concerning the impact of ERISA and the Code and the
potential consequences to their specific circumstances, prior to
making an investment in the Certificates. Moreover, each Plan
fiduciary should determine whether under the general fiduciary
standards of investment procedure 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.
Purchasers that are insurance companies should consult with
their counsel with respect to the recent United States Supreme
Court case, John Hancock Mutual Life Insurance Co. v. Harris Bank
and Trust, 114 S.Ct. 517 (1993). In Hancock, the Supreme Court
held that assets held in an insurance company's general account
may be deemed to be "plan assets" under certain circumstances.
Therefore, purchasers that are insurance companies should analyze
whether the Hancock decision may have an impact with respect to
their purchase of Certificates.
LEGAL INVESTMENT
The related Prospectus Supplement will specify the classes
of Certificates, if any, of the related Series that will consti-
tute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"). Such
"mortgage-related securities" 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 of
any State (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to State regulation to
the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States
or any agency or instrumentality thereof constitute legal
investments for such entities.
Under SMMEA, if a State enacted legislation prior to
October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to "mortgage related
securities," the Certificates will constitute legal investments
for entities subject to such legislation only to the extent
provided in such legislation. Certain States have enacted
legislation which overrides the preemption provisions of SMMEA.
SMMEA provides, however, that in no event will the enactment of
any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related
securities," or require the sale or other disposition of such
securities so long as such contractual commitment was made or
such securities acquired prior to the enactment of such
legislation.
SMMEA also amended the legal investment authority of
federally chartered depository institutions as follows: federal
savings and loan associations and federal savings banks may
invest in, sell or otherwise deal with mortgage-related
securities without limitations 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. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may
prescribe.
The Federal Financial Institution Examination Council has
adopted a supervisory policy statement (the "Policy Statement"),
applicable to all depository institutions, setting forth
guidelines for and significant restrictions on investments in
"high-risk mortgage securities." The Policy Statement has been
adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the Office of Thrift
Supervision with an effective date of February 10, 1992. The
Policy Statement generally indicates that a mortgage derivative
product will be deemed to be high risk if it exhibits greater
price volatility than a standard fixed rate thirty-year mortgage
security. According to the Policy Statement, prior to purchase,
a depository institution will be required to determine whether a
mortgage derivative product that it is considering acquiring is
high-risk, and if so that the proposed acquisition would reduce
the institution's overall interest rate risk. Reliance on
analysis and documentation obtained from a securities dealer or
other outside party without internal analysis by the institution
would be unacceptable. There can be no assurance as to which
Classes of the Certificates of any Series will be treated as
high-risk under the Policy Statement. In addition, the National
Credit Union Administration has issued regulations governing
federal credit union investments which prohibit investment in
certain specified types of securities, which may include certain
Classes of Certificates. Similar policy statements have been
issued by regulators having jurisdiction over other types of
depository institutions.
There may be other restrictions on the ability of certain
investors either to purchase certain Classes of Certificates or
to purchase any Class of Certificates representing more than a
specified percentage of the investors' assets. The Depositor
will make no representations as to the proper characterization of
any Class of Certificates for legal investment or other purposes,
or as to the ability of particular investors to purchase any
Class of Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the
liquidity of any Class of Certificates. Accordingly, all
investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements
or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the
Certificates of any Class constitute legal investments under
SMMEA or are subject to investment, capital or other
restrictions, and whether SMMEA has been overridden in any
jurisdiction applicable to such investor.
LEGAL MATTERS
Certain legal matters in connection with the Certificates
offered hereby will be passed upon for the Depositor by Mayer,
Brown & Platt, Los Angeles, California.
THE DEPOSITOR
Quality Mortgage Acceptance Corp., a California corporation
(the "Depositor"), was incorporated in May 1996. The principal
executive offices of the Depositor are located at 16800 Aston
Street, Irvine, California 92714 and its telephone number is
(714) 440-1000. The Depositor's only obligations with respect to
the Certificates will be pursuant to certain representations and
warranties described herein under "THE POOLING AND SERVICING
AGREEMENTS." Neither the Depositor nor any affiliate of the
Depositor will guarantee the Certificates or the assets included
in the Trust Fund for a Series. See "RISK FACTORS" and "THE
DEPOSITOR."
As described herein, the only obligations of the Depositor
will be pursuant to certain representations and warranties with
respect to the Mortgage Assets. See "LOAN UNDERWRITING
STANDARDS-Representations and Warranties" and "THE POOLING AND
SERVICING AGREEMENTS-Assignment of Mortgage Assets." No person
other than the Depositor is obligated with respect to the
representations and warranties respecting the Mortgage Loans and
the remedies for any breach thereof that are assigned to the
Trustee for the benefit of the Certificateholders. Moreover, as
discussed above, the Depositor has only limited assets available
to perform its repurchase obligations in respect of any breach of
such representations and warranties, relative to the potential
amount of repurchase liability, and the total potential amount of
repurchase liability is expected to increase over time as the
Depositor continues to originate, acquire and sell mortgage
loans. There can be no assurance that the Depositor will
continue to generate operating earnings, or that it will be
successful under its current business plan. Therefore,
prospective investors in the Offered Certificates should consider
the possibility that the Depositor will not have sufficient
assets with which to satisfy its repurchase obligations in the
event that a substantial amount of the mortgage loans are
required to be repurchased due to breaches of representations and
warranties. See "RISK FACTORS" herein.
USE OF PROCEEDS
It is expected that the Depositor will apply all or
substantially all of the net proceeds from the sale of each
Series offered hereby and by the related Prospectus Supplement to
purchase the Mortgage Assets, to repay indebtedness which has
been incurred to obtain funds to acquire the Mortgage Assets, to
establish the reserve funds, if any, for the Series and to pay
costs of structuring, guaranteeing and issuing the Certificates.
Any other material use of the proceeds will be specified in the
related Prospectus Supplement. Certificates may be exchanged by
the Depositor for Mortgage Assets.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of
the related Prospectus Supplements may be sold directly by the
Depositor or may be offered through one or more underwriters, or
through an underwriting syndicate (the "Underwriters"). The
Prospectus Supplement with respect to each such Series of
Certificates will set forth the terms of the offering of such
Series of Certificates and each Class within such Series,
including the name or names of the Underwriters, the proceeds to
the Depositor, and including either the initial public offering
price, the discounts and commissions to the Underwriters and any
discounts or commissions allowed or reallowed to certain dealers,
or the method by which the prices at which the Underwriters will
sell the Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the
Underwriters will be obligated to purchase all of the
Certificates of a Series offered by the related Prospectus
Supplement if any such Certificates are purchased. The
Certificates 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.
If so indicated in the related Prospectus Supplement, the
Depositor will authorize Underwriters or other persons acting as
the Depositor's agents to solicit offers by certain institutions
to purchase the Certificates from the Depositor pursuant to
contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include
commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and
others, but in all cases such institutions must be approved by
the Depositor. The obligation of any purchaser under any such
contract will be subject to the condition that the purchase of
the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such
purchaser is subject. The Underwriters and such other agents
will not have any responsibility in respect of the validity or
performance of such contracts.
The Depositor may also sell the Certificates offered hereby
and by means of the related Prospectus Supplements from time to
time in negotiated transactions or otherwise, at prices
determined at the time of sale. The Depositor may effect such
transactions by selling Certificates to or through dealers and
such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any
purchasers of Certificates for whom they may act as agents.
The place and time for delivery of each Series of
Certificates offered hereby and by means of the related
Prospectus Supplement will be set forth in the Prospectus
Supplement with respect to such Series.
GLOSSARY
The following are abbreviated definitions of certain
capitalized terms used in this Prospectus. Unless otherwise
provided in a "Supplemental Glossary" in the Prospectus
Supplement for a Series, such definitions will apply to
capitalized terms used in such Prospectus Supplement. The
definitions may vary from those in the Pooling and Servicing
Agreement and the Pooling and Servicing Agreement generally
provides a more complete definition of certain of the terms.
Reference should be made to the Pooling and Servicing Agreement
for a more complete definition of such terms.
"Accrual Distribution Amount" means, with respect to any
Distribution Date for a Series that occurs prior to or on the
Accrual Termination Date, the aggregate amount of interest which
has accrued on the Compound Interest Certificates of such Series
during the Interest Accrual Period ending on or prior to such
Distribution Date but which is not then required to be paid.
"Accrual Termination Date" means, with respect to a Class of
Compound Interest Certificates, the Distribution Date on which
all Certificates of the related Series with Stated Maturities
earlier than that of such Class of Compound Interest Certificates
have been fully paid, or such other date or period as may be
specified in the related Prospectus Supplement.
"Advance" means a cash advance by the Master Servicer or a
Servicer in respect of delinquent payments of principal of and
interest on a Loan, and for the other purposes specified herein
and in the related Prospectus Supplement.
"Agency Securities" means mortgage pass-through securities
issued or guaranteed by GNMA, FNMA, FHLMC or other government
agencies or government-sponsored agencies.
"Appraised Value" means, with respect to a property securing
a Loan, the lesser of the appraised value determined in an
appraisal obtained at origination of the Loan or the sales price
of such mortgaged property.
"ARM" or "Adjustable Rate Mortgage" means a Mortgage Loan as
to which the related Mortgage Note provides for periodic
adjustments in the interest rate component of the Scheduled
Payment pursuant to an Index as described in the related
Prospectus Supplement.
"Asset Group" means a group of individual Mortgage Assets
which share similar characteristics and are aggregated into one
group for purposes of assigning a single aggregate Asset Value.
"Asset Value" means, if specified in the related Prospectus
Supplement for a Series, with respect to Mortgage Assets
comprising the Trust Fund for such Series, an amount equal to, as
of the date of such determination, the lesser of (a) the present
value of the stream of remaining regularly Scheduled Payments of
principal and interest on the Mortgage Assets (less any Retained
Interest) through the earlier of (1) the Final Scheduled
Distribution Date of the Class of such Series having the latest
Final Scheduled Distribution Date or (2) the Distribution Date
next succeeding the latest maturity date of such Mortgage Assets
(after taking into account applicable withdrawals from any funds
or accounts and charges for servicing, insurance and related
matters, as specified in the related Prospectus Supplement),
together with Reinvestment Income thereon at the Assumed
Reinvestment Rate for such Series, from the Assumed Deposit Date
to the next succeeding Distribution Date, discounted from such
Distribution Date to the date for which such determination is
made with the same frequency as payments are made on the
Certificates of such Series at the weighted average Certificate
Rate for such Series; provided that if any Class pays more
frequently than another Class, such determination shall be made
as provided in the related Series Supplement and (b) the maximum
Asset Value specified in the related Prospectus Supplement.
"Assumed Deposit Date" means the date specified therefor in
the Prospectus Supplement for a Series, upon which distributions
on the Mortgage Assets are assumed to be received for purposes of
calculating Reinvestment Income thereon.
"Assumed Reinvestment Rate" means, with respect to a Series,
the per annum rate or rates specified in the related Prospectus
Supplement for a particular period or periods as the "Assumed
Reinvestment Rate" for funds held in any fund or account for the
Series.
"Available Distribution Amount" means the amount in the
Certificate Account (including amounts deposited therein from any
reserve fund or other fund or account) eligible for distribution
to certificateholders on a Distribution Date.
"Bankruptcy Code" means the federal bankruptcy code, 11
United States Code 101 et seq., and regulations promulgated
thereunder.
"Business Day" means a day that, in the City of New York or
in the city or cities in which the corporate trust office of the
Trustee are located, is neither a legal holiday nor a day on
which banking institutions are authorized or obligated by law,
regulation or executive order to be closed.
"Certificate Account" means, with respect to a Series, the
account established in the name of the Trustee for the deposit of
remittances received from the Master Servicer in respect of the
Mortgage Assets in a Trust Fund.
"Certificate Guarantee Insurance" means an insurance policy
issued by one or more insurance companies which will guarantee
timely distributions of interest and full distributions of
principal of a Series on the basis of a schedule of principal
distributions set forth in or determined in the manner specified
in the related Prospectus Supplement for the Series.
"Certificateholder" or "Holder" means the Person in whose
name a Certificate is registered in the Certificate register.
"Certificate Rate" means, with respect to any Series, the
per annum rate at which interest accrues on the principal balance
of the Certificates of such Series or a Class of such Series,
which rate may be fixed or variable, as specified in the related
Prospectus Supplement.
"Certificates" means the Mortgage Loan Asset-Backed
Certificates.
"Class" means a Class of Certificates of a Series.
"Closing Date" means, with respect to a Series, the date
specified in the related Prospectus Supplement as the date on
which Certificates of such Series are first issued.
"Code" means the Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder.
"Collection Account" means, with respect to a Series, the
account established in the name of the Master Servicer for the
deposit by the Master Servicer of payments received from the
Mortgage Assets in a Trust Fund (or from the Servicers, if any).
"Compound Interest Certificate" means any Certificate on
which interest accrues and is added to the principal balance of
such Certificate periodically, but with respect to which no
interest or principal will be payable except during the period or
periods specified in the related Prospectus
"Compound Value" means, with respect to a Class of Compound
Interest Certificates, as of any Determination Date, the original
principal balance of such Class, plus all accrued and unpaid
interest, if any, previously added to the principal balance
thereof and reduced by any payments of principal previously made
on such Class of Compound Interest Certificates.
"Cut-off Date" means the date designated in the Pooling and
Servicing Agreement for a Series on or before which amounts due
and payable with respect to a Mortgage Asset will not inure to
the benefit of Certificateholders of the Series.
"Deferred Interest" means excess interest resulting when the
amount of interest paid by a Mortgagor on a Negatively Amortizing
ARM in any month is less than the amount of interest accrued on
the Stated Principal Balance thereof.
"Deficiency Event" means, if applicable with respect to a
Series (as specified in the related Prospectus Supplement), the
inability of the Trustee to distribute to Holders of one or more
Classes of Certificates of the Series (other than any Class of
Subordinate Certificates prior to the time that the Available
Subordination Amount is reduced to zero), in accordance with the
terms thereof and the related Pooling and Servicing Agreement,
any distribution of principal or interest thereon when and as
distributable due to insufficient funds for such purpose then
held in the related Trust Fund.
"Depositor" means Quality Mortgage Acceptance Corp.
"Determination Date" means the day specified in the related
Prospectus Supplement as the day on which the Master Servicer
calculates the amounts to be distributed to Certificateholders on
the next succeeding Distribution Date.
"Distribution Date" means, with respect to a Series or
Class, each date specified as a distribution date for such Series
or Class in the related Prospectus Supplement.
"Due Date" means each date, as specified in the related
Prospectus Supplement for a Series, on which any payment of
principal or interest is due and payable to the Trustee or its
nominee on any Mortgage Asset.
"Eligible Investments" means any one or more of the
obligations or securities described as such at "THE POOLING AND
SERVICING AGREEMENTS-Investment of Funds."
"Eligible Reserve Fund Investments" means Eligible
Investments and any other obligations or securities described as
Eligible Reserve Fund Investments in the Applicable Pooling and
Servicing Agreement, as described in the related Prospectus
Supplement for a Series.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Account" means an account, established and
maintained by the Master Servicer or the Servicer for a Loan,
into which payments by borrowers to pay taxes, assessments,
mortgage and hazard insurance premium and other comparable items
that are required to be paid to the mortgagee are deposited.
"Excess Cash Flow" means, if applicable with respect to a
Series (as specified in the related Prospectus Supplement), the
amount, if any, by which (a) the cash flow received from the
Mortgage Assets in the related Trust Fund and deposited in the
related Certificate Account (excluding any Retained Interest but
including transfers from any applicable Reserve Fund), net of
applicable servicing fees, guarantee fees, insurance premiums and
other administrative expenses, on the relevant determination date
exceeds (b) the sum of (1) the Minimum Principal Distribution
Amount for such Series on such Distribution Date and (2) the
Accrual Distribution Amount, if any, on such Distribution Date.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration, a division
of HUD.
"FHA Loan" means a fixed-rate housing loan insured by the
FHA.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"Final Scheduled Distribution Date" means, with respect to a
Class of a Series, the date after which no Certificates of such
Class will remain outstanding assuming timely payments or
distributions are made on the Mortgage Assets in the related
Trust Fund.
"Floating Interest Certificate" means any Certificate which
accrues interest at a Floating Rate.
"Floating Interest Period" means the period of time during
which a given Certificate Rate applies to a Class of Floating
Interest Certificates.
"Floating Rate" means a Certificate Rate which is subject to
change from time to time.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"Guaranteed Investment Contract" means a guaranteed
investment contract or reinvestment agreement providing for the
investment of funds held in a fund or account, guaranteeing a
minimum or a fixed rate of return on the investment of moneys
deposited therein.
"HUD" means the United States Department of Housing and
Urban Development.
"Index" means the index applicable to any adjustments in the
Mortgage Rates of any ARMs included in the Mortgage Assets.
"Insurance Policies" means hazard insurance and other
insurance policies required to be maintained with respect to
Mortgage Loans.
"Insurance Proceeds" means amounts paid by the insurer under
any of the Insurance Policies covering any Loan or Mortgaged
Property.
"Interest Accrual Period" means the period, if any,
specified in the related Prospectus Supplement for a Series,
during which interest accrues on the Certificates or a Class of
Certificates of such Series with respect to any Distribution Date
or Special Distribution Date.
"Interest Weighted Certificates" means Certificates entitled
to a greater percentage of interest on the Mortgage Loans
underlying or comprising the Mortgage Assets for the Series than
the percentage of principal, if any, on such Mortgage Loans to
which it is entitled.
"IRS" means the Internal Revenue Service.
"L/C Bank" means the issuer of a letter of credit.
"Letter of Credit" means an irrevocable letter of credit
issued by the L/C Bank to provide limited protection against
certain losses relating to Mortgage Loans, as described in the
related Prospectus Supplement for a Series.
"LIBOR" means the average of the interbank offered rates for
United States dollar deposits in the London interbank market
based on quotations of major banks.
"Lifetime Mortgage Rate Cap" means the maximum permissible
Mortgage Rate during the life of each ARM.
"Liquidation Proceeds" means amounts received by the Master
Servicer or Servicer in connection with the liquidation of a
mortgage, net of liquidation expenses.
"Loan" means a Mortgage Loan (including an interest therein)
that is deposited by the Depositor into the Trust Fund for a
Series.
"Loan-to-Value Ratio" means the ratio, expressed as a
percentage, of the principal amount of a Loan at the date of
determination to the Appraised Value.
"Master Servicer" means, with respect to a Series secured by
Mortgage Loans, the Person, if any, designated in the related
Prospectus Supplement to manage and supervise the administration
and servicing by the Servicers of the Mortgage Loans comprising
or underlying the Mortgage Assets for that Series, or the
successors or assigns of such Person.
"Maximum Floating Rate" means, as to any Series, the per
annum interest rate cap specified for any Floating Rate
Certificates of such Series in the related Prospectus Supplement.
"Minimum Floating Rate" means, as to any Series, the per
annum interest rate floor specified for any Floating Rate
Certificate of such Series in the related Prospectus Supplement.
"Minimum Principal Distribution Amount" means, if applicable
with respect to a Distribution Date for a Series (as specified in
the related Prospectus Supplement), the amount, if any, by which
(a) the outstanding principal balance of the Certificates of such
Series (before giving effect to any payment of principal on that
Distribution Date) exceeds (b) the aggregate Asset Value of the
Mortgage Assets for the Series as of that Distribution Date.
"Minimum Mortgage Rate" means the lifetime minimum Mortgage
Rate during the life of each ARM.
"Mortgage" means the mortgage, deed of trust or other
instrument securing a Mortgage Note.
"Mortgage Assets" means the Private Mortgage-Backed
Securities or Mortgage Loans, as the case may be, which are
included in the Trust Fund for such Series. A Mortgage Asset
refers to a specific Private Mortgage-Backed Security or Mortgage
Loan, as the case may be.
"Mortgage Loan" means a mortgage loan (including an interest
therein) secured by Mortgaged Property.
"Mortgage Note" means the note or other evidence of
indebtedness of a Mortgagor under the Mortgage Loan.
"Mortgage Rate" means, unless otherwise indicated herein or
in the Prospectus Supplement, the interest rate borne by each
Loan.
"Mortgaged Property" means the real property securing a
Mortgage.
"Multifamily Property" means any property securing a Loan
consisting of multifamily residential rental property consisting
of five or more dwelling units.
"Negatively Amortizing ARMs" means ARMs which provide for
limitations on changes in the Scheduled Payment which can result
in Scheduled Payments which are greater or less than the amount
necessary to amortize such ARM by its stated maturity at the
Mortgage Rate in effect in any particular month.
"Participation Certificate" means a certificate evidencing a
participation interest in a pool of Mortgage Loans.
"Percentage Interest" means, with respect to a Certificate,
the proportion (expressed as a percentage) of the percentage
amounts of all of the Certificates in the related Class
represented by such Certificate, as specified in the related
Prospectus Supplement.
"Person" means any individual, corporation, partnership,
joint venture, association, joint stock company, trust (including
any beneficiary thereof), unincorporated organization, or
government or any agency or political subdivision thereof.
"PMBS Agreement" means the pooling and servicing agreement,
indenture, trust agreement or similar agreement pursuant to which
a Private Mortgaged-Backed Security is issued.
"PMBS Issuer" means, with respect to Private Mortgage-Backed
Securities, the depositor or seller/servicer under a PMBS
Agreement.
"PMBS Servicer" means the servicer of the housing loans
underlying a Private Mortgage-Backed Security.
"PMBS Trustee" means the trustee designated under a PMBS
Agreement.
"Pooling and Servicing Agreement" means the agreement
relating to a Series among the Depositor, the Master Servicer and
the Trustee.
"Principal Distribution Amount" means, if applicable with
respect to a Series (as specified in the related Prospectus
Supplement), the sum of (a) the Accrual Distribution Amount, if
any, (b) the Minimum Principal Distribution Amount and (c) the
percentage, if any, of Excess Cash Flow specified in the related
Prospectus Supplement.
"Principal Weighted Certificates" means Certificates
entitled to a greater percentage of principal on the Mortgage
Loans underlying or comprising the Mortgage Assets in the Trust
Fund for the related Series than the percentage of interest to
which it is entitled.
"Private Mortgage-Backed Security" means a mortgage
participation or pass-through certificate representing a
fractional, undivided interest in (i) Mortgage Loans, (ii)
collateralized mortgage obligations secured by Mortgage Loans or
(iii) Agency Securities.
"Rating Agency" means a nationally recognized statistical
rating organization.
"Reduced Volatility Certificates" means a Class of
Certificates on which minimum payments of principal are made in
accordance with a schedule specified in the Prospectus
Supplement, the date specified in the related Prospectus
Supplement or the date on which the principal of all Certificates
of the Series having an earlier Final Scheduled Distribution Date
have been paid in full.
"Regular Interest" means a regular interest in a REMIC as
described herein under "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS-Tax Status as a REMIC."
"Reinvestment Income" means any interest or other earnings
on funds or accounts that are part of the Trust Fund for a
Series.
"REMIC" means a real estate mortgage investment conduit
under Section 860D of the Code.
"REMIC Administrator" means the Person, if any, specified in
the related Prospectus Supplement for a Series for which a REMIC
election is made, to serve as administrator of the Series.
"REO Property" means real property which secured a defaulted
Loan which has been acquired upon foreclosure, deed in lieu of
foreclosure or repossession.
"Reserve Fund" means, with respect to a Series, any Reserve
Fund established pursuant to the Pooling and Servicing Agreement.
"Residual Interest" means a residual interest in a REMIC as
described herein under "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS-Tax Status as a REMIC."
"Retained Interest" means, with respect to a Mortgage Asset,
the amount or percentage specified in the related Prospectus
Supplement which is not sold by the Depositor or seller of the
Mortgage Asset and, therefore, is not included in the Trust Fund
for the related Series.
"Scheduled Payments" means the scheduled payments of
principal and interest to be made by the borrower on a Mortgage
Loan in accordance with the terms of the related Mortgage Note.
"Senior Certificateholder" means the Holder of a Senior
Certificate.
"Senior Certificates" means a Class of Certificates as to
which the Holders' rights to receive distributions of principal
and interest are senior to the rights of Holders of Subordinate
Certificates, to the extent specified in the related Prospectus
Supplement.
"Servicer" means the entity which has primary liability for
servicing Mortgage Loans if other than the Master Servicer.
"Servicer Account" means an account established by a
Servicer (other than the Master Servicer) who is directly
servicing Mortgage Loans, into which such Servicer will be
required to deposit all receipts received by it with respect to
the Mortgage Assets serviced by such Servicer.
"Servicer Remittance Date" means the calendar day or days of
each month, as specified in the related Prospectus Supplement for
a Series, on which the Servicer is required to withdraw funds
from the related Servicer Account for remittance to the Master
Servicer.
"Special Distribution" means, if applicable with respect to
a Series (as specified in the related Prospectus Supplement), a
distribution (other than a regular distribution on a Distribution
Date) made on account of particular circumstances specified
herein.
"Special Distribution Date" means, if applicable with
respect to a Series (as specified in the related Prospectus
Supplement), the date each month (other than any month in which a
Distribution Date occurs) on which Special Distributions may be
made on Certificates of that Series pursuant to the related
Pooling and Servicing Agreement; such date shall be the same day
of the month as the day on which Distribution Dates for the
Certificates of that Series occur.
"Subordinate Certificateholder" means a Holder of a
Subordinate Certificate.
"Subordinate Certificates" means a Class of Certificates as
to which the rights of Holders to receive distributions of
principal and interest are subordinated to the rights of Holders
of Senior Certificates, to the extent and under the circumstances
specified in the related Prospectus Supplement.
"Subordinated Amount" means the amount, if any, specified in
the related Prospectus Supplement for a Series with a Class of
Subordinated Certificates, that the Subordinate Certificates are
subordinated to the Senior Certificates of the same Series.
"Subordination Reserve Fund" means the subordination reserve
fund, if any, for a Series with a Class of Subordinate
Certificates, established pursuant to the related Pooling and
Servicing Agreement.
"Trustee" means the trustee under a Pooling and Servicing
Agreement, and its successors.
"Trust Fund" means all property and assets held for the
benefit of the Certificateholders by the Trustee under the
Pooling and Servicing Agreement for a Series of Certificates
including, without limitation, the Mortgage Assets (except any
Retained Interest), all amounts in the Certificate Account,
Collection Account or Servicer Accounts, distributions on the
Mortgage Assets (net of servicing fees), and reinvestment
earnings on such net distributions and amounts deposited in any
reserve fund and the proceeds of any insurance policies required
to be maintained with respect to the Mortgage Loans.
[BACK COVER PAGE OF PROSPECTUS]
<PAGE>
[MULTIFAMILY]
SUBJECT TO COMPLETION - DATED MAY 17, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated May __, 1996)
$___,___,___
Quality Mortgage Acceptance Corp.
Depositor
Mortgage Loan Asset-Backed Certificates, Series 1996-_
$ 0 Class S Certificates, Variable Rate*
$__,___,___ Class A-1 Certificates, Adjustable Rate
$__,___,___ Class A-2 Certificates, Adjustable Rate
$__,___,___ Class B-1 Certificates, Adjustable Rate
*Based on the Notional Amount as described herein.
The Series 1996-_ Mortgage Loan Asset-Backed Certificates
(the "Certificates") will consist of the following seven Classes:
(i) Class S Certificates (the "Variable Strip Certificates"),
(ii) Class A-1 Certificates and Class A-2 Certificates
(collectively, with the Variable Strip Certificates, the "Senior
Certificates"), (iii) Class B-1 Certificates, Class B-2
Certificates and Class B-3 Certificates (collectively, the
"Subordinate Certificates") and (iv) Class R Certificates (the
"Residual Certificates"). Only the Senior Certificates and the
Class B-1 Certificates (collectively, the "Offered Certificates")
are offered hereby.
The Certificates will, in the aggregate, evidence the entire
beneficial ownership interest in a trust fund (the "Trust Fund")
consisting primarily of a pool of certain conventional,
adjustable-rate, fully-amortizing, five or more unit, [first]
[second] lien mortgage loans (the "Mortgage Loans") to be
deposited by Quality Mortgage Acceptance Corp. (the "Depositor")
into the Trust Fund for the benefit of the Certificateholders.
The Mortgage Loans will have an aggregate principal balance as of
__________ 1, 1996 (the "Cut-off Date") of approximately
$___,___,___ and have original terms to maturity from the due
dates of their first scheduled monthly payment of interest and
principal of not more than approximately 30 years. All of the
Mortgage Loans were originated or acquired by [Quality Mortgage
USA, Inc.] [and/or name of other or additional sellers] (the
"Seller") and have been sold by the Seller to the Depositor prior
to the date of initial issuance of the Certificates (the
"Delivery Date"). The Mortgage Loans will be serviced by
__________ (the "Master Servicer"). The interest rate (the
"Mortgage Rate") on each Mortgage Loan will be subject to
adjustment, commencing approximately six months after the date of
origination and semi-annually thereafter based on the sum of the
Index (as defined herein) and the related Gross Margin (as
defined herein), subject to certain periodic and lifetime rate
limitations (as described herein). Accordingly, under certain
circumstances described more fully herein, certain of the
Certificates from time to time may be subject to reduced
amortization, negative amortization or accelerated amortization.
The Index will be based on six-month London interbank offered
rates for United States dollar deposits ("Six-Month LIBOR") as
described herein. Certain characteristics of the Mortgage Loans
are described herein under "DESCRIPTION OF THE MORTGAGE POOL,"
and certain matters related to the servicing of the Mortgage
Loans are described herein under "POOLING AND SERVICING
AGREEMENT" and in the Prospectus under "SERVICING OF LOANS" and
"THE POOLING AND SERVICING AGREEMENTS."
The rights of the holders of the Class B-2 Certificates and
the Class B-3 Certificates to receive distributions with respect
to the Mortgage Loans will be subordinate to the rights of the
holders of the Class B-1 Certificates and the Senior
Certificates, the rights of the holders of the Class B-1
Certificates to receive distributions with respect to the
Mortgage Loans will be subordinate to the rights of the holders
of the Senior Certificates, and the rights of the holders of the
Class A-2 Certificates to receive distributions with respect to
the Mortgage Loans will be subordinate to the rights of the
holders of the Variable Strip Certificates and the Class A-1
Certificates, in each case as and to the extent described herein.
______________________________
THE OFFERED CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE DEPOSITOR, THE SELLER, THE MASTER SERVICER, THE
TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE
INSURED OR GUARANTEED
BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE
DEPOSITOR, THE SELLER, THE
MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________________
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
______________________________
Prospective investors should consider the factors set forth under
"RISK FACTORS," which begins on Page S-__ of this Prospectus
Supplement, and on Page __ of the Prospectus.
___________
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These Securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
The Offered Certificates are being offered by the
Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to the Depositor are expected to be
approximately $_,___,___ plus accrued interest, before deducting
issuance expenses payable by the Depositor.
The Offered Certificates are offered when, as and if
delivered to, and accepted by, the Underwriter, and subject to
various conditions, including the Underwriter's right to reject
orders in whole or in part. It is expected that the Variable
Strip Certificates and the Class A-1 Certificates will be
delivered in book-entry form through the Same Day Funds
Settlement System of The Depository Trust Company as further
discussed herein, and that all other Offered Certificates will be
delivered in registered and certificated form at the office of
[Underwriter], New York, New York, on or about __________, 1996,
against payment therefor in immediately available funds.
[Underwriter]
The date of this Prospectus Supplement is __________, 1996.
Distributions on the Offered Certificates will be made on
the 25th day of each month or, if such day is not a business day,
then on the next succeeding business day, commencing in
__________ 1996 (each, a "Distribution Date"). As more fully
described herein, interest distributions on the Offered
Certificates will be based on the Certificate Principal Balances
thereof (or the Notional Amount (as defined herein) in the case
of the Variable Strip Certificates) and the related Certificate
Rates. Except as described herein, the Certificate Rates on the
Certificates (other than the Variable Strip Certificates) will be
equal to the one-month London interbank offered rates for United
States dollar deposits ("One-Month LIBOR") plus _____%. The
Certificate Rate on the Variable Strip Certificates will be equal
to the excess, if any, of (i) the Net Mortgage Rate Cap (as
defined herein) over (ii) the Certificate Rate on the
Certificates (other than the Variable Strip Certificates). The
Certificate Rate with respect to the first Distribution Date for
the Variable Strip Certificates will be approximately _____% per
annum and for the Class A-1 Certificates, Class A-2 Certificates
and Class B-1 Certificates will be _____% per annum.
Distributions in respect of principal will be allocated
among the various Classes of Certificates (other than the
Variable Strip Certificates), as described herein. No principal
prepayments on the Mortgage Loans will be distributed to holders
of the Class B-1 Certificates prior to the Distribution Date
occurring in __________ 20__ and no principal prepayments on the
Mortgage Loans will be distributed to the holders of the Class B-
1 Certificates thereafter if certain criteria relating to the
delinquency and loss performance of the Mortgage Loans described
herein are not satisfied, unless the Class A-1 Certificates and
the Class A-2 Certificates have been retired. However, as
described herein, because holders of the Class B-3 Certificates
will not be entitled to receive any interest or principal
distributions until the Classes of Subordinate Certificates
senior thereto have been retired, holders of the Class B-1
Certificates will be entitled to receive principal distributions
that include amounts otherwise distributable to holders of the
Class B-3 Certificates.
The yield to maturity on the Offered Certificates will
depend on, among other things, the rate and timing of principal
payments (including prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans,which may vary significantly
over time. The yield to maturity on the Class B-1 Certificates
and, to a lesser extent, the Class A-2 Certificates, will be
extremely sensitive to losses on the Mortgage Loans (and the
timing thereof) to the extent that such losses are not covered by
the Classes of Certificates subordinate thereto, as described
herein. The Mortgage Loans generally may be prepaid in full or in
part at any time; however, prepayment may subject the mortgagor
to a prepayment charge. The yield to investors on the Offered
Certificates will be adversely affected by any shortfalls in
interest collected on the Mortgage Loans due to prepayments,
liquidations or otherwise to the extent that such shortfalls are
not otherwise covered, as described herein. The yield to
investors on the Variable Strip Certificates will be extremely
sensitive to the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations) on the
Mortgage Loans which may vary significantly over time. A rapid
rate of principal payments (including prepayments, repurchases,
defaults and liquidations) on the Mortgage Loans could result in
the failure of investors in the Variable Strip Certificates to
recover their initial investment. See "THE SELLER-Loan
Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status" and "-REO PROPERTY LIQUIDATION EXPERIENCE"
herein for important information regarding the delinquency,
forbearance, foreclosure, bankruptcy and REO property status and
loss experience of certain mortgage loans previously originated
or acquired by the Seller under substantially the same
underwriting criteria pursuant to which the Mortgage Loans were
originated or acquired. In addition, the yield to investors on
the Offered Certificates (other than the Variable Strip
Certificates) will be sensitive to fluctuations in the level of
One-Month LIBOR (as defined herein), which may vary significantly
over time. Furthermore, the yield to investors on the Variable
Strip Certificates will be extremely sensitive to fluctuations in
the difference between the Net Mortgage Rate Cap on the Mortgage
Loans and in the level of One-Month LIBOR plus _____%, which may
vary significantly over time. See "SUMMARY OF PROSPECTUS
SUPPLEMENT-Special Prepayment Considerations" and "-Special Yield
Considerations" and "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS"
herein, and "RISK FACTORS" and "YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" in the Prospectus.
It is a condition to the issuance of the Offered
Certificates that the Variable Strip Certificates and the Class
A-1 Certificates be rated "___" by [Rating Agency I] ("[Rating
Agency I]") and "___" by [Rating Agency II] ("[Rating Agency
II]"), the Class A-2 Certificates be rated "___" by [Rating
Agency I] and "___" by [Rating Agency II] and the Class B-1
Certificates be rated "___" by [Rating Agency I] and "___" by
[Rating Agency II].
As described herein, a "real estate mortgage investment
conduit" ("REMIC") election will be made in connection with the
Trust Fund for federal income tax purposes. Each Class of the
Offered Certificates will constitute a "regular interest" in the
REMIC. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" herein and
in the Prospectus.
There is currently no secondary market for the Offered
Certificates. [Underwriter] (the "Underwriter") intends to make a
secondary market in the Offered Certificates but has no
obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop or, if it does
develop, that it will continue or will provide investors with a
sufficient level of liquidity. The Offered Certificates will not
be listed on any securities exchange. See "RISK FACTORS" in the
Prospectus.
The information set forth herein under "SUMMARY OF
PROSPECTUS SUPPLEMENT-The Mortgage Pool," "DESCRIPTION OF THE
MORTGAGE POOL" and "THE SELLER" (other than the information set
forth herein under "THE SELLER-Loan Delinquency, Forbearance,
Foreclosure, Bankruptcy and REO Property Status" and, to the
extent provided by [Servicer] as described herein, the
information set forth herein under "THE SELLER-REO Property
Liquidation Experience") has been provided by the Seller. No
representation is made by the Depositor, the Underwriter, the
Master Servicer, the Trustee or any of their respective
affiliates as to the accuracy or completeness of the information
provided by the Seller. The information set forth herein under
"THE SELLER -Loan Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status" and, other than to the extent
provided by the Seller, the information set forth herein under
"THE SELLER-REO Property Liquidation Experience" has been
provided by [Servicer] in its capacity as servicer during the
periods indicated. No representation is made by the Depositor,
the Underwriter, the Master Servicer, the Seller, the Trustee or
any of their respective affiliates as to the accuracy or
completeness of the information provided by [Servicer].
____________________________________
No person is authorized in connection with this offering to
give any information or to make any representation about the
Depositor, the Seller, the Master Servicer, the Trustee, the
Offered Certificates or any other matter referred to herein,
other than those contained in this Prospectus Supplement or the
Prospectus. If any other information or representation is given
or made, such information or representation may not be relied
upon as having been authorized by the Depositor, the Seller, the
Master Servicer or the Trustee. This Prospectus Supplement and
the Prospectus do not constitute an offer to sell or a
solicitation of an offer to buy securities other than the Offered
Certificates, or an offer to sell or a solicitation of an offer
to buy securities in any jurisdiction or to any person to whom it
is unlawful to make such offer in such jurisdiction. Neither the
delivery of this Prospectus Supplement or the Prospectus nor any
sale hereunder or thereunder shall, under any circumstances,
create any implication that the information contained herein or
therein is correct as of any time subsequent to their respective
dates.
____________________________________
The Offered Certificates offered by this Prospectus
Supplement will be part of a separate series of Certificates
being offered by the Depositor pursuant to its Prospectus dated
__________, 1996, of which this Prospectus Supplement is a part
and which accompanies this Prospectus Supplement. The Prospectus
contains important information regarding this offering that is
not contained herein, and prospective investors are urged to read
the Prospectus and this Prospectus Supplement in full.
____________________________________
Until 90 days after the date of this Prospectus Supplement,
all dealers effecting transactions in the Offered Certificates,
whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and the Prospectus to
which it relates. This is in addition to the obligation of
dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold
allotments or subscriptions.
TABLE OF CONTENTS
Prospectus Supplement
Page
SUMMARY OF PROSPECTUS SUPPLEMENT........................................S-8
RISK FACTORS...........................................................S-26
DESCRIPTION OF THE MORTGAGE POOL.......................................S-30
ADDITIONAL INFORMATION.................................................S-40
THE DEPOSITOR..........................................................S-40
DESCRIPTION OF THE CERTIFICATES........................................S-46
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS............................S-61
POOLING AND SERVICING AGREEMENT........................................S-68
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................S-74
METHOD OF DISTRIBUTION.................................................S-76
USE OF PROCEEDS........................................................S-77
LEGAL OPINIONS.........................................................S-77
RATINGS ..............................................................S-77
LEGAL INVESTMENT.......................................................S-78
ERISA CONSIDERATIONS...................................................S-79
Prospectus
Prospectus Supplement.....................................................3
Additional Information....................................................3
Reports to Certificateholders.............................................3
Incorporation of Certain Documents by Reference...........................4
Summary of Terms of the Certificates......................................5
Risk Factors.............................................................17
Description of the Certificates..........................................24
Yield, Prepayment and Maturity Considerations............................29
The Trust Funds..........................................................33
Loan Underwriting Procedures and Standards...............................40
Servicing of Loans.......................................................44
Credit Support...........................................................54
Description of Mortgage and Other Insurance..............................58
The Pooling and Servicing Agreements.....................................60
Certain Legal Aspects of Loans...........................................71
Certain Federal Income Tax Consequences..................................80
State and Other Tax Consequences........................................113
ERISA Considerations....................................................113
Legal Investment........................................................116
Legal Matters...........................................................117
The Depositor...........................................................118
Use of Proceeds.........................................................118
Plan of Distribution....................................................118
Glossary................................................................119
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere herein
and in the Prospectus. Capitalized terms used herein and not
otherwise defined herein have the meanings assigned in the
Prospectus.
Title of Securities.......... Mortgage Loan Asset-Backed
Certificates, Series 1996-_.
Depositor.................... Quality Mortgage Acceptance Corp. (the
"Depositor"). See "THE DEPOSITOR" in
the Prospectus.
Master Servicer............... __________ (the "Master Servicer").
See "POOLING AND SERVICING AGREEMENT-
The Master Servicer" herein.
Seller........................ [Quality Mortgage USA, Inc.] [and/or
name of other or additional sellers].
See "Seller" herein.
Trustee....................... [Trustee] (the "Trustee"). See
"POOLING AND SERVICING AGREEMENT-The
Trustee" herein.
Cut-off Date.................. __________, 1996.
Delivery Date................. On or about __________, 1996.
Denominations................. The Variable Strip Certificates will
be issued, maintained and transferred
on the book-entry records of the
Depository Trust Company ("DTC") and
its Participants in minimum initial
Notional Amounts (as defined herein)
of $1.00 and integral multiples of
$1.00 in excess thereof. The Class A-1
Certificates will be issued,
maintained and transferred on the
book-entry records of DTC and its
Participants in minimum denominations
of $1.00 and integral multiples of
$1.00 in excess thereof. The Class A-2
Certificates will be issued in minimum
denominations of $25,000 and integral
multiples of $1,000 in excess thereof,
and the Class B-1 Certificates will be
issued in minimum denominations of
$250,000 and integral multiples of
$1,000 in excess thereof; provided,
however, that one Certificate of each
such Class may be issued evidencing
the sum of an authorized denomination
thereof and the remainder of the
aggregate initial Certificate
Principal Balance of such Class.
Registration.................. The Variable Strip Certificates and
the Class A-1 Certificates
(collectively, the "DTC Registered
Certificates") will be represented by
one or more Certificates registered in
the name of Cede & Co., as nominee of
DTC. No person acquiring a beneficial
interest in a Class of DTC Registered
Certificates (each, a "Beneficial
Owner") will be entitled to receive a
Certificate of such Class in
certificated form, except under the
limited circumstances described
herein. For each Certificate held by
DTC, DTC will effect payments to and
transfers of the related DTC
Registered Certificates among the
respective Beneficial Owners by means
of its electronic recordkeeping
services, acting through organizations
that participate in DTC. This
arrangement may result in certain
delays in receipt of distributions by
Beneficial Owners and may restrict a
Beneficial Owner's ability to pledge
the Certificates beneficially owned by
it. All references in this Prospectus
Supplement to the DTC Registered
Certificates reflect the rights of
Beneficial Owners of such Certificates
only as such rights may be exercised
through DTC and its participating
organizations so long as such
Certificates are held by DTC. The
Offered Certificates (other than the
DTC Registered Certificates) will be
offered in registered and certificated
form. See "DESCRIPTION OF THE
CERTIFICATES-Book-Entry Registration"
in the Prospectus.
The Mortgage Pool............. Based solely upon information provided
by the Seller, the Mortgage Loans will
have the characteristics described
herein. Trust Fund (as defined herein)
will consist primarily of a pool (the
"Mortgage Pool") of conventional,
adjustable-rate, fully-amortizing,
mortgage loans (the "Mortgage Loans")
with an aggregate principal balance as
of the Cut-off Date of $___,___,___.
The Mortgage Loans are secured by
[first][second] liens on fee simple
and leasehold interests in five or
more unit residential real properties
(each, a "Mortgaged Property") and
have original terms to maturity from
the due dates of their first scheduled
monthly payment of interest and
principal (each such payment, a
"Monthly Payment") of not more than 30
years. All of the Mortgage Loans have
Monthly Payments due on the first day
of each month.
The Mortgage Rate on each Mortgage
Loan will be subject to adjustment,
commencing approximately six months
after the date of origination and
semi-annually thereafter, on the
adjustment date applicable thereto
(each such date, an "Adjustment Date")
to equal the sum, rounded to the
nearest 0.125%, of the Index (as
defined herein) and a fixed percentage
amount (the "Gross Margin"), subject
to periodic rate caps and maximum and
minimum Mortgage Rates as described
herein. Approximately _____% of the
Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were
originated with a Mortgage Rate below
the sum of the applicable Index and
Gross Margin, rounded as described
herein. No Mortgage Loan had an
initial Adjustment Date prior to
__________, 1996. [None of the
Mortgage Loans include provisions for
negative amortization or deferred
interest.]
Approximately _____% of the Mortgage
Loans (by aggregate principal balance
as of the Cut-off Date) were thirty
days or more but less than sixty days
delinquent in their Monthly Payments
as of the Cut-off Date (such Mortgage
Loans, "Thirty-Day Delinquent Mortgage
Loans"). Approximately _____% of the
Mortgage Loans (by aggregate principal
balance as of the Cut-off Date) were
sixty days or more but less than
ninety days delinquent in their
Monthly Payments as of the Cut-off
Date (such Mortgage Loans, "Sixty-Day
Delinquent Mortgage Loans").
Approximately _____% of the Mortgage
Loans (by aggregate principal balance
as of the Cut-off Date) were Thirty-
Day Delinquent Mortgage Loans as of
the Cut-off Date, and approximately
_____% of the Mortgage Loans were
Sixty-Day Delinquent Mortgage Loans as
of the Cut-off Date. Prospective
investors in the Offered Certificates
should be aware, however, that
approximately _____% of the Mortgage
Loans (by aggregate principal balance
as of the Cut-off Date) had a first
monthly payment due on or before
__________, 1996, and that
approximately _____% of the Mortgage
Loans (by aggregate principal balance
as of the Cut-off Date) had a first
monthly payment due on or before
__________, 1996, and therefore, the
remaining Mortgage Loans could not
have been Thirty-Day Delinquent
Mortgage Loans or Sixty-Day Delinquent
Mortgage Loans as of the Cut-off Date.
In addition to the foregoing,
approximately _____% of the Mortgage
Loans (by aggregate principal balance
as of the Cut-off Date) will have been
thirty days or more delinquent in
their Monthly Payments more than once
during the twelve months preceding the
Delivery Date. None of the other
Mortgage Loans will have been thirty
days or more delinquent in its Monthly
Payments more than once during such
period.
All of the Mortgage Loans were
originated or acquired under the
Seller's multifamily lending program,
as described herein. [Mortgage loans
originated or acquired under the
Seller's multifamily lending program
are likely to experience rates of
delinquency, foreclosure, bankruptcy
and loss that are higher, and that may
be substantially higher, than those of
mortgage loans originated in a more
traditional manner.] See "RISK
FACTORS-Underwriting Standards and
Potential Delinquencies" and
"DESCRIPTION OF THE MORTGAGE POOL -
Underwriting Standards" herein. In
addition, see "THE SELLER-Loan
Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status"
and "-REO Property Liquidation
Experience" herein for important
information regarding the delinquency,
forbearance, foreclosure, bankruptcy
and REO property status and loss
experience of certain mortgage loans
previously originated or acquired by
the Seller under substantially the
same underwriting criteria pursuant to
which the Mortgage Loans were
originated or acquired.
Index......................... As of any Adjustment Date, the Index
applicable to the determination of the
Mortgage Rate on each Mortgage Loan
will be the average of the interbank
offered rates for six-month United
States dollar deposits in the London
interbank market based on quotations
of major banks ("Six-Month LIBOR"), as
published in the Western Edition of
The Wall Street Journal, as most
recently available as of the date 45
days prior to such Adjustment Date.
See "DESCRIPTION OF THE MORTGAGE POOL"
herein.
The Offered
Certificates................ The Offered Certificates will be
issued pursuant to a Pooling and
Servicing Agreement, to be dated as of
__________ 1, 1996, among the
Depositor, the Master Servicer and the
Trustee (the "Pooling and Servicing
Agreement"). The Class A-1
Certificates, the Class A-2
Certificates and the Class B-1
Certificates will evidence initial
undivided beneficial ownership
interests of approximately _____%,
_____% and _____%, respectively, in a
trust fund (the "Trust Fund")
consisting primarily of the Mortgage
Pool. The Offered Certificates (other
than the Variable Strip Certificates)
will have the following approximate
Certificate Principal Balances as of
the Cut-off Date:
Class A-1 Certificates $___,___,___
Class A-2 Certificates $___,___,___
Class B-1 Certificates $___,___,___
The Variable Strip Certificates have
no Certificate Principal Balance and
will accrue interest on the Notional
Amount (as defined herein).
On the first Distribution Date, the
Certificate Rate on the Certificates
(other than the Variable Strip
Certificates) will be _____% per
annum. Thereafter, on the second
business day preceding each
Distribution Date (each such date, an
"Interest Determination Date"), the
Trustee will determine the "One-Month
LIBOR" for the Distribution Date in
the following month for the Offered
Certificates (other than the Variable
Strip Certificates) on the basis of
the offered rates of the Reference
Banks for one-month United Stated
dollar deposits, as such rates appear
on the Reuters Screen LIBO Page, as of
11:00 a.m. (London time) on such
Interest Determination Date. See
"DESCRIPTION OF THE CERTIFICATES-
Calculation of One-Month LIBOR"
herein. The Certificate Rate on the
Certificates (other than the Variable
Strip Certificates) for each
Distribution Date after the initial
Distribution Date will be equal to
One-Month LIBOR (as defined herein)
plus _____%; provided, however, that
the Certificate Rate on each such
Class of Certificates will be subject
to a maximum rate as of any
Distribution Date equal to the lesser
of (i) _____% per annum and (ii) the
Net Mortgage Rate Cap. The Net
Mortgage Rate Cap is a per annum rate
equal to the weighted average of the
Net Mortgage Rates on the then-
outstanding Mortgage Loans. The
Certificate Rate on the Variable Strip
Certificates on each Distribution Date
will be equal to the excess, if any,
of (i) the Net Mortgage Rate Cap over
(ii) the Certificate Rate on the
Certificates (other than the Variable
Strip Certificates). The Certificate
Rate will be approximately _____% per
annum with respect to the first
Distribution Date for the Variable
Strip Certificates. The Net Mortgage
Rate on each Mortgage Loan will be
equal to the Mortgage Rate thereon
minus _____% per annum, the annual
rate at which the related servicing
fee accrues (the "Servicing Fee
Rate").
Interest
Distributions.............. Holders of the Variable Strip
Certificates and the Class A-1
Certificates will be entitled to
receive interest distributions in an
amount equal to the Accrued
Certificate Interest (as defined
herein) on such Class on each
Distribution Date (the "Priority
Interest Distribution Amount"), to the
extent of the Available Distribution
Amount for such Distribution Date.
Holders of the Class A-2 Certificates
will be entitled to receive interest
distributions in an amount equal to
the Accrued Certificate Interest on
such Class on each Distribution Date,
to the extent of the portion of the
Available Distribution Amount for such
Distribution Date remaining after
distributions of interest to the
holders of the Variable Strip
Certificates and interest and
principal to the holders of the Class
A-1 Certificates and, if the
Certificate Principal Balances of the
Subordinate Certificates (as defined
herein) have been reduced to zero,
reimbursement for certain Advances to
the Master Servicer, as described
herein.
Holders of the Class B-1 Certificates
will be entitled to receive interest
distributions in an amount equal to
the Accrued Certificate Interest on
such Class on each Distribution Date,
to the extent of the portion of the
Available Distribution Amount for such
Distribution Date remaining after
distributions of interest and
principal (as applicable) to the
holders of the Classes of Senior
Certificates and, if the Certificate
Principal Balances of the Subordinate
Certificates subordinate thereto have
been reduced to zero, reimbursement
for certain Advances to the Master
Servicer, as described herein.
With respect to any Distribution Date,
Accrued Certificate Interest will be
equal to (a) in the case of the
Offered Certificates (other than the
Variable Strip Certificates), interest
accrued for the Accrual Period (as
defined herein) on the Certificate
Principal Balance of the Certificates
of such Class at the related
Certificate Rate, and (b) in the case
of the Variable Strip Certificates,
interest accrued for the Accrual
Period on the Notional Amount for such
Class of Certificates at the related
Certificate Rate, in each case less
any interest shortfalls not covered
with respect to such Class of
Certificates by Subordination (as
defined herein and allocated as
described herein), including any
Prepayment Interest Shortfall (as
defined herein) for such Distribution
Date to the extent not covered by
payments by the Master Servicer as
described herein and the interest
portions of any Realized Losses (as
defined herein) allocated thereto.
The Accrual Period for each
Distribution Date will be from the
25th day of the month preceding such
Distribution Date to the 24th day of
the month of such Distribution Date,
provided, however, that the Accrual
Period will be treated as a 30-day
period regardless of the number of
days from the 25th day of the
preceding month to the 24th day of
such month. See "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions"
herein.
The notional amount (the "Notional
Amount") of the Variable Strip
Certificates, as of any date of
determination, is equal to the
aggregate Certificate Principal
Balance of all Classes of Certificates
(including such Classes of
Certificates not offered hereby) as of
such date; provided that the initial
Notional Amount for the Variable Strip
Certificates shall be rounded down to
the nearest dollar increment. The
Notional Amount of the Variable Strip
Certificates will be equal to
$___,___,___ as of the Cut-off Date.
See "DESCRIPTION OF THE CERTIFICATES-
Interest Distributions" herein.
References herein to the Notional
Amount of the Variable Strip
Certificates are used solely for
certain calculations and do not
represent the right of the holders of
the Variable Strip Certificates to
receive distributions of such amount.
Principal
Distributions.............. Holders of the Class A-1 Certificates
will be entitled to receive on each
Distribution Date to the extent of the
portion of the Available Distribution
Amount remaining after the Priority
Interest Distribution Amount is
distributed, a distribution allocable
to principal that will, as more fully
described herein, include (i) the
Class A-1 Percentage (as defined
herein) of scheduled principal
payments due on the Mortgage Loans and
of certain unscheduled collections of
principal on the Mortgage Loans as
described herein, (ii) the Class A-1
Percentage divided by the Senior
Percentage (as defined herein)
multiplied by the then-applicable
Senior Prepayment Percentage (as
defined herein) of all principal
prepayments made by the mortgagors
during the related Prepayment Period
and (iii) in connection with a
Mortgage Loan for which a Cash
Liquidation or an REO Disposition
(each as defined herein) occurred
during the related Prepayment Period
and did not result in any Excess
Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses (each as defined
herein), an amount equal to the lesser
of (A) the then-applicable Class A-1
Percentage of the Stated Principal
Balance (as defined herein) of such
Mortgage Loan and (B)(1) the Class A-1
Percentage for such Distribution Date
divided by the Senior Percentage for
such Distribution Date multiplied by
(2) the Senior Prepayment Percentage
for such Distribution Date, multiplied
by the amount of the related
collections, to the extent applied as
recoveries of principal of such
Mortgage Loan.
Holders of the Class A-2 Certificates
will be entitled to receive on each
Distribution Date, to the extent of
the portion of the Available
Distribution Amount remaining after
the Priority Interest Distribution
Amount is distributed and
distributions in respect of principal
to the holders of the Class A-1
Certificates and, if the Certificate
Principal Balances of the Subordinate
Certificates have been reduced to
zero, after reimbursement for certain
Advances to the Master Servicer
described below under "-Advances," and
after distributions in respect of
interest on such Class, a distribution
allocable to principal that will, as
more fully described herein, include
(i) the Class A-2 Percentage (as
defined herein) of scheduled principal
payments due on the Mortgage Loans and
of certain unscheduled collections of
principal on the Mortgage Loans as
described herein, (ii) the Class A-2
Percentage divided by the Senior
Percentage multiplied by the then-
applicable Senior Prepayment
Percentage of all principal
prepayments made by the mortgagors
during the related Prepayment Period
and (iii) in connection with a
Mortgage Loan for which a Cash
Liquidation or an REO Disposition
occurred during the related Prepayment
Period and did not result in any
Excess Special Hazard Losses, Excess
Fraud Losses, Excess Bankruptcy Losses
or Extraordinary Losses, an amount
equal to the lesser of (A) the then-
applicable Class A-2 Percentage of the
Stated Principal Balance of such
Mortgage Loan and (B)(1) the Class A-2
Percentage for such Distribution Date
divided by the Senior Percentage for
such Distribution Date multiplied by
(2) the Senior Prepayment Percentage
for such Distribution Date, multiplied
by the amount of the related
collections, to the extent applied as
recoveries of principal of such
Mortgage Loan.
The Senior Percentage, the Class A-1
Percentage and the Class A-2
Percentage initially will be equal to
approximately _____%, _____% and
_____%, respectively, and each will be
recalculated, as more fully described
herein, after each Distribution Date
to reflect the entitlement of the
holders of the Senior Certificates
(other than the Variable Strip
Certificates) to subsequent
distributions allocable to principal
of the Mortgage Loans. For each
Distribution Date occurring prior to
the Distribution Date in December
20__, the Senior Prepayment Percentage
will be equal to 100% and all
principal prepayments will be
distributed to the Class A-1
Certificates and the Class A-2
Certificates on a pro rata basis as
described herein. Thereafter, during
certain periods, subject to certain
loss and delinquency criteria
described herein, the Senior
Prepayment Percentage may be 100% or
otherwise disproportionately large
(relative to the Senior Percentage)
and the percentage of principal
prepayments distributable in respect
of the Class A-1 Certificates and the
Class A-2 Certificates may be
disproportionately large (relative to
the Senior Percentage).
Holders of the Class B-1 Certificates
will be entitled to receive on each
Distribution Date, to the extent of
the portion of the Available
Distribution Amount remaining after
distributions of interest and
principal, as applicable, to the
Senior Certificates, and, if the
Certificate Principal Balances of the
Subordinate Certificates subordinate
thereto have been reduced to zero,
reimbursement is made to the Master
Servicer for certain Advances as
described herein, and after
distributions in respect of interest
on such Class, a distribution
allocable to principal that will, as
more fully described herein, include
(i) the Class B-1 Percentage (as
defined below) of scheduled principal
payments due on the Mortgage Loans and
of certain unscheduled collections of
principal on the Mortgage Loans as
described herein, (ii) the Class B-1
Prepayment Percentage (as defined
herein) of all principal prepayments
that were made by the mortgagors
during the related Prepayment Period
and (iii) such Class' pro rata share,
based on the Certificate Principal
Balance of each Class of Subordinate
Certificates, of all amounts received
in connection with a Cash Liquidation
or an REO Disposition that occurred
during the related Prepayment Period
and that did not result in any Excess
Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or
Extraordinary Losses, to the extent
applied as recoveries of principal of
the related Mortgage Loan and to the
extent not otherwise payable to the
holders of the Senior Certificates. In
addition, the holders of the Class B-1
Certificates will be entitled to
receive on each Distribution Date a
further distribution in respect of
principal equal to the portion of the
Available Distribution Amount
remaining after the distributions
described above, after reimbursement
to the Master Servicer for certain
Advances as described below under "-
Advances" and after required
distributions in respect of interest
and principal on the Class B-2
Certificates have been made as
described herein.
The Class B-1 Prepayment Percentage
with respect to any Distribution Date
will equal the product of (a) 100%
minus the Senior Prepayment Percentage
for such Distribution Date multiplied
by (b) a fraction, the numerator of
which is the Class B-1 Percentage and
the denominator of which is the sum of
(i) the Class B-1 Percentage, (ii) the
Class B-2 Percentage and (iii) the
Class B-3 Percentage (each as defined
herein). The Class B-1 Percentage
initially will be equal to
approximately _____%, and will be
recalculated, as more fully described
herein, after each Distribution Date
to reflect the entitlement of the
holders of such Classes of
Certificates to subsequent
distributions allocable to principal.
For each Distribution Date occurring
prior to the Distribution Date in
December 20__, the Class B-1
Prepayment Percentage will be equal to
0% and no principal prepayments will
be distributed to the Class B-1
Certificates. Thereafter, during
certain periods, subject to certain
loss and delinquency criteria
described herein, the Senior
Prepayment Percentage may be 100% or
otherwise disproportionately large
(relative to the Senior Percentage)
and the percentage of principal
prepayments distributable in respect
of the Class B-1 Certificates may be
disproportionately small or large
(relative to the Class B-1
Percentage).
Holders of the Variable Strip
Certificates will not be entitled to
receive any principal distributions.
See "DESCRIPTION OF THE CERTIFICATES-
Principal Distributions on the Class
A-1 Certificates," "-Principal
Distributions on the Class A-2
Certificates" and "-Principal
Distributions on the Class B-1
Certificates" herein.
Advances................... The Master Servicer is required to
make advances ("Advances") in respect
of delinquent payments of principal
and interest (net of the related
Servicing Fees) on the Mortgage Loans,
subject to the limitations described
herein. The Trustee will be obligated
to make any such Advance if the Master
Servicer fails in its obligation to do
so, to the extent provided in the
Pooling and Servicing Agreement. See
"DESCRIPTION OF THE CERTIFICATES-
Advances" herein.
Allocation of Losses;
Subordination.............. Neither the Offered Certificates nor
the Mortgage Loans are insured or
guaranteed by any governmental agency
or instrumentality or by the
Depositor, the Seller, the Master
Servicer, the Trustee or any of their
respective affiliates. Subject to the
limitations described below, Realized
Losses on the Mortgage Loans will be
allocated first to the Class B-3
Certificates, then to the Class B-2
Certificates, then to the Class B-1
Certificates, then to the Class A-2
Certificates, in each case until the
Certificate Principal Balance thereof
is reduced to zero, and thereafter the
principal portion thereof to the Class
A-1 Certificates and the interest
portion thereof to the Variable Strip
Certificates and the Class A-1
Certificates on a pro rata basis. The
Subordination provided to the
Certificates by the Certificates
subordinate thereto will cover
Realized Losses on the Mortgage Loans
resulting from defaults on the
Mortgage Loans and from Special Hazard
Losses, Fraud Losses and Bankruptcy
Losses (each as defined herein).
However, the aggregate amounts of
Realized Losses which may be allocated
through Subordination to cover Special
Hazard Losses, Fraud Losses and
Bankruptcy Losses on the Mortgage
Loans initially are limited to
$_,___,___, $_,___,___ and $___,___,
respectively.
All of the foregoing amounts are
subject to periodic reduction as
described herein. In the event that
the Certificate Principal Balances of
the Class A-2 Certificates and the
Subordinate Certificates are reduced
to zero, all additional losses
(including, without limitation, all
Realized Losses, Special Hazard
Losses, Fraud Losses and Bankruptcy
Losses) will be allocated to the
Variable Strip Certificates and the
Class A-1 Certificates. Any Excess
Special Hazard Losses, Excess Fraud
Losses and Excess Bankruptcy Losses
and any Extraordinary Losses (each, as
defined herein) will be borne by the
holders of all of the Certificates on
a pro rata basis as described herein.
See "DESCRIPTION OF THE CERTIFICATES-
Allocation of Losses; Subordination"
herein.
Subordinate
Certificates and
Residual Certificates
Not Offered Hereby......... The Class B-2 Certificates and the
Class B-3 Certificates will have
aggregate initial Certificate
Principal Balances of approximately
$_,___,___ and $_,___,___,
respectively, evidencing an initial
Class B-2 Percentage of approximately
_____% and an initial Class B-3
Percentage of approximately ____%. The
Residual Certificates have no
Certificate Principal Balance and no
Certificate Rate. The Class B-2
Certificates, Class B-3 Certificates
and the Residual Certificates are not
being offered hereby.
Optional Termination......... At its option, the Master Servicer may
purchase from the Trust Fund all
remaining Mortgage Loans and other
assets thereof, and thereby effect
early retirement of the Certificates,
on any Distribution Date when the
aggregate principal balance of the
Mortgage Loans is less than _____% of
the aggregate principal balance of
such Mortgage Loans as of the Cut-off
Date. See "POOLING AND SERVICING
AGREEMENT-Termination" herein and "THE
POOLING AND SERVICING AGREEMENTS-
Termination" in the Prospectus.
Special Prepayment
Considerations............. General: The rate of principal
payments on the Offered Certificates
(other than the Variable Strip
Certificates) will depend on, among
other things, the rate and timing of
principal payments (including
prepayments, repurchases, defaults and
liquidations) on the Mortgage Loans.
As is the case with mortgage-backed
securities generally, the Offered
Certificates are subject to
substantial inherent cash-flow
uncertainties because the Mortgage
Loans may be prepaid at any time.
Generally, when prevailing interest
rates increase, prepayment rates on
mortgage loans tend to decrease in
subsequent periods, resulting in a
reduced return of principal to
investors at a time when reinvestment
at such higher prevailing rates would
be desirable. Conversely, when
prevailing interest rates decline,
prepayment rates on mortgage loans
tend to increase in subsequent
periods, resulting in an accelerated
return of principal to investors at a
time when reinvestment at comparable
yields may not be possible. In
addition, approximately _____% of the
Mortgage Loans (by aggregate principal
balance as of the Cut-off Date)
provide for payment of a prepayment
charge. A majority of the Mortgage
Loans with a prepayment charge
provision provide for a prepayment
charge for partial prepayments and
full prepayments made within
approximately five years after the
dates of origination of such Mortgage
Loans. Such prepayment charges (which
will not be distributable to the
Certificates) may reduce the rate of
prepayment on the Mortgage Loans.
Variable Strip Certificates: The
Notional Amount, and therefore the
amount of interest distributions on
the Variable Strip Certificates will
be highly sensitive to the rate and
timing of principal payments
(including prepayments, repurchases,
defaults and liquidations) on the
Mortgage Loans. See "-Special Yield
Considerations" below and "CERTAIN
YIELD AND PREPAYMENT CONSIDERATIONS"
herein.
Classes With Subordination Features:
As described herein, during certain
periods all or a disproportionately
large percentage of principal
prepayments on the Mortgage Loans will
be allocated among the Class A-1
Certificates and the Class A-2
Certificates, and therefore, during
certain periods none or a
disproportionately small percentage of
such prepayments will be distributed
on the Subordinate Certificates,
including the Class B-1 Certificates.
As a result, the weighted average life
of the Subordinate Certificates will
be extended and, as a relative matter,
the Subordination afforded the Senior
Certificates by the Subordinate
Certificates will be increased (to the
extent not otherwise offset by
Realized Losses on the Mortgage
Loans). However, as described herein,
because holders of the Class B-3
Certificates will not be entitled to
receive any interest or principal
distributions until the Class B-1
Certificates and the Class B-2
Certificates have been retired,
holders of the Class B-1 Certificates
will be entitled to principal
distributions that include all
amounts, to the extent received or
advanced, that would otherwise be
distributable to holders of the Class
B-3 Certificates, which will have the
effect of shortening the weighted
average life of the Class B-1
Certificates.
See "DESCRIPTION OF THE CERTIFICATES-
Principal Distributions on the Class
A-1 Certificates," "-Principal
Distributions on the Class A-2
Certificates" and "-Principal
Distributions on the Class B-1
Certificates" and "CERTAIN YIELD AND
PREPAYMENT CONSIDERATIONS" herein, and
"YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS" in the Prospectus.
Special Yield
Considerations............. General: The yield to maturity on
each Class of Offered Certificates
will depend on, among other things,
the rate and timing of principal
payments (including prepayments,
repurchases, defaults and
liquidations) on the Mortgage Loans
and the allocation thereof to reduce
the Certificate Principal Balance (or
the Notional Amount) of such Class of
Certificates. The yield to maturity on
each Class of Offered Certificates
will also depend on other factors such
as the Certificate Rate and any
adjustments thereto and the purchase
price for such Certificates. The yield
to investors on any Class of Offered
Certificates will be adversely
affected by any allocation thereto of
any Prepayment Interest Shortfalls on
the Mortgage Loans to the extent not
covered by payments by the Master
Servicer as described herein.
Furthermore, the yield to investors on
the Offered Certificates will be
sensitive to fluctuations in the level
of One-Month LIBOR, which may vary
significantly over time.
In general, if a Class of Offered
Certificates is purchased at a premium
and principal payments on the Mortgage
Loans occur at a rate faster than
anticipated at the time of purchase,
the investor's actual yield to
maturity will be lower than that
originally anticipated. Conversely, if
a Class of Offered Certificates is
purchased at a discount and principal
payments on the Mortgage Loans occur
at a rate slower than that assumed at
the time of purchase, the investor's
actual yield to maturity will be lower
than that originally anticipated.
Variable Strip Certificates: The
yield to investors on the Variable
Strip Certificates will be extremely
sensitive to the rate and timing of
principal payments on the Mortgage
Loans (including prepayments,
repurchases, defaults and
liquidations), which may fluctuate
significantly over time. A rapid rate
of principal payments on the Mortgage
Loans could result in the failure of
investors in the Variable Strip
Certificates to recover their initial
investment. The yield on the Variable
Strip Certificates will also be
materially and adversely affected if
the Mortgage Loans experience a high
rate of defaults and liquidations. In
addition to the foregoing, the yield
on the Variable Strip Certificates
will be materially and adversely
affected to a greater extent than the
yields on the other Classes of Senior
Certificates if the Mortgage Loans
with higher Gross Margins prepay
faster than the Mortgage Loans with
lower Gross Margins, because holders
of the Variable Strip Certificates
generally have rights to relatively
larger portions of interest payments
on the Mortgage Loans with higher
Gross Margins than on Mortgage Loans
with lower Gross Margins.
In addition, the yield to investors on
the Variable Strip Certificates will
be extremely sensitive to fluctuations
in the difference between the Net
Mortgage Rate Cap on the Mortgage
Loans and in the level of One-Month
LIBOR plus _____%, which may vary
significantly over time.
Classes With Subordination Features:
The yield to maturity on the Class A-2
Certificates will be extremely
sensitive to certain losses on the
Mortgage Loans (and the timing
thereof) to the extent such losses are
not covered by the Subordinate
Certificates, because the entire
amount of such losses (rather than a
pro rata portion thereof) will be
allocable to the Class A-2
Certificates, as and to the extent
described herein. The yield to
maturity on the Class B-1 Certificates
will be extremely sensitive to certain
losses on the Mortgage Loans (and the
timing thereof) to the extent such
losses are not covered by Subordinate
Certificates subordinate thereto
because the entire amount of such
losses (rather than a pro rata portion
thereof) will be allocable to the
Class B-1 Certificates, as and to the
extent described herein.
See "CERTAIN YIELD AND PREPAYMENT
CONSIDERATIONS" herein and "YIELD,
PREPAYMENT AND MATURITY
CONSIDERATIONS" in the Prospectus.
Certain Federal Income
Tax Consequences........... A real estate mortgage investment
conduit ("REMIC") election will be
made with respect to the Trust Fund
for federal income tax purposes. Upon
the issuance of the Offered
Certificates, Mayer, Brown & Platt,
counsel to the Depositor, will deliver
its opinion generally to the effect
that, assuming compliance with all
provisions of the Pooling and
Servicing Agreement, for federal
income tax purposes, the Trust Fund
will qualify as a REMIC within the
meaning of Sections 860A through 860G
of the Internal Revenue Code of 1986
(the "Code"). For federal income tax
purposes, the Class R Certificates
will be the sole Class of "residual
interests" in the REMIC and the Senior
Certificates and the Subordinate
Certificates will constitute the
"regular interests" in the REMIC and
will be treated as debt instruments of
the REMIC.
For federal income tax reporting
purposes, the Class A-1 Certificates
will not, and the remaining Classes of
Offered Certificates will, be treated
as having been issued with original
issue discount. The prepayment
assumption that will be used in
determining the rate of accrual of
original issue discount, market
discount and premium, if any, for
federal income tax purposes will be a
CPR percentage (as defined herein)
equal to _____%. No representation is
made that the Mortgage Loans will
prepay at such rate or at any other
rate.
If the method for computing original
issue discount described in the
Prospectus results in a negative
amount for any period, a holder of a
Variable Strip Certificate will be
permitted to offset such amount only
against the future income, if any,
from such Certificate. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES"
herein and in the Prospectus.
For further information regarding the
federal income tax consequences of
investing in the Offered Certificates
see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" herein and in the
Prospectus.
Ratings...................... It is a condition to the issuance of
the Offered Certificates that the
Variable Strip Certificates and the
Class A-1 Certificates be rated "___"
by [Rating Agency I] ("[Rating Agency
I]") and "___" by [Rating Agency II]
("[Rating Agency II]"), the Class A-2
Certificates be rated "___" by [Rating
Agency I] and "___" by [Rating Agency
II] and the Class B-1 Certificates be
rated "___" by [Rating Agency I] and
"___" by [Rating Agency II]. 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. A
security rating does not address the
frequency of principal prepayments or
the corresponding effect on yield to
investors. The ratings of the Variable
Strip Certificates do not address the
possibility that the holders of such
Certificates may fail to fully recover
their initial investment. See "CERTAIN
YIELD AND PREPAYMENT CONSIDERATIONS"
and "RATINGS" herein and "YIELD,
PREPAYMENT AND MATURITY
CONSIDERATIONS" in the Prospectus.
Legal Investment............. The Offered Certificates (other than
the Class ___ 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 as described herein
and, as such, will be legal
investments for certain entities to
the extent provided in SMMEA. SMMEA,
however, provides for state limitation
on the authority of such entities to
invest in "mortgage related
securities," provided that such
restricting legislation was enacted on
or prior to October 3, 1991. The Class
___ Certificates will not constitute
"mortgage related securities" for
purposes of SMMEA.
The Depositor makes no representations
as to the proper characterization of
any Class of Offered Certificates for
legal investment or other purposes, or
as to the ability of particular
investors to purchase any Class of
Offered Certificates under applicable
legal investment restrictions. These
uncertainties may adversely affect the
liquidity of such Class of Offered
Certificates. Accordingly, all
institutions whose investment
activities are subject to legal
investment laws and regulations,
regulatory capital requirements or
review by regulatory authorities
should consult with their own legal
advisors in determining whether and to
what extent any Class of Offered
Certificates, and in particular, the
Class B-1 Certificates constitutes a
legal investment or is subject to
investment, capital or other
restrictions. See "LEGAL INVESTMENT"
and "ERISA CONSIDERATIONS" herein and
in the Prospectus. [A reference will
be made here to any applicable
underwriter's exemption.]
RISK FACTORS
In addition to the matters described elsewhere in this
Prospectus Supplement and the Prospectus, prospective investors
should carefully consider the following factors before deciding
to invest in the Offered Certificates.
Repurchase Obligations of the Seller
No person other than the Seller is obligated with respect to
the representations and warranties respecting the Mortgage Loans
and the remedies for any breach thereof that are assigned to the
Trustee for the benefit of the Certificateholders, and the Seller
has only limited assets available to perform its repurchase
obligations in respect of any breach of such representations and
warranties. Therefore, prospective investors in the Offered
Certificates should consider the possibility that the Seller will
not have sufficient assets with which to satisfy its repurchase
obligations in the event that a substantial amount of Mortgage
Loans are required to be repurchased due to breaches of
representations and warranties.
Underwriting Standards and Potential Delinquencies
The Seller's underwriting standards are primarily intended
to assess the value of the mortgaged property and to evaluate the
adequacy of such property as collateral for the mortgage loan.
While one of the Seller's primary considerations in underwriting
a mortgage loan is the value of the mortgaged property, the
Seller also considers, among other things, a mortgagor's credit
history, repayment ability and debt service-to-income ratio, as
well as the type and use of the mortgaged property.
As a result of the Seller's underwriting standards, the
Mortgage Loans are likely to experience rates of delinquency,
foreclosure, bankruptcy and loss that are higher, and that may be
substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. See "THE SELLER-Loan
Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status" and "-REO Property Liquidation Experience"
herein for important information regarding the delinquency,
forbearance, foreclosure, bankruptcy and REO property status and
loss experience of certain multifamily mortgage loans previously
originated or acquired by the Seller under substantially the same
underwriting criteria pursuant to which the Mortgage Loans were
originated or acquired.
Furthermore, changes in the values of Mortgaged Properties
may have a greater effect on the delinquency, foreclosure,
bankruptcy and loss experience of the Mortgage Loans than on
mortgage loans originated in a more traditional manner. No
assurance can be given that the values of the Mortgaged
Properties have remained or will remain at the levels in effect
on the dates of origination of the Mortgage Loans. Approximately
_____% of the Mortgage Loans (by aggregate principal balance as
of the Cut-off Date) are secured by Mortgaged Properties located
in the State of California. Property values of residential real
estate in California have declined in recent years. If the
California residential real estate market should continue to
experience a decline in property values after the dates of
origination of the Mortgage Loans, the rates of delinquency,
foreclosure, bankruptcy and loss on the Mortgage Loans may be
expected to increase, and may increase substantially, as compared
to such rates in a stable or improving real estate market. See
"DESCRIPTION OF THE MORTGAGE POOL-Underwriting Standards" herein.
[Junior Mortgage Loans
Approximately ___% of the aggregate principal amount of the
Mortgage Loans as of the Cut-off Date will be junior mortgage
loans. The primary risks to holders of Mortgage Loans secured by
junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of a related senior
lien to satisfy the junior Mortgage Loan after satisfaction of
all related senior liens. See "RISK FACTORS-Nature of Mortgages;
Properties" and "CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS-Junior
Liens; Rights of Senior Lienholders" in the Prospectus.]
Certificate Rate Risk
The Certificate Rate on the Offered Certificates (other than
the Variable Strip Certificates) is based upon, among other
factors, as described herein under "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions" the value of an index (One-
Month LIBOR (as defined herein)) which is different from the
value of the index applicable to the Mortgage Loans, as described
under "DESCRIPTION OF THE MORTGAGE POOL" herein. Each Mortgage
Loan adjusts semi-annually commencing approximately six months
after the date of origination based upon Six-Month LIBOR (as
defined herein) whereas the Certificate Rate on the Offered
Certificates (other than the Variable Strip Certificates) adjusts
monthly based upon One-Month LIBOR, limited by the Net Mortgage
Rate Cap (as defined herein) or _____% per annum. In addition,
One-Month LIBOR and the Index may respond differently to economic
and market factors, and there is not necessarily any correlation
between them. Moreover, the Mortgage Loans are subject to
Periodic Rate Caps, Maximum Mortgage Rates and Minimum Mortgage
Rates (each as defined herein). Thus, it is possible, for
example, that One-Month LIBOR may rise during periods in which
the Index is stable or falling or that, even if both One-Month
LIBOR and the Index rise during the same period, One-Month LIBOR
may rise much more rapidly than the Index. See "DESCRIPTION OF
THE CERTIFICATES-Interest Distributions."
The Certificate Rate on the Variable Strip Certificates is
based upon, among other factors, as described herein under
"DESCRIPTION OF THE CERTIFICATES-Interest Distributions," the
excess, if any of (i) the Net Mortgage Rate Cap over (ii) the
Certificate Rate on the Certificates (other than the Variable
Strip Certificates). The Net Mortgage Rate Cap is primarily based
upon the value of Six-Month LIBOR, which is generally different
from the value of One-Month LIBOR, as described herein. The yield
to maturity of investors in the Variable Strip Certificates will
be extremely sensitive to differences between One-Month LIBOR and
Six-Month LIBOR, and as a result of such differences, investors
in the Variable Strip Certificates may not receive distributions
of interest under certain circumstances. As described in the
preceding paragraph, the difference between One-Month LIBOR and
the Index may vary considerably. See "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions."
[Delinquent Mortgage Loans
Certain of the Mortgage Loans may as of the Cut-off Date
have one or more scheduled payments past due. Inclusion of such
Mortgage Loans in the Trust Fund may affect the rate of defaults
and prepayments on the Mortgage Loans and the yield on the
Certificates.]
Special Prepayment Considerations
[The rate of principal payments on the Offered certificates
will correspond to the rate of principal payments on the Mortgage
Loans and is likely to be affected by the Lock-out Periods and
Prepayment Premium provisions applicable to the Mortgage Loans,
and by the extent to which the Master Servicer is able to enforce
such provisions. Mortgage Loans with a Lock-out Period or a
Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of
principal prepayments than otherwise identical mortgage loans
without such provisions, with shorter Lock-out Periods or with
lower Prepayment Premiums.] [As is the case with mortgage-backed
securities generally, the Offered Certificates are subject to
substantial inherent cash-flow uncertainties because the Mortgage
Loans may be prepaid at any time.] See "DESCRIPTION OF THE
CERTIFICATES" and "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS"
herein and "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" in the
Prospectus.
Risks Associated with Mortgage Loans and Mortgaged Properties
Mortgage loans made with respect to multifamily properties
may entail risks of delinquency and foreclosure, and risks of
loss in the event thereof, that are greater than similar risks
associated with single-family properties. The ability of a
mortgagor to repay a loan secured by an income-producing property
typically is dependent primarily upon the successful operation of
such property rather than any independent income or assets of the
mortgagor; thus, the value of a Mortgaged Property is directly
related to the Net Operating Income derived from such property.
In contrast, the ability of a mortgagor to repay a single family
loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to
produce income; thus, other than in geographical areas where
employment is dependent upon a particular employer or an
industry, the mortgagor's income tends not to reflect directly
the value of such property. A decline in the Net Operating
Income of a Mortgaged Property will likely affect both the
performance of the related loan as well as the liquidation value
of such property, whereas a decline in the income of a mortgagor
on a single family property will likely affect the performance of
the related loan but may not affect the liquidation value of such
property.
The performance of a mortgage loan secured by a Mortgaged
Property leased by the mortgagor to tenants as well as the
liquidation value of such property may be dependent upon the
creditworthiness of such tenants, and the risks associated with
such loans may be offset by the number of tenants.
A substantial portion of the Mortgage Loans included in the
Trust Fund will be nonrecourse loans or loans for which recourse
may be restricted or unenforceable, as to which, in the event of
mortgagor default, recourse may be had only against the specific
Mortgaged Property and such other assets, if any, as have been
pledged to secure the Mortgage Loan. With respect to those
Mortgage Loans that provide for recourse against the mortgagor
and its assets generally, there can be no assurance that such
recourse will ensure a recovery in respect of a defaulted
Mortgage Loan greater than the liquidation value of the related
Mortgaged Property.
Further, the concentration of default, foreclosure and loss
risks in individual Mortgagors or Mortgage Loans in the Trust
Fund or the related Mortgaged Properties will generally be
greater than for a similar pool of single-family loans both
because the Mortgage Loans in the Trust Fund will generally
consist of a smaller number of loans than would a single-family
pool of comparable aggregate unpaid principal balance and because
of the higher principal balance of individual Mortgage Loans.
Risks Associated with Certain of the Mortgage Loans and Mortgaged
Properties
[Description of specific Mortgage Loan characteristics
posing special risks, including types of property, lease
provisions and operating income, if applicable.]
Limited Recourse
The Mortgage Loans are not insured or guaranteed by any
governmental entity or private mortgage insurer. The Depositor
has not undertaken any evaluation of the significance of the
recourse provisions of any of a number of the Mortgage Loans that
provide for recourse against the related borrower or another
person in the event of a default. Accordingly, investors should
consider all of the Mortgage Loans to be non-recourse loans as to
which recourse in the case of default will be limited to the
specific property and such other assets, if any, as were pledged
to secure a Mortgage Loan.
Concentration of Mortgage Loans, Borrowers and Operators
[Description of concentrations, if applicable, together with
financial information, if required.]
In general, concentrations in a pool of mortgage loans with
larger-than-average balances can result in losses that are more
severe, relative to the size of the pool, than would be the case
if the aggregate balance of the pool were more evenly
distributed. Concentration of borrowers and operators also poses
increased risks. For instance, if a borrower that owns several
Mortgaged Properties experiences financial difficulty at one
Mortgaged Property, or at another income-producing property that
it owns, it could attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of interrupting
Monthly Payments for an indefinite period on all of the related
Mortgage Loans. Similarly, if an operator of more than one
Mortgaged Property were to experience financial difficulties, any
adverse effects of that difficulty, such as a reduction in the
level of operating performance or, if the operator were to become
a debtor in a bankruptcy proceeding, an interruption in payments
to the borrower needed for debt service, could adversely affect
the Trust Fund to a greater degree than if the operator operated
fewer Mortgaged Properties.
Balloon Payments
[[Certain] [All] of the Mortgage Loans as of the Cut-off
Date may not be fully amortizing over their terms to maturity
and, thus, will require substantial principal payments at their
stated maturity ("Balloon Payments").] [[None] of the Mortgage
Loans is fully amortizing over its term to maturity.] Mortgage
Loans with Balloon Payments involve a greater degree of risk
because the ability of a mortgagor to make a Balloon Payment
typically will depend upon its ability either to timely refinance
the loan or to timely sell the related Mortgaged Property. The
ability of a mortgagor to accomplish either of these goals will
be affected by a number of factors, including the level of
available mortgage interest rates at the time of sale or
refinancing, the mortgagor's equity in the related Mortgaged
Property, the financial condition and operating history of the
mortgagor and the related Mortgaged Property, tax laws, rent
control laws (with respect to certain multifamily properties),
prevailing general economic conditions and the availability of
credit for commercial and residential real properties generally.
In addition, Mortgage Loans that permit negative amortization
could require Balloon Payments substantially larger than expected
under certain interest rate scenarios.
Extensions and Modifications
In order to maximize recoveries on defaulted Mortgage Loans,
the Pooling and Servicing Agreement enables the Master Servicer
under certain circumstances to extend and modify Mortgage Loans
that are in material default or as to which a payment default
(including the failure to make a Balloon Payment) is imminent.
There can be no assurance, however, that any such extension or
modification will increase the present value of recoveries in a
given case. Any delay in collection of a Balloon Payment that
would otherwise be distributable in respect of a Class of
Certificates, whether such delay is due to borrower default or to
modification of the related Mortgage Loan by the Master Servicer,
will extend the weighted average life of such Class of
Certificates. See "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS"
herein and "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" in the
Prospectus.]
See also, "RISK FACTORS" in the Prospectus.
[Other special risk factors applicable to specific Series and not
covered by the Prospectus will be added here if applicable.]
DESCRIPTION OF THE MORTGAGE POOL
The information set forth in the following paragraphs has
been provided by the Seller. Neither the Depositor, the
Underwriter, the Master Servicer, the Trustee nor any of their
respective affiliates have made or will make any representation
as to the accuracy or completeness of such information.
General
The Trust Fund (as defined herein) will consist primarily of
a pool (the "Mortgage Pool") of mortgage loans (the "Mortgage
Loans") with an aggregate principal balance as of the Cut-off
Date of $___,___,___. The Mortgage Loans will be conventional,
adjustable-rate, fully-amortizing mortgage loans secured by
[first][second] liens on fee simple and leasehold interests in
five or more unit residential real properties (each, a "Mortgaged
Property"). The Mortgage Loans will have original terms to
maturity from the due dates of their first scheduled monthly
payment of interest and principal (each such payment, a "Monthly
Payment") of not more than 30 years and will have Monthly
Payments due on the first day of each month. All of the Mortgage
Loans were originated or acquired by the Depositor in accordance
with the underwriting criteria under its multifamily lending
program, as described herein. [___% of the Mortgage Loans are
secured by first liens and ___% of the Mortgage Loans are secured
by second liens.]
The Mortgage Loans have been sold to the Depositor by the
Seller on or prior to the Delivery Date pursuant to certain
mortgage loan purchase agreements between the Depositor and the
Seller (each, a "Purchase Agreement"). The representations and
warranties made by the Seller in each Purchase Agreement and the
remedies provided therein or pursuant thereto for any breaches of
such representations and warranties as described herein under
"POOLING AND SERVICING AGREEMENT-Assignment of Mortgage Loans,"
will be assigned by the Depositor to the Trustee for the benefit
of the holders of the Certificates pursuant to the Pooling and
Servicing Agreement (as defined herein).
The Mortgage Rate on each Mortgage Loan will be subject to
adjustment, commencing approximately six months after the date of
origination and semi-annually thereafter on the first day of the
months specified in the related Mortgage Note (each such date, an
"Adjustment Date") to equal the sum, rounded to the nearest
0.125%, of (i) the average of the interbank offered rates for
six-month United States dollar deposits in the London interbank
market based on quotations of major banks ("Six-Month LIBOR"), as
published in the Western Edition of The Wall Street Journal (the
"Index"), as most recently available as of the date 45 days prior
to such Adjustment Date, and (ii) a fixed percentage amount
specified in the related Mortgage Note (the "Gross Margin") (such
sum as rounded based on the Index at the date of any
determination, the "Fully Indexed Rate"); provided, however, that
the Mortgage Rate will not increase or decrease by more than
_____% on any Adjustment Date with respect to _____% of the
Mortgage Loans (by aggregate principal balance as of the Cut-off
Date) or _____% on any Adjustment Date with respect to _____% of
the Mortgage Loans (by aggregate principal balance as of the Cut-
off Date) (each, the related "Periodic Rate Cap"), will in no
event be greater than the initial Mortgage Rate plus _____% with
respect to _____% of the Mortgage Loans (by aggregate principal
balance as of the Cut-off Date), _____% with respect to _____% of
the Mortgage Loans (by aggregate principal balance as of the Cut-
off Date) or _____% with respect to _____% of the Mortgage Loans
(by aggregate principal balance as of the Cut-off Date) (each,
the related "Maximum Rate"), and will in no event be less than
the amount set forth in the Mortgage Note as the minimum Mortgage
Rate thereunder (the "Minimum Rate"). Effective with the first
payment due on a Mortgage Loan after each related Adjustment
Date, the Monthly Payment will be adjusted to an amount which
will fully amortize the outstanding principal balance of the
Mortgage Loan over its remaining term, and pay interest at the
Mortgage Rate as so adjusted. Approximately _____% of the
Mortgage Loans (by aggregate principal balance as of the Cut-off
Date), were originated with a Mortgage Rate below the Fully
Indexed Rate. Due to the application of the Periodic Rate Cap
(even assuming no increase in the applicable Index from the date
of origination to the applicable Adjustment Date) or the Maximum
Rate, the Mortgage Rate on any Mortgage Loan, as adjusted on any
Adjustment Date, may be less than the Fully Indexed Rate. See "-
The Index" herein.
Each Mortgage Loan will contain a customary "due-on-sale"
clause. Approximately ____% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) were thirty days or
more but less than sixty days delinquent in their Monthly
Payments as of the Cut-off Date (such Mortgage Loans, "Thirty-Day
Delinquent Mortgage Loans"). Approximately ____% of the Mortgage
Loans (by aggregate principal balance as of the Cut-off Date)
were sixty days or more but less than ninety days delinquent in
their Monthly Payments as of the Cut-off Date (such Mortgage
Loans, "Sixty-Day Delinquent Mortgage Loans"). Approximately
____% of the Mortgage Loans (by aggregate principal balance as of
the Cut-off Date) were Thirty-Day Delinquent Mortgage Loans as of
the Cut-off Date, and none of the Mortgage Loans were Sixty-Day
Delinquent Mortgage Loans as of the Cut-off Date. Prospective
investors in the Offered Certificates should be aware, however,
that only approximately _____% of the Mortgage Loans (by
aggregate principal balance as of the Cut-off Date) had a first
monthly payment due on or before __________, 1996, and that
approximately _____% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) had a first monthly
payment due on or before __________ 1, 1996, and therefore, the
remaining Mortgage Loans could not have been Thirty-Day
Delinquent Mortgage Loans or Sixty-Day Delinquent Mortgage Loans
as of the Cut-off Date. In addition to the foregoing,
approximately _____% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) will have been thirty
days or more delinquent in their Monthly Payments more than once
during the twelve months preceding the Delivery Date. None of the
other Mortgage Loans will have been thirty days or more
delinquent in its Monthly Payments more than once during such
period. Also, none of the Mortgage Loans will be sixty days or
more delinquent in its Monthly Payments as of the Delivery Date.
Approximately _____% of the Mortgage Loans (by aggregate
principal balance as of the Cut-off Date) provide for payment of
a prepayment charge. As to each such Mortgage Loan, the
prepayment charge generally is the maximum amount permitted under
applicable state law (or, if no maximum prepayment charge is
specified, the prepayment charge generally is calculated as set
forth in the following sentence). A majority of the Mortgage
Loans with a prepayment charge provision provide for payment of a
prepayment charge for partial prepayments and full prepayments
made within approximately five years of the origination of the
related Mortgage Loan, in an amount equal to six months' advance
interest on the amount of the prepayment that, when added to all
other amounts prepaid during the twelve-month period immediately
preceding the date of the prepayment, exceeds twenty percent
(20%) of the original principal balance of such Mortgage Loan.
With respect to the remainder of the Mortgage Loans with a
prepayment charge provision, the prepayment charge is calculated
in a different manner. The Seller will retain the right to all
prepayment charges and late payment charges received on the
Mortgage Loans and such amounts will not be available for
distribution on the Certificates.
Pursuant to its terms, each Mortgage Loan is required to be
covered by a standard hazard insurance policy in an amount equal
to the lower of the original principal loan amount or the
replacement value of the improvements on the Mortgaged Property.
See "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-Hazard Insurance
on the Loans-Standard Hazard Insurance Policies" in the
Prospectus.
<PAGE>
The Mortgage Loans will have the following approximate
characteristics as of the Cut-off Date:
Number of Mortgage Loans............................... _____
Initial Mortgage Rates:
Weighted Average..................................... _____%
Range............................................... _____% - _____%
Gross Margins:
Weighted Average................................... _____%
Range.............................................. _____% - _____%
Maximum Mortgage Rates:
Weighted Average................................... _____%
Range.............................................. _____% - _____%
Maximum Net Mortgage Rates:
Weighted Average................................... _____%
Range.............................................. _____% - _____%
Minimum Net Mortgage Rates:
Weighted Average................................... _____%
Range.............................................. _____% - _____%
The Mortgage Loans will have the following approximate
characteristics as of the Cut-off Date (expressed as a percentage
of the aggregate principal balance of the Mortgage Loans having
such characteristics relative to the aggregate principal balance
of the Mortgage Loans specified, provided, that the sum of the
percentages in certain of the following paragraphs may not equal
100% due to rounding):
Each Mortgage Loan will have been originated or acquired by
the Seller on or before __________, 1996.
The next Adjustment Dates for the Mortgage Loans will occur
in the following months: __________ 1996, _____%; __________
1996, _____%; __________ 1996, _____%; __________ 1996, _____%;
__________ 1996, _____%; __________ 1996, _____%; and __________
1996, _____%.
The weighted average remaining term to maturity of the
Mortgage Loans will be approximately __ years and __ months. All
of the Mortgage Loans had original terms to maturity from the due
date of the first monthly payment of not more than 30 years. None
of the Mortgage Loans had a first payment date prior to
__________, 1996 and none of the Mortgage Loans will have a
remaining term to maturity of less than approximately __ years
and __ months. The latest maturity date of any of the Mortgage
Loans is __________, 20__.
The Mortgage Loans will each have an outstanding principal
balance of not less than $__________ or more than $__________.
The Mortgage Loans will have an average outstanding principal
balance of $__________.
The weighted average Loan-to-Value Ratio at origination of
the Mortgage Loans will be approximately ____%, no Mortgage Loan
will have a Loan-to-Value Ratio at origination exceeding ____%,
and no Mortgage Loan will have a combined Loan-to-Value Ratio at
origination, including any then existing second mortgage
subordinate to the lien of the Mortgage, in excess of _____%,
except for one Mortgage Loan, representing approximately _____%,
with a combined Loan-to-Value Ratio of _____%.
At origination, approximately _____% of the Mortgage Loans
were secured by a Mortgaged Property that was subject to a then-
existing lien subordinate to that of the related Mortgage.
With respect to approximately _____% of the Mortgage Loans,
the proceeds were used to purchase the related Mortgaged
Properties. Approximately _____% of the Mortgage Loans were rate
and term refinancings and approximately _____% of the Mortgage
Loans were equity take-out refinancings.
No more than approximately _____% of the Mortgage Loans will
be secured by Mortgaged Properties located in any one zip code
area.
Approximately _____%, _____%, _____%, _____%, _____%,
_____%, _____%, _____%, _____% and _____ of the Mortgage Loans
had their first Monthly Payments due in __________ 1996,
__________ 1996, __________ 1996, __________ 1996, __________
1996, __________ 1996, __________ 1996, __________ 1996,
__________ 1996 and __________ 1996, respectively. Approximately
____% of the Mortgage Loans will have their first Monthly
Payments due in __________ 1996.
Approximately _____% of the Mortgage Loans will be secured
by leasehold interests.
Approximately _____%, _____%, _____%, _____% and _____% of
the Mortgage Loans are expected to be graded in the Seller's
_____, _____, _____, _____, and _____ categories, respectively.
See "-Underwriting Standards" below.
The table below sets forth as of the Cut-off Date the
number, aggregate principal balance and percentage of the
Mortgage Loans (by aggregate principal balance of such Mortgage
Loans relative to the aggregate principal balance of all of the
Mortgage Loans) having Loan-to-Value Ratios at origination in
each given range. (The sum of the amounts and the percentages in
the table below may not equal the totals due to rounding.)
Loan-to-Value Ratios
Percentage of
Number Aggregate Mortgage Loans
Loan-To-Value Ratios of Mortgage Principal by Aggregate
At Origination (%) Loans Balance Principal Balance
0.1 - 60.0.......... $ %
60.1 - 65.0..........
65.1 - 70.0..........
70.1 - 75.0..........
75.1 - 80.0..........
80.1 - 85.0.......... __________ __________ _______
Total............... $ 100.00%
========== ========== =======
The table below sets forth as of the Cut-off Date the
number, aggregate principal balance and percentage of the
Mortgage Loans (by aggregate principal balance of such Mortgage
Loans relative to the aggregate principal balance of all of the
Mortgage Loans) having the Gross Margins in each given range.
(The sum of the amounts and the percentages in the table below
may not equal the totals due to rounding.)
<PAGE>
<TABLE>
<CAPTION>
Gross Margins
Percentage of
Number Aggregate Mortgage Loans
of Mortgage Principal by Aggregate
Gross Margins (%) Loans Balance Principal Balance
<S> <C> <C>
3.501 - 3.750..................... $ %
3.751 - 4.000.....................
4.001 - 4.250.....................
4.251 - 4.500.....................
4.501 - 4.750.....................
4.751 - 5.000.....................
5.001 - 5.250.....................
5.251 - 5.500.....................
5.501 - 5.750.....................
5.751 - 6.000.....................
6.001 - 6.250.....................
6.251 - 6.500.....................
6.501 - 6.750.....................
6.751 - 7.000.....................
7.001 - 7.250.....................
7.251 - 7.500.....................
7.501 - 7.750.....................
7.751 - 8.000.....................
8.001 - 8.250.....................
8.751 - 9.000.....................
9.251 - 9.500.....................
9.751 -10.000.....................
Over 10.000....................... __________ __________ _______
Total.......................... $ 100.00%
========== ========== =======
</TABLE>
<PAGE>
The table below sets forth as of the Cut-off Date the
number, aggregate principal balance and percentage of the
Mortgage Loans (by aggregate principal balance of such Mortgage
Loans relative to the aggregate principal balance of all of the
Mortgage Loans) secured by Mortgaged Properties located in each
given state and in the District of Columbia. (The sum of the
amounts and the percentages in the table below may not equal the
totals due to rounding.)
Geographic Distribution
Percentage of
Number Aggregate Mortgage Loans
of Mortgage Principal by Aggregate
State Loans Balance Principal Balance
Alabama $ %
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming __________ _______
Total $ 100.00%
========== ========== =======
The following tables set forth the Original Debt Service
Coverage Ratios, Lock-out Dates and Prepayment Premiums of the
Mortgage Loans as of the Cut-off Date:
Original Debt Service Coverage Ratios
% of Mortgage
Number Aggregate Loans by
Debt of Mortgage Principal Aggregate
Coverage Ratios Loans Balance Principal Balance
Total............. $ 100%
Mortgage Loan Lock-out Dates
% of Mortgage
Number Aggregate Loans by
of Mortgage Principal Aggregate
Lock-out Date Loans Balance Principal Balance
Total............. $ 100%
Mortgage Loan Prepayment Premiums
% of Mortgage
Number Aggregate Loans by
Debt of Mortgage Principal Aggregate
Coverage Ratios Loans Balance Principal Balance
Total.......... $ 100%
<PAGE>
Underwriting Standards
[The Seller's underwriting standards with respect to the
multifamily loans included in the transaction will be described
in this section.]
The Index
The Index used to determine the Mortgage Rate for the
Mortgage Loans is the average of the interbank offered rates for
six month United States dollar deposits in the London interbank
market based on quotations of major banks ("Six-Month LIBOR"), as
published in the Western Edition of The Wall Street Journal. The
Index applicable on any Adjustment Date is the most recent Index
figure available as of the date 45 days before such Adjustment
Date. Listed below are some historical average values for the
months indicated of Six-Month LIBOR (as made available from
Reuters and published by Data Resources, Inc.), which values may
differ from those published in the Western Edition of The Wall
Street Journal:
Year
Month 1996 1995 1994 1993 1992 1991
January.... 5.40% 6.80% 3.41% 3.47% 4.23% 7.35%
February... 5.21 6.63 3.66 3.35 4.29 6.71
March...... 5.40 6.44 4.15 3.35 4.58 6.68
April...... 6.44 4.43 3.33 4.32 6.36
May........ 6.13 4.99 3.32 4.12 6.21
June....... 5.90 4.96 3.49 4.14 6.44
July....... 5.85 5.27 3.48 3.64 6.43
August...... 5.93 5.29 3.46 3.54 5.93
September... 5.87 5.49 3.36 3.31 5.75
October..... 5.88 5.90 3.39 3.42 5.48
November.... 5.74 6.21 3.53 3.79 5.06
December.... 5.61 6.86 3.49 3.69 4.58
Listed below are some historical average values for the
months indicated of One-Month LIBOR (as made available from
Reuters and published by Data Resources, Inc.), which values may
differ from those published in the Western Edition of The Wall
Street Journal:
Year
Month 1996 1995 1994 1993 1992 1991
January..... 5.58% 5.93% 3.15% 3.22% 4.19% 7.21%
February.... 5.33 6.12 3.38 3.15 4.16 6.60
March....... 5.38 6.13 3.62 3.19 4.34 6.59
April....... 6.11 3.82 3.17 4.09 6.17
May......... 6.07 4.32 3.15 3.89 5.97
June........ 6.06 4.38 3.21 3.94 6.08
July....... 5.91 4.55 3.17 3.31 6.02
August..... 5.89 4.50 3.19 3.41 5.75
September.... 5.85 4.93 3.17 3.27 5.58
October...... 5.87 5.07 3.19 3.23 5.33
November..... 5.83 5.48 3.21 3.33 4.94
December..... 5.86 6.09 3.32 3.68 4.94
If [either] Index becomes unpublished or is otherwise
unavailable, the Master Servicer will select an alternative index
that is based upon comparable information.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the
Mortgage Loans and the Mortgaged Properties is based upon the
Mortgage Pool as constituted at the close of business on the Cut-
off Date, as adjusted for the scheduled principal payments due on
or before such date. Prior to the issuance of the Offered
Certificates, Mortgage Loans may be removed from the Mortgage
Pool as a result of incomplete documentation or otherwise, if the
Depositor deems such removal necessary or appropriate. A limited
number of other mortgage loans may be included in the Mortgage
Pool prior to the issuance of the Offered Certificates.
A Current Report on Form 8-K will be available to purchasers
of the Offered Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange
Commission within fifteen days after the initial issuance of the
Offered Certificates. In the event that Mortgage Loans are
removed from or added to the Mortgage Pool as set forth in the
preceding paragraph, such removal or addition will be noted in
such Current Report on Form 8-K.
THE DEPOSITOR
Quality Mortgage Acceptance Corp. (the "Depositor"), a
California corporation, was incorporated in May 1996. The
principal executive offices of the Depositor are located at 16800
Aston Street, Irvine, California 92714 and its telephone number
is (714) 440-1000. Neither the Depositor nor any of its
affiliates will make any representations or warranties with
respect to the Mortgage Loans, or have any obligation to purchase
a Mortgage Loan if the Seller defaults on its obligation to
repurchase a Mortgage Loan either in connection with a breach of
a representation and warranty or in connection with a defective
document as described above, and no assurance can be given that
the Seller will carry out such obligations with respect to
Mortgage Loans. See "POOLING AND SERVICING AGREEMENT-Assignment
of Mortgage Loans." Neither the Depositor nor any affiliate of
the Depositor will guarantee the Certificates or the assets
included in the Trust Fund for a Series.
THE SELLER
[Note: The description of the Seller set forth below will
be modified as appropriate to provide updated information or to
describe any Seller other than Quality Mortgage USA, Inc.]
The information set forth in the following paragraphs (other
than the information set forth under the caption "-Loan
Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status" and, to the extent provided by [Servicer] as
described herein, the information set forth under the caption "-
REO Property Liquidation Experience") has been provided by the
Seller. Neither the Depositor, the Underwriter, the Master
Servicer, the Trustee nor any of their respective affiliates have
made or will make any representation as to the accuracy or
completeness of the information provided by the Seller. The
information set forth below under the caption "-Loan Delinquency,
Forbearance, Foreclosure, Bankruptcy and REO Property Status"
and, other than to the extent provided by the Seller, the
information set forth below under the caption "-REO Property
Liquidation Experience" has been provided by [Servicer] in its
capacity as servicer of loans originated or acquired by the
Seller during the relevant periods indicated. No representation
is made by the Depositor, the Underwriter, the Master Servicer,
the Seller, the Trustee or any of their respective affiliates as
to the accuracy or completeness of the information provided by
[Servicer].
[Quality Mortgage USA, Inc. (the "Seller"), a California
corporation, was incorporated in 1984, and is approved as a non-
supervised mortgagee by the U.S. Department of Housing and Urban
Development. Prior to September 1991, the Seller did not engage
in lending activities of the type involved under its present
lending programs, and was owned and operated by persons no longer
connected with the Seller. In September 1991, the Seller was
acquired by CALMAC Funding, a Nevada corporation, for the purpose
of commencing operations as an originator and seller of
residential mortgage loans. The Seller began originating and
acquiring mortgage loans in January 1992. The principal
executive offices of the Seller are located at 16800 Aston
Street, Irvine, California 92714 and its telephone number is
(714) 440-1000.
As of September 30, 199_, the Seller had total assets of
$__________, total liabilities of $__________ and shareholders'
equity of $__________. For the year ended September 30, 199_,
the Seller had net income (after taxes) of $__________. As of
___________, 199_, the Depositor had total assets of $__________,
total liabilities of $__________, and shareholders' equity of
$__________. For the _____-month period ended __________, 199_,
the Seller had net income (after taxes) of $__________. The
Seller currently maintains additional loan origination offices at
various locations in the States of [California, Colorado, Nevada,
Texas, Washington, Maryland, Oregon, Missouri, Indiana, Ohio,
Minnesota, Pennsylvania, North Carolina, South Carolina, Kansas,
Tennessee, Oklahoma, Wisconsin, Utah, Louisiana, Hawaii and New
Mexico].
[No person other than the Seller is obligated with respect
to the representations and warranties respecting the Mortgage
Loans and the remedies for any breach thereof that are assigned
to the Trustee for the benefit of the Certificateholders.
Moreover, as discussed above, the Seller has only limited assets
available to perform its repurchase obligations in respect of any
breach of such representations and warranties, relative to the
potential amount of repurchase liability, and the total potential
amount of repurchase liability is expected to increase over time
as the Seller continues to originate, acquire and sell mortgage
loans. There can be no assurance that the Seller will continue to
generate operating earnings, or that it will be successful under
its current business plan. Therefore, prospective investors in
the Offered Certificates should consider the possibility that the
Seller will not have sufficient assets with which to satisfy its
repurchase obligations in the event that a substantial amount of
Mortgage Loans are required to be repurchased due to breaches of
representations and warranties.]
The Seller will retain the right to all prepayment charges
and late payment charges received on certain of the Mortgage
Loans and the Certificateholders will have no right thereto. [In
addition, it is anticipated that the Seller will be the holder of
a Percentage Interest equal to 99.99% in the Residual
Certificates. The Seller may sell such Residual Certificates at
any time, subject to certain conditions set forth in the Pooling
and Servicing Agreement.]
Loan Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status
[Note: Information similar to the following will be
included if and to the extent the Seller has accumulated a
meaningful statistical history with respect to multifamily loans
originated by it.]
[Based solely upon information provided by [Servicer], the
table below summarizes, at the respective dates indicated, the
delinquency, forbearance, foreclosure, bankruptcy and REO
property status with respect to all mortgage loans originated
under the Seller's multifamily lending program that, in each
case, were transferred to REMIC trust funds as of the respective
dates three months prior to the dates indicated. The table below
is based solely upon information provided by [Servicer], as
servicer of such mortgage loans during the periods indicated, and
does not include information with respect to mortgage loans that
were purchased by the Depositor but not transferred to REMIC
trust funds, mortgage loans originated under the Seller's
multifamily lending program or mortgage loans originated by the
Seller under its REO underwriting guidelines. The indicated
periods of delinquency are based on the number of days past due
on a contractual basis. The monthly payments under all of such
mortgage loans are due on the first day of each calendar month.
<PAGE>
(The sum of the amounts and the percentages in the table below
may not equal the totals due to rounding.)
At ______, 199_ At ______, 199_
Number Principal Number Principal
of Loans Amount of Loans Amount
(Dollars in thousands)
Total Loans
Outstanding... $ $
DELINQUENCY(1)
Period of Delinquency:
31-60 Days......... $ $
61-90 Days
91-120 Days or More... ______ ______ ______ ______
Total Delinquencies.. $ $
====== ====== ====== ======
Delinquencies as a
Percentage of
Total Loans
Outstanding.............. % % % %
FORBEARANCE LOANS(2)..... $ $
Forbearance Loans
as a Percentage of
Total Loans Outstanding... % % % %
FORECLOSURES PENDING(3).... $ $
Foreclosures Pending
as a Percentage of
Total Loans Outstanding.... % % % %
BANKRUPTCIES PENDING(4).... $ $
Bankruptcies Pending
as a Percentage of
Total Loans Outstanding.... % % % %
TOTAL DELINQUENCIES
PLUS FORBEARANCE
LOANS, FORECLOSURES
PENDING AND
BANKRUPTCIES PENDING....... $ $
Total Delinquencies Plus
Forbearance Loans,
foreclosures Pending and
Bankruptcies Pending as
Percentage of Total
Loans Outstanding.......... % % % %
REO PROPERTIES(5).......... $ $
REO Properties as a
Percentage of Total
Loans Outstanding.......... % % % %
____________________
(1) The delinquency balances, percentages and numbers set forth
under this heading exclude (a) delinquent mortgage loans
that were subject to forbearance agreements with the related
mortgagors at the respective dates indicated ("Forbearance
Loans"), (b) delinquent mortgage loans that were in
foreclosure at the respective dates indicated ("Foreclosure
Loans"), (c) delinquent mortgage loans as to which the
related mortgagor was in bankruptcy proceedings at the
respective dates indicated ("Bankruptcy Loans") and (d) REO
properties that have been purchased by or on behalf of REMIC
trust funds upon foreclosure of the related mortgage loans
(other than REO properties purchased by the Seller as
described below under "-REO Property Liquidation
Experience." All Forbearance Loans, Foreclosure Loans,
Bankruptcy Loans and REO properties have been segregated
into the sections of the table entitled "Forbearance Loans,"
"Foreclosures Pending," "Bankruptcies Pending" and "REO
Properties," respectively, and are not included in the "31-
60 Days," "61-90 Days," "91-120 Days or More" and "Total
Delinquencies" sections of the table. See the section of the
table entitled "Total Delinquencies plus Forbearance Loans,
Foreclosures Pending and Bankruptcies Pending" for total
delinquency balances, percentages and numbers which include
Forbearance Loans, Foreclosure Loans and Bankruptcy Loans,
and see the section of the table entitled "REO Properties"
for delinquency balances, percentages and numbers related to
REO properties that have been purchased by or on behalf of
REMIC trust funds upon foreclosure of the related mortgage
loans (other than REO properties purchased by the Seller as
described below under "-REO Property Liquidation
Experience").
(2) For each of the Forbearance Loans, the servicer has entered
into a written forbearance agreement with the related
mortgagor, based on the servicer's determination that the
mortgagor is temporarily unable to make the scheduled
monthly payment on such mortgage loan. Prior to entering
into each forbearance agreement, the servicer confirmed the
continued employment status of the mortgagor and found the
payment history of such mortgagor to be satisfactory. There
can be no assurance that the mortgagor will be able to make
the payments as required by the forbearance agreement, and
any failure to make such payments will constitute a
delinquency. None of the Mortgage Loans included in the
Mortgage Pool are Forbearance Loans.
(3) Mortgage loans that are in foreclosure but as to which the
mortgaged property has not been liquidated at the respective
dates indicated. It is generally the policy, with respect to
mortgage loans originated by the Seller, to commence
foreclosure proceedings when a mortgage loan is between 31
and 60 days delinquent.
(4) Mortgage loans as to which the related mortgagor is in
bankruptcy proceedings at the respective dates indicated.
(5) REO properties that have been purchased by or on behalf of
REMIC trust funds upon foreclosure of the related mortgage
loans, including mortgaged properties that were purchased by
the Seller after the respective dates indicated, as
described below under "-REO Property Liquidation
Experience," but not including mortgaged properties that the
Seller had already purchased as of such dates.
The above data on delinquency, forbearance, foreclosure,
bankruptcy and REO property status are calculated on the basis of
the total mortgage loans originated or acquired under the
Seller's multifamily lending program that, in each case, were
transferred to a REMIC trust fund as of the dates three months
prior to the respective dates indicated. However, the total
amount of mortgage loans on which the above data are based
includes many mortgage loans which were not, as of the respective
dates indicated, outstanding long enough to give rise to some of
the indicated periods of delinquency, to foreclosure or
bankruptcy proceedings or to forbearance or REO property status.
In the absence of such mortgage loans, the delinquency,
forbearance, foreclosure, bankruptcy and REO property percentages
indicated above would be higher and could be substantially
higher. Because the Mortgage Pool will consist of a fixed group
of Mortgage Loans, the actual delinquency, forbearance,
foreclosure, bankruptcy and REO property percentages with respect
to the Mortgage Pool may therefore be expected to be higher, and
may be substantially higher, than the percentages indicated
above. Prospective investors should also be aware that while the
information set forth in the table above has been compiled on the
basis of reports that are prepared as of the last day of each
month, monthly remittance reports that will be sent to investors
will include delinquency and foreclosure information on the
Mortgage Loans included in the Mortgage Pool that will be based
on reports prepared as of the fifteenth day of each month (the
"Monthly Remittance Reports"), and that the delinquency and
foreclosure information appearing in the Monthly Remittance
Reports may therefore be expected to be higher than would be the
case if such information were based on reports prepared as of the
last day of each month. For example, for purposes of the
foregoing table, a payment due on __________ 1st would be treated
as 31 to 60 days delinquent only if the payment was not received
as of __________ 30th, while the same payment would be treated as
31 to 60 days delinquent for purposes of the Monthly Remittance
Report in __________ if the payment was not received as of
__________ 15th. In addition, the delinquency and foreclosure
information appearing in the Monthly Remittance Reports is used
in the calculation of the Senior Prepayment Percentage for the
Mortgage Pool.
REO Property Liquidation Experience
[The pooling and servicing agreements relating to the REMIC
trust funds to which mortgage loans originated or acquired under
the Seller's multifamily lending program were transferred by the
Depositor (the "REMIC Agreements") permit the Seller at its sole
option to purchase any mortgaged property acquired or about to be
acquired by foreclosure by the servicer thereof on behalf of the
related trustee.
The tables below summarize, respectively, for the periods
indicated (i) the total number of mortgage loans originated or
acquired under the Seller's multifamily lending program and
transferred to REMIC trust funds, and the aggregate outstanding
principal balance thereof at origination, and (ii) the combined
experience of the Seller and [Servicer], as servicer of such
mortgage loans during the periods indicated, as of __________,
1996 with respect to all REO properties relating to such mortgage
loans that were transferred to REMIC trust funds as of
__________, 1996. The tables below do not include information
with respect to mortgage loans purchased by the Seller but not
transferred to REMIC trust funds, mortgage loans originated or
acquired under the Seller's multifamily lending program or
mortgage loans originated by the Seller under its REO
underwriting guidelines.
_______ through
_____, 1996(1)
Aggregate Principal Balance at Origination............ $
Total Number of Loans.................................
_______ through
_____, 1996(2)
Total Number of REO Properties........................
Aggregate Principal Balance of REO Properties(3)...... $
Total Number of Liquidated Properties(4)..............
Aggregate Principal Balance of Liquidated
Properties(3)....................................... $
Aggregate Net Gains/(Losses)(5)....................... $
Average Net Gain/(Loss) per Liquidated
Property(6)......................................... %
____________________
(1) The Seller began originating and acquiring mortgage loans
under its multifamily lending program in ____________ 199_.
(2) Prior to ____________, 199_, no mortgaged property securing
a mortgage loan included in any REMIC trust fund had been
acquired by foreclosure on behalf of the trustee under the
related REMIC Agreement. Accordingly, prior to ___________,
199_, the Seller did not have any opportunity to exercise
its option to purchase any mortgaged properties acquired or
about to be acquired by foreclosure on behalf of a trustee
under the provisions of the REMIC Agreements.
(3) Aggregate of the outstanding principal balances of the
related mortgage loans at the respective dates such mortgage
loans were converted to REO property status (not including
accrued interest).
(4) Total number of REO properties that were finally liquidated
during the indicated period (each, a "Liquidated Property"),
including by sale with Seller-provided financing.
(5) As to each Liquidated Property, the Net Gain/(Loss) is equal
to (a) all amounts received in connection with the
liquidation of such Liquidated Property (including the net
proceeds of any Seller-provided financing), minus (b) the
unpaid principal balance, foreclosure costs, accrued
interest and all liquidation expenses related to such
Liquidated Property.
(6) Aggregate Net Gains/(Losses) divided by the Aggregate
Balance of Liquidated Properties.
The above data on loss experience are calculated on the
basis of the total mortgage loans originated or acquired under
the Seller's multifamily lending program that were transferred to
REMIC trust funds as of __________, 1996. However, the total
amount of mortgage loans on which the above data are based
includes many mortgage loans which were not, as of __________,
1996, outstanding long enough to give rise to the possibility of
default and final liquidation. The loss experience with respect
to the Mortgage Pool may therefore be expected to be higher, and
may be substantially higher, than indicated above.
Seller-provided financing has been used to facilitate the
sale of REO properties from time to time. Such financing may
have had the effect of minimizing losses that might otherwise
have been incurred upon the liquidation of REO properties if
financing on terms equivalent to those provided by the Depositor
were not available from other sources. However, neither the
Depositor, the Underwriter, the Seller, the Master Servicer, the
Trustee nor any other person will have any obligation to purchase
Mortgaged Properties from the Trust Fund as described above or to
provide financing to facilitate the sale of REO properties. There
can be no assurance that the loss experience for future
dispositions of Mortgaged Properties on behalf of the Trust Fund
will be similar to the loss experience indicated in the foregoing
tables.]
DESCRIPTION OF THE CERTIFICATES
General
The Series 1996-__ Mortgage Loan Asset-Backed Certificates
(the "Certificates") will consist of the following seven Classes:
(i) Class S Certificates (the "Variable Strip Certificates"),
(ii) Class A-1 Certificates and Class A-2 Certificates
(collectively, with the Variable Strip Certificates, the "Senior
Certificates"), (iii) Class B-1 Certificates, Class B-2
Certificates, and Class B-3 Certificates (collectively, the
"Subordinate Certificates") and (iv) Class R Certificates (the
"Residual Certificates"). Only the Senior Certificates and the
Class B-1 Certificates (collectively, the "Offered Certificates")
are offered hereby.
The Certificates will, in the aggregate, evidence the entire
beneficial ownership interest in a trust fund (the "Trust Fund").
The Trust Fund will consist of (i) the Mortgage Loans, (ii) such
assets as from time to time are identified as deposited in
respect of the Mortgage Loans in the account established by the
Master Servicer for the collection of payments on the Mortgage
Loans (the "Custodial Account") and in the Excess Proceeds
Account and the Certificate Account (each as defined herein) and
as belonging to the Trust Fund, (iii) property acquired by
foreclosure of such Mortgage Loans or by deed in lieu of
foreclosure, (iv) any applicable hazard insurance policies, any
other applicable insurance policies and all proceeds thereof and
(v) the representations and warranties made by the Seller with
respect to the Mortgage Loans.
Distributions on the Offered Certificates will be made on
the 25th day of each month or, if such day is not a business day,
then on the next succeeding business day (each, a "Distribution
Date"), commencing in December 1995, to Certificateholders of
record on the immediately preceding Record Date. The record date
(the "Record Date") for each Distribution Date will be the close
of business on the last business day of the month immediately
preceding the month in which such Distribution Date occurs.
Distributions on the Offered Certificates will be made to
each registered holder entitled thereto, either (i) by check
mailed to the address of such Certificateholder as it appears on
the books of the Trustee or (ii) at the request, submitted to the
Trustee in writing at least five business days prior to the
related Record Date, of any holder of an Offered Certificate
having an initial Certificate Principal Balance of not less than
$2,500,000 (or, with respect to a Variable Strip Certificate, an
initial Notional Amount of not less than $10,000,000), by wire
transfer in immediately available funds, provided, that the final
distribution in respect of any Offered Certificate will be made
only upon presentation and surrender of such Certificate at the
Corporate Trust Office of the Trustee. See "POOLING AND SERVICING
AGREEMENT-The Trustee" herein.
The Variable Strip Certificates and the Class A-1
Certificates (collectively, the "DTC Registered Certificates")
will be issued, maintained and transferred on the book-entry
records of the Depository Trust Company ("DTC") and its
Participants. The DTC Registered Certificates will be issued in
minimum denominations (or, in the case of the Variable Strip
Certificates, in initial Notional Amounts) of $1.00 and integral
multiples of $1.00 in excess thereof. The Class A-2 Certificates
will be issued in registered and certificated form in minimum
denominations of $25,000 and integral multiples of $1,000 in
excess thereof, and the Class B-1 Certificates will be issued in
registered and certificated form in minimum denominations of
$250,000 and integral multiples of $1,000 in excess thereof,
provided, however, that one Certificate of each such Class may be
issued evidencing the sum of an authorized denomination thereof
and the remainder of the aggregate initial Certificate Principal
Balance of such Class.
The DTC Registered Certificates will be represented by one
or more certificates registered in the name of the nominee of
DTC. The Depositor has been informed by DTC that DTC's nominee
will be Cede & Co. ("Cede"). No person acquiring an interest in
the DTC Registered Certificates (each, a "Beneficial Owner") will
be entitled to receive a certificate representing such person's
interest (a "Definitive Certificate"), except as set forth below
under "-Book-Entry Registration of the DTC Registered
Certificates-Definitive Certificates." Unless and until
Definitive Certificates are issued for the DTC Registered
Certificates under the limited circumstances described herein,
all references to actions by Certificateholders with respect to
the DTC Registered Certificates shall refer to actions taken by
DTC upon instructions from its Participants, and all references
herein to distributions, notices, reports and statements to
Certificateholders with respect to the DTC Registered
Certificates shall refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the DTC
Registered Certificates, for distribution to Beneficial Owners by
DTC in accordance with DTC procedures.
Book-Entry Registration of the DTC Registered Certificates
General. Beneficial Owners that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, the related DTC
Registered Certificates may do so only through Participants and
Indirect Participants. In addition, Beneficial Owners will
receive all distributions of principal and interest on the
related DTC Registered Certificates through DTC and its
Participants. Accordingly, Beneficial Owners may experience
delays in their receipt of payments. Unless and until Definitive
Certificates are issued for the related DTC Registered
Certificates, it is anticipated that the only registered
Certificateholder of such DTC Registered Certificates will be
Cede, as nominee of DTC. Beneficial Owners will not be recognized
by the Trustee or the Master Servicer as Certificateholders, as
such term is used in the Pooling and Servicing Agreement, and
Beneficial Owners will be permitted to receive information
furnished to Certificateholders and to exercise the rights of
Certificateholders only indirectly through DTC, its Participants
and Indirect Participants.
Under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers of DTC Registered Certificates among
Participants and to receive and transmit distributions of
principal and of interest on such DTC Registered Certificates.
Participants and Indirect Participants with which Beneficial
Owners have accounts with respect to such DTC Registered
Certificates similarly are 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 physical certificates evidencing their
interests in the DTC Registered Certificates, the Rules provide a
mechanism by which Beneficial Owners, through their Participants
and Indirect Participants, will receive distributions and will be
able to transfer their interests in the DTC Registered
Certificates.
None of the Depositor, the Master Servicer or the Trustee or
any of their respective affiliates will have any liability for
any actions taken by DTC or its nominee, including, without
limitation, actions for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the
DTC Registered Certificates held by Cede, as nominee for DTC, or
for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be
issued to Beneficial Owners or their nominees, respectively,
rather than to DTC or its nominee, only under the limited
conditions set forth in the Prospectus under "DESCRIPTION OF THE
CERTIFICATES-Book-Entry Registration."
Upon the occurrence of an event described in the Prospectus
in the last paragraph under "DESCRIPTION OF THE CERTIFICATES-
Book-Entry Registration," the Trustee (through DTC) is required
to notify Participants who have ownership of DTC Registered
Certificates as indicated on the records of DTC of the
availability of Definitive Certificates for their DTC Registered
Certificates. Upon surrender by DTC of the definitive
certificates representing the DTC Registered Certificates and
upon receipt of instructions from DTC for re-registration, the
Trustee will re-issue the DTC Registered Certificates as
Definitive Certificates in the respective principal amounts owned
by individual Beneficial Owners, and thereafter the Trustee and
the Master Servicer will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and
Servicing Agreement. Such Definitive Certificates will be issued
in minimum denominations of $1,000, except that any certificate
that was represented by a DTC Registered Certificate in an amount
less than $1,000 immediately prior to the issuance of a
Definitive Certificate shall be issued in a minimum denomination
equal to the amount represented by such DTC Registered
Certificate.
For additional information regarding DTC and the DTC
Registered Certificates, see "DESCRIPTION OF THE CERTIFICATES-
Book-Entry Registration" in the Prospectus.
Available Distribution Amount
[Note: The description of distributions set forth below will be
modified as appropriate to reflect the terms of a particular
Series.]
The "Available Distribution Amount" for any Distribution
Date will equal (a) the sum of (i) the balance on deposit in the
Custodial Account as of the close of business on the related
Determination Date, (ii) all Advances made with respect to such
Distribution Date and (iii) certain related amounts required to
be deposited by the Master Servicer in the Certificate Account,
reduced by (b) the sum of (i) scheduled payments on the Mortgage
Loans collected but due after the related Due Date, (ii)
reinvestment income on amounts in the Custodial Account, (iii)
all amounts reimbursable to the Master Servicer or any
subservicer in respect of the Mortgage Loans and (iv) any
unscheduled payments, including mortgagor prepayments on the
Mortgage Loans, Insurance Proceeds, Liquidation Proceeds and
proceeds from repurchases of the Mortgage Loans occurring in the
month of such Distribution Date. With respect to any Distribution
Date, (i) the Due Date is the first day of the month in which
such Distribution Date occurs and (ii) the Determination Date is
the 15th day of the month in which such Distribution Date occurs
or, if such day is not a business day, the immediately preceding
business day.
Interest Distributions
Holders of the Variable Strip Certificates and the Class A-1
Certificates will be entitled to receive interest distributions
in an amount equal to the Accrued Certificate Interest (as
defined herein) for such Class on each Distribution Date (as to
all such Classes of Certificates in the aggregate, the "Priority
Interest Distribution Amount"), to the extent of the Available
Distribution Amount for such Distribution Date. Holders of the
Class A-2 Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate
Interest for such Class on each Distribution Date to the extent
of the Available Distribution Amount for such Distribution Date
remaining after distributions of interest to the holders of the
Variable Strip Certificates and interest and principal to the
holders of the Class A-1 Certificates and, if the Certificate
Principal Balances of the Subordinate Certificates have been
reduced to zero, reimbursement to the Master Servicer for certain
Advances as described below under "-Advances." Holders of the
Class B-1 Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate
Interest for such Class on each Distribution Date to the extent
of the Available Distribution Amount for such Distribution Date
remaining after distributions of interest and principal, as
applicable, to the holders of the Classes of Senior Certificates,
and, if the Certificate Principal Balances of the Subordinate
Certificates subordinate thereto have been reduced to zero,
reimbursement to the Master Servicer for certain Advances as
described below under "-Advances."
With respect to any Distribution Date, Accrued Certificate
Interest will be equal to: (a) in the case of each Class of
Offered Certificates (other than the Variable Strip Certificates)
and Subordinate Certificates, interest accrued for the Accrual
Period on the Certificate Principal Balance (as in effect
immediately prior to such Distribution Date) of the Certificates
of such Class at the related Certificate Rate and (b) in the case
of the Variable Strip Certificates, interest accrued for the
Accrual Period on the Notional Amount (as in effect immediately
prior to such Distribution Date) at the related Certificate Rate;
in each case less interest shortfalls, if any, for such
Distribution Date not covered (I), with respect to the Variable
Strip Certificates and the Class A-1 Certificates, by the
Subordination provided by the Class A-2 Certificates and the
Subordinate Certificates, (II), with respect to the Senior
Certificates, by the Subordination provided by the Subordinate
Certificates and (III), with respect to the Class B-1
Certificates, by the Subordination provided by the Class B-2
Certificates and the Class B-3 Certificates, including (i) any
related Prepayment Interest Shortfalls (as defined below) to the
extent not covered by the Master Servicer as described below,
(ii) the interest portions of Realized Losses (including any
Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses) not allocated through
Subordination, (iii) the interest portion of any Advances that
were made with respect to delinquencies that were ultimately
determined to be Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses and (iv)
any other interest shortfalls not covered by Subordination, all
allocated among the holders of all Classes of Certificates in
proportion to the respective amounts of Accrued Certificate
Interest for such Distribution Date on each such Class, before
taking into account any such shortfall. In the case of the Class
A-2 Certificates and the Class B-1 Certificates, Accrued
Certificate Interest will be further reduced by the allocation of
the interest portion of certain losses thereto, if any, described
below under "-Allocation of Losses; Subordination." The Accrual
Period for each Distribution Date will be from the 25th day of
the month preceding such Distribution Date to the 24th day of the
month of such Distribution Date, provided, however, that the
Accrual Period will be treated as a 30-day period regardless of
the number of days from the 25th day of the preceding month to
the 24th day of such month. Accrued Certificate Interest is
calculated on the basis of a 360-day year consisting of twelve
30-day months.
The Prepayment Interest Shortfall for any Distribution Date
is equal to the aggregate shortfall, if any, in collections of
interest (adjusted to the related Net Mortgage Rates as described
below) resulting from principal prepayments on the Mortgage Loans
received in the preceding calendar month (each, a "Prepayment
Period"). Such shortfalls will result because interest on
prepayments in full is distributed only to the date of prepayment
and because no interest is collected or distributed on
prepayments in part, as such prepayments in part are applied to
reduce the outstanding principal balance of such Mortgage Loan as
of the Due Date in the month of prepayment. The Master Servicer
will be obligated to apply amounts otherwise payable to it as
servicing compensation in any month to cover any shortfalls in
collections of one full month's interest at the applicable Net
Mortgage Rate resulting from principal prepayments.
In the event that the amount available for distributions of
interest on the Senior Certificates on any Distribution Date is
less than the Priority Interest Distribution Amount for such
Distribution Date, the shortfall will be allocated among the
holders of such Classes of Senior Certificates in proportion to
the respective amounts of Accrued Certificate Interest for such
Distribution Date on each such Class. With respect to any
shortfall in the amount available for distributions of interest
on any particular Class of Certificates on any Distribution Date,
the amount of such shortfall will be distributable to the holders
of the Certificates of such Class on subsequent Distribution
Dates, to the extent of available funds after distributions as
required herein, subject to the priorities described herein. Any
such amounts so carried forward will not bear interest.
On the first Distribution Date, the Certificate Rate on the
Certificates (other than the Variable Strip Certificates) will be
_____% per annum. The Certificate Rate on the Certificates
(other than the Variable Strip Certificates) for each
Distribution Date thereafter will be equal to One-Month LIBOR
plus _____%; provided, however, that the Certificate Rate on each
such Class of Certificates will be subject to a maximum rate as
of any Distribution Date equal to the lesser of (i) _____% per
annum and (ii) the Net Mortgage Rate Cap. The Net Mortgage Rate
Cap is a per annum rate equal to the weighted average of the Net
Mortgage Rates on the then-outstanding Mortgage Loans. The
Certificate Rate on the Variable Strip Certificates on each
Distribution Date will be equal to the excess, if any, of (i) the
Net Mortgage Rate Cap over (ii) the Certificate Rate on the
Certificates (other than the Variable Strip Certificates). The
Certificate Rate will be approximately _____% per annum with
respect to the first Distribution Date for the Variable Strip
Certificates. The Net Mortgage Rate on each Mortgage Loan will
be equal to the Mortgage Rate thereon minus _____% per annum, the
annual rate at which the related servicing fee accrues (the
"Servicing Fee Rate").
As described herein, the Accrued Certificate Interest
allocable to each Class of Offered Certificates (other than the
Variable Strip Certificates) is based on the Certificate
Principal Balance thereof or, in the case of the Variable Strip
Certificates, on the Notional Amount thereof. The Certificate
Principal Balance of any Class of Offered Certificates (other
than the Variable Strip Certificates) as of any date of
determination is equal to the initial Certificate Principal
Balance thereof, reduced by the aggregate of (a) all amounts
allocable to principal previously distributed with respect to
such Certificate and (b) any reductions in the Certificate
Principal Balance thereof deemed to have occurred in connection
with allocations of Realized Losses in the manner described
herein; provided, however, that (i) after the Certificate
Principal Balances of the Subordinate Certificates subordinate
thereto have been reduced to zero, the Certificate Principal
Balance of any Class B-1 Certificate shall equal the Percentage
Interest evidenced thereby multiplied by the excess, if any, of
(x) the then aggregate Stated Principal Balance of all of the
Mortgage Loans over (y) the then aggregate Certificate Principal
Balances of the Senior Certificates and (ii) after the
Certificate Principal Balances of the Subordinate Certificates
have been reduced to zero, the Certificate Principal Balance of
any Class A-2 Certificate shall equal the Percentage Interest
evidenced thereby multiplied by the excess, if any, of (x) the
then aggregate Stated Principal Balance of all of the Mortgage
Loans over (y) the then aggregate Certificate Principal Balance
of the Class A-1 Certificates.
The Notional Amount of the Variable Strip Certificates as of
any date of determination will be equal to the aggregate
Certificate Principal Balance of all Classes of Certificates as
of such date; provided that the initial Notional Amount of the
Variable Strip Certificates shall be rounded down to the nearest
dollar increment. References herein to the Notional Amount of a
Variable Strip Certificate are used solely for convenience in
certain calculations and do not represent the right to receive
distributions of such amounts.
Calculation of One-Month LIBOR
The Certificate Rate on the Offered Certificates (other than
the Variable Strip Certificates) on the first Distribution Date
will be _____% per annum. Thereafter, on the second business day
preceding each Distribution Date (each such date, an "Interest
Determination Date"), the Trustee will determine the London
interbank offered rate for one-month U.S. dollar deposits ("One-
Month LIBOR") for the Distribution Date in the following month
for the Offered Certificates (other than the Variable Strip
Certificates) on the basis of the offered rates of the Reference
Banks for one-month U.S. dollar deposits, as such rates appear on
the Reuter Screen LIBO Page, as of 11:00 a.m. (London time) on
such Interest Determination Date. As used in this section,
"business day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City;
"Reuter Screen LIBO Page" means the display designated as page
"LIBO" on the Reuter Monitor Money Rates Service (or such other
page as may replace the LIBO page on that service for the purpose
of displaying London interbank offered rates of major banks); and
"Reference Banks" means leading banks selected by the Trustee and
engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place
of business in London, (ii) whose quotations appear on the Reuter
Screen LIBO Page on the Interest Determination Date in question,
(iii) which have been designated as such by the Trustee and (iv)
not controlling, controlled by, or under common control with, the
Depositor or the Seller.
On each Interest Determination Date, One-Month LIBOR for the
Distribution Date in the following month for the Offered
Certificates (other than the Variable Strip Certificates) will be
established by the Trustee as follows:
(a) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations, One-Month
LIBOR for the Distribution Date in the following month shall
be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of
0.0625%).
(b) If on such Interest Determination Date fewer than
two Reference Banks provide such offered quotations, One-
Month LIBOR for the Distribution Date in the following month
shall be the higher of (x) One-Month LIBOR as determined on
the previous Interest Determination Date and (y) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate
per annum that the Trustee determines to be either (i) the
arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 0.0625%) of the one-month U.S. dollar
lending rates which New York City banks selected by the
Trustee are quoting on the relevant Interest Determination
Date to the principal London offices of leading banks in the
London interbank market or, in the event that the Trustee
can determine no such arithmetic mean, (ii) the lowest one-
month U.S. dollar lending rate which New York City banks
selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest
Determination Date by the Trustee and the Trustee's calculation
of the rate of interest applicable to the Offered Certificates
(other than the Variable Strip Certificates) for the Distribution
Date in the following month shall (in the absence of manifest
error) be final and binding.
Principal Distributions on the Class A-1 Certificates
Holders of the Class A-1 Certificates will be entitled to
receive on each Distribution Date, to the extent of the portion
of the Available Distribution Amount remaining after
distributions of the Priority Interest Distribution Amount, a
distribution allocable to principal equal to the sum of the
following amounts:
(i) the product of (A) the then-applicable Class A-1
Percentage and (B) the Scheduled Principal and Net
Recoveries (as defined below) for such Distribution Date;
(ii) an amount equal to the Class A-1 Percentage
divided by the Senior Percentage multiplied by the then-
applicable Senior Prepayment Percentage of all principal
prepayments made by the respective mortgagors during the
related Prepayment Period;
(iii) in connection with a Mortgage Loan for which a
Cash Liquidation or an REO Disposition (each as defined
below) occurred during the related Prepayment Period and did
not result in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses, an
amount equal to the lesser of (A) the then-applicable Class
A-1 Percentage of the Stated Principal Balance of such
Mortgage Loan and (B)(1) the Class A-1 Percentage for such
Distribution Date divided by the Senior Percentage for such
Distribution Date multiplied by (2) the Senior Prepayment
Percentage for such Distribution Date multiplied by the
related collections (including without limitation Insurance
Proceeds and Liquidation Proceeds) to the extent applied as
recoveries of principal of such Mortgage Loan; and
(iv) any amounts allocable to principal for any
previous Distribution Date (calculated as described in the
three preceding clauses) that remain undistributed to the
extent that any such amounts are not attributable to
Realized Losses that were allocated to the Class A-2
Certificates and the Subordinate Certificates.
Scheduled Principal and Net Recoveries for any Distribution
Date is equal to the aggregate of the following amounts:
(1) the principal portion of all scheduled monthly
payments on the Mortgage Loans due on the related Due Date,
whether or not received on or prior to the related
Determination Date, less the principal portion of Debt
Service Reductions (as defined below) which constitute
Excess Bankruptcy Losses;
(2) the principal portion of all proceeds of the
repurchase of a Mortgage Loan as required by the Pooling and
Servicing Agreement during the related Prepayment Period;
and
(3) the principal portion of all Insurance Proceeds
and Liquidation Proceeds received during the related
Prepayment Period minus the aggregate amount of expenses
incurred by the Master Servicer in connection with the
liquidation of the related Mortgage Loans to the extent such
expenses are not otherwise recoverable from related
Liquidation Proceeds, but only to the extent that any such
amounts either (A) were not received in connection with a
Cash Liquidation or REO Disposition, or (B) were received in
connection with a Cash Liquidation or REO Disposition which
resulted in an Excess Special Hazard Loss, Excess Bankruptcy
Loss, Excess Fraud Loss or Extraordinary Loss.
A Cash Liquidation of a defaulted Mortgage Loan, other than
a Mortgage Loan as to which an REO Disposition occurred, is
deemed to have occurred upon the final receipt by or on behalf of
the Master Servicer of all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master
Servicer reasonably and in good faith expects to be finally
recoverable with respect to such Mortgage Loan.
An REO Disposition is deemed to have occurred upon the final
receipt by the Master Servicer of all Insurance Proceeds,
Liquidation Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer reasonably
and in good faith expects to be finally recoverable from the sale
or other disposition of the related REO Property.
The Stated Principal Balance of any Mortgage Loan as of any
date of determination is equal to the principal balance thereof
as of the Cut-off Date, after application of all scheduled
principal payments due on or before the Cut-off Date, whether or
not received, reduced by all amounts allocable to principal that
have been distributed to Certificateholders with respect to such
Mortgage Loan on or before such date, and as further reduced to
the extent that any Realized Loss thereon has been allocated to
one or more Classes of Certificates on or before the date of
determination.
The "Senior Percentage" with respect to the Class A-1
Certificates together with the Class A-2 Certificates, which
initially will be equal to approximately _____% and will in no
event exceed 100%, will be adjusted for each Distribution Date to
be the percentage equal to the aggregate Certificate Principal
Balances of the Class A-1 Certificates and the Class A-2
Certificates immediately prior to such Distribution Date divided
by the aggregate of the Stated Principal Balances of all of the
Mortgage Loans immediately prior to such Distribution Date. The
related "Class A-1 Percentage" with respect to the Class A-1
Certificates, which initially will be equal to approximately
_____% will in no event exceed 100%, and will be adjusted for
each Distribution Date to be the percentage equal to the
aggregate Certificate Principal Balance of the Class A-1
Certificates, immediately prior to such Distribution Date divided
by the aggregate Stated Principal Balance of all of the Mortgage
Loans immediately prior to such Distribution Date. The "Class A-2
Percentage" with respect to the Class A-2 Certificates will be
adjusted as described below under "-Principal Distributions on
the Class A-2 Certificates." The "Subordinate Percentage" as of
any date of determination is equal to 100% minus the Senior
Percentage as of such date.
The "Senior Prepayment Percentage" for any Distribution Date
occurring prior to the Distribution Date in December 20__ will
equal 100% and, for any Distribution Date occurring in or after
the Distribution Date in December 20__, will be as follows: for
any Distribution Date occurring in or after December 20__ to and
including the Distribution Date in November 20__, the Senior
Percentage for such Distribution Date plus __% of the Subordinate
Percentage for such Distribution Date; for any Distribution Date
occurring in or after December 20__ to and including the
Distribution Date in November 20__, the Senior Percentage for
such Distribution Date plus __% of the Subordinate Percentage for
such Distribution Date; for any Distribution Date occurring in or
after December 20__ to and including the Distribution Date in
November 20__, the Senior Percentage for such Distribution Date
plus __% of the Subordinate Percentage for such Distribution
Date; for any Distribution Date occurring in or after December
20__ to and including the Distribution Date in November 20__, the
Senior Percentage for such Distribution Date plus __% of the
Subordinate Percentage for such Distribution Date; and for any
Distribution Date thereafter, the Senior Percentage for such
Distribution Date (unless on any such Distribution Date the
Senior Percentage exceeds the initial Senior Percentage, in which
case the Senior Prepayment Percentage for such Distribution Date
will once again equal 100%). Any scheduled reduction to the
Senior Prepayment Percentage described above will not be made as
of any Distribution Date unless either (a)(i) the outstanding
principal balance of the Mortgage Loans delinquent 60 days or
more (including foreclosures and REO Property) averaged over the
last six months, as a percentage of the aggregate outstanding
principal balance of all Mortgage Loans averaged over the last
six months, does not exceed 2% and (ii) Realized Losses on the
Mortgage Loans to date for such Distribution Date, if occurring
during the eleventh, twelfth, thirteenth, fourteenth and
fifteenth year (or any year thereafter) after __________ 1996,
are less than __%, __%, __%, __% or __%, respectively, of the sum
of the initial Certificate Principal Balances of the Subordinate
Certificates or (b)(i) the aggregate outstanding principal
balance of the Mortgage Loans delinquent 60 days or more
(including foreclosures and REO Property) averaged over the last
six months, as a percentage of the aggregate outstanding
principal balance of all Mortgage Loans averaged over the last
six months, does not exceed __% and (ii) Realized Losses on the
Mortgage Loans to date for such Distribution Date are less than
__% of the sum of the initial Certificate Principal Balances of
the Subordinate Certificates. Notwithstanding the foregoing, upon
reduction of the Certificate Principal Balances of the Class A-1
Certificates and the Class A-2 Certificates to zero, the Senior
Prepayment Percentage will equal 0%.
Principal Distributions on the Class A-2 Certificates
Holders of the Class A-2 Certificates will be entitled to
receive on each Distribution Date, to the extent of the portion
of the Available Distribution Amount remaining after (a) the sum
of the Priority Interest Distribution Amount and the aggregate
amount required to be distributed in respect of principal (as
applicable) is distributed to the holders of the Variable Strip
Certificates and Class A-1 Certificates, (b) if the Certificate
Principal Balances of the Subordinate Certificates have been
reduced to zero, and after reimbursement is made to the Master
Servicer for certain Advances remaining unreimbursed following
the final liquidation of the related Mortgage Loan to the extent
described below under "-Advances," and (c) the aggregate amount
of Accrued Certificate Interest required to be distributed on
such Class on such Distribution Date is so distributed, a
distribution allocable to principal equal to the sum of the
following amounts:
(i) the product of (A) the then-applicable Class A-2
Percentage and (B) the Scheduled Principal and Net
Recoveries for such Distribution Date;
(ii) an amount equal to the Class A-2 Percentage
divided by the Senior Percentage multiplied by the then-
applicable Senior Prepayment Percentage of all principal
prepayments made by the respective mortgagors during the
related Prepayment Period;
(iii) in connection with a Mortgage Loan for which a
Cash Liquidation or an REO Disposition occurred during the
related Prepayment Period and did not result in any Excess
Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses, an amount equal
to the lesser of (A) the then-applicable Class A-2
Percentage of the Stated Principal Balance of such Mortgage
Loan and (B)(1) the Class A-2 Percentage for such
Distribution Date divided by the Senior Percentage for such
Distribution Date multiplied by (2) the Senior Prepayment
Percentage for such Distribution Date multiplied by the
related collections (including without limitation Insurance
Proceeds and Liquidation Proceeds) to the extent applied as
recoveries of principal of such Mortgage Loan; and
(iv) any amounts allocable to principal for any
previous Distribution Date (calculated as described in the
three preceding clauses) that remain undistributed to the
extent that any such amounts are not attributable to
Realized Losses that were allocated to the Subordinate
Certificates.
The "Class A-2 Percentage" with respect to the Class A-2
Certificates, which initially will be equal to approximately
_____% and will in no event exceed 100%, will be adjusted for
each Distribution Date to be the percentage equal to the
Certificate Principal Balance of the Class A-2 Certificates
immediately prior to such Distribution Date divided by the
aggregate Stated Principal Balance of all of the Mortgage Loans
immediately prior to such Distribution Date, provided that if the
Certificate Principal Balances of the Subordinate Certificates
have been reduced to zero, thereafter the Class A-2 Percentage as
of any date of determination will be equal to 100% minus the
Class A-1 Percentage as of such date.
Principal Distributions on the Class B-1 Certificates
The portion of the Available Distribution Amount remaining
after (a) the aggregate amount required to be distributed in
respect of interest and principal (as applicable) is distributed
to the holders of the Senior Certificates, (b) if the Certificate
Principal Balances of the Subordinate Certificates subordinate
thereto have been reduced to zero, reimbursement is made to the
Master Servicer for certain Advances remaining unreimbursed to
the extent described below under "-Advances" and (c) the
aggregate amount of Accrued Certificate Interest required to be
distributed to holders of the Class B-1 Certificates is so
distributed, will be distributed on each Distribution Date in the
following order of priority, in each case to the extent of
remaining available funds included in the Available Distribution
Amount:
(A) to the holders of the Class B-1 Certificates in
respect of principal, the sum of the following amounts:
(i) the product of (A) the then-applicable Class B-1
Percentage and (B) the Scheduled Principal and Net
Recoveries for such Distribution Date;
(ii) an amount equal to the then-applicable Class B-1
Prepayment Percentage (as defined below) of all principal
prepayments made by the respective mortgagors during the
related Prepayment Period;
(iii) such Class' pro rata share, based on the
Certificate Principal Balance of each Class of Subordinate
Certificates, of all amounts received in connection with a
Mortgage Loan for which a Cash Liquidation or an REO
Disposition occurred during the related Prepayment Period
and did not result in any Excess Special Hazard Losses,
Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses, to the extent applied as recoveries of
principal of such Mortgage Loan and to the extent not
otherwise payable to the Class A-1 Certificates or the Class
A-2 Certificates; and
(iv) any amounts allocable to principal for any
previous Distribution Date (calculated as described in the
three preceding clauses) that remain undistributed to the
extent that any such amounts are not attributable to
Realized Losses that were allocated to a more subordinate
Class of Subordinate Certificates.
(B) to the holders of the Class B-2 Certificates in
respect of interest, an amount equal to the Accrued
Certificate Interest on such Class on such Distribution
Date;
(C) to the holders of the Class B-2 Certificates in
respect of principal, an amount equal to the aggregate of
the following amounts:
(i) the product of (A) the then-applicable Class B-2
Percentage and (B) the Scheduled Principal and Net
Recoveries for such Distribution Date;
(ii) an amount equal to the then-applicable Class B-2
Prepayment Percentage (as defined below) of all principal
prepayments made by the respective mortgagors during the
related Prepayment Period;
(iii) such Class' pro rata share, based on the
Certificate Principal Balance of each Class of Subordinate
Certificates, of all amounts received in connection with a
Mortgage Loan for which a Cash Liquidation or an REO
Disposition occurred during the related Prepayment Period
and did not result in any Excess Special Hazard Losses,
Excess Fraud Losses, Excess Bankruptcy Losses or
Extraordinary Losses, to the extent applied as recoveries of
principal of such Mortgage Loan and to the extent not
otherwise payable to the Class A-1 Certificates or the Class
A-2 Certificates; and
(iv) any amounts allocable to principal for any
previous Distribution Date (calculated as described in the
three preceding clauses) that remain undistributed to the
extent that any such amounts are not attributable to
Realized Losses that were allocated to the Class B-3
Certificates.
(D) an amount equal to the portion of the Available
Distribution Amount remaining after the foregoing
distributions, to the holders of the Class B-1 Certificates
in respect of principal, until the Certificate Principal
Balance of such Class is reduced to zero, and thereafter to
the holders of the other Subordinate Certificates
outstanding as provided in the Pooling and Servicing
Agreement.
The effect of the provisions described above will be that
holders of the Class B-1 Certificates will receive on each
Distribution Date all amounts otherwise distributable to holders
of the Class B-3 Certificates on such Distribution Date, which,
absent any delinquencies or losses on the Mortgage Loans would be
equal to (i) the Accrued Certificate Interest on the Class B-3
Certificates for such Distribution Date, (ii) the Class B-3
Percentage of the Scheduled Principal and Net Recoveries in
respect of the Mortgage Loans for such Distribution Date and
(iii) the amount of full and partial principal prepayments and
principal proceeds of a Cash Liquidation or REO Disposition on
the Mortgage Loans not otherwise distributed to holders of the
Certificates (other than the Class B-3 Certificates).
The "Class B-1 Prepayment Percentage" and "Class B-2
Prepayment Percentage" with respect to any Distribution Date will
be equal to the product of (a) 100% minus the related Senior
Prepayment Percentage for such Distribution Date and (b) a
fraction, the numerator of which is the Class B-1 Percentage or
the Class B-2 Percentage, respectively, and the denominator of
which is the sum of the Class B-1 Percentage, the Class B-2
Percentage and the Class B-3 Percentage.
The "Class B-1 Percentage," the "Class B-2 Percentage," and
the "Class B-3 Percentage," which initially will be equal to
approximately ____%, ____%, and ____% respectively, and will in
no event exceed 100%, will each be adjusted for each Distribution
Date to be the percentage equal to the aggregate Certificate
Principal Balance of such Class of Subordinate Certificates
immediately prior to such Distribution Date divided by the
aggregate Stated Principal Balance of all of the Mortgage Loans
immediately prior to such Distribution Date.
Example of Distributions
The following chart sets forth an example of distributions
on the Certificates for the first month of the Trust Fund's
existence.
____ 1................. Cut-off Date. The initial principal balance of
the Mortgage Pool will be the
aggregate principal balance of
the Mortgage Loans as of
__________ 1, 1996, after
deducting any principal payments
due on or before such date. Any
principal and interest payments
due on or before __________ 1
will not be part of the Mortgage
Pool.
____ 1 through
____ 30................Prepayment Period. Partial principal prepayments
and prepayments in full with
interest thereon to the date of
such prepayment in full,
received at any time during this
period will be deposited into
the Custodial Account for
distribution to
Certificateholders on __________
25.
____ 30................Record Date. Distributions on __________ 25
will be made to
Certificateholders of record at
the close of business on the
last business day of the month
immediately preceding the month
of distribution.
____ 2 through
____ 15................Collection Period. Payments due during the related
Due Period (__________ 2 through
__________ 1) from mortgagors
will be deposited in the
Custodial Account as received,
and will include scheduled
principal payments plus interest
on the November balances.
____ 15...............Determination Date. On the second business day
following the Determination
Date, the amounts of principal
and interest that will be
distributed on __________ 25
will be determined by the
Trustee.
____ 21................Interest Deter-
.......................mination Date. On the second business day
immediately preceding the
Distribution Date the Trustee
will determine One-Month LIBOR
for the Distribution Date in the
following month.
____ 24................Certificate Account
.......................Deposit Date. On the business day immediately
preceding the Distribution Date
the Master Servicer will remit
to the Trustee the amount of
principal and interest to be
distributed to the
Certificateholders on such
Distribution Date from amounts
on deposit in the Custodial
Account, together with any
Advances required to be made by
the Master Servicer for such
Distribution Date.
____ 25................Distribution Date. On ________ 25 the Trustee will
distribute or cause to be
distributed to the
Certificateholders the amounts
determined as of the second
business day following the
Determination Date. If a Monthly
Payment due during the related
Due Period is received from a
mortgagor after __________ 14
and an Advance has been made
with respect to such late
payment from the Custodial
Account, such late payment will
be deposited into the Custodial
Account as reimbursement
therefor. If the Master Servicer
has made an Advance with respect
to such late payment from its
own funds, the Master Servicer
will reimburse itself to the
extent permitted by the Pooling
and Servicing Agreement by
withdrawing from the Custodial
Account the amount relating to
such Advance. If no such Advance
has been made with respect to
such late payment, the proceeds
of such late payment will be
distributed to the
Certificateholders on the
Distribution Date occurring in
________.
Succeeding months follow the same pattern.
Allocation of Losses; Subordination
Any Realized Losses, other than losses of a type generally
covered by a special hazard insurance policy as described in the
Prospectus under "DESCRIPTION OF MORTGAGE AND OTHER INSURANCE-
Hazard Insurance on the Loans" (any such loss, a "Special Hazard
Loss") to the extent in excess of the Special Hazard Amount
("Excess Special Hazard Losses"), losses incurred on defaulted
Mortgage Loans as to which there was fraud in the origination of
such Mortgage Loans (any such loss, a "Fraud Loss") to the extent
in excess of the Fraud Loss Amount ("Excess Fraud Losses"),
losses attributable to certain actions which may be taken by a
bankruptcy court in connection with a Mortgage Loan, including a
reduction by a bankruptcy court of the principal balance or the
Mortgage Rate on a Mortgage Loan or an extension of its maturity
(any such loss, a "Bankruptcy Loss") to the extent in excess of
the Bankruptcy Loss Amount ("Excess Bankruptcy Losses"), and
losses occasioned by war, civil insurrection, certain
governmental actions, nuclear reaction and certain other risks
("Extraordinary Losses"), will be allocated as follows: Realized
Losses on the Mortgage Loans will be allocated first to the Class
B-3 Certificates, then to the Class B-2 Certificates, then to the
Class B-1 Certificates, then to the Class A-2 Certificates, in
each case until the Certificate Principal Balance thereof is
reduced to zero, and thereafter the principal portion thereof
will be allocated to the Class A-1 Certificates and the interest
portion thereof to the Variable Strip Certificates and the Class
A-1 Certificates on a pro rata basis. Any allocation of a
Realized Loss (other than a Debt Service Reduction) to an Offered
Certificate will generally be made by reducing the Certificate
Principal Balance thereof, in the case of the principal portion
of such Realized Loss, and the Accrued Certificate Interest
thereon, in the case of the interest portion of such Realized
Loss, by the amount so allocated as of the Distribution Date
occurring in the month following the calendar month in which such
Realized Loss was incurred. As used herein, "Debt Service
Reductions" means reductions in the amount of monthly payments
due to certain bankruptcy proceedings, but does not include any
permanent forgiveness of principal. In addition to the foregoing
allocations of Realized Losses, the Accrued Certificate Interest
on certain Classes of Offered Certificates is subject to
reduction due to shortfalls in collections of interest as
described above under "Description of the Certificates-Interest
Distributions." Allocations of the principal portion of Debt
Service Reductions to the Class A-2 Certificates or the
Subordinate Certificates will result from the priority of
distributions of the Available Distribution Amount as described
herein. As used herein, "Subordination" refers to the provisions
discussed above for the sequential allocation of Realized Losses
(other than Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses) in respect of
the Mortgage Loans among the various Classes of Certificates, as
well as all provisions effecting such allocations including the
priorities for distribution of cash flows in the amounts
described herein.
Any Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses, Extraordinary Losses or other losses of
a type not covered by Subordination, will be allocated on a pro
rata basis among all of the Certificates. An allocation of a
Realized Loss on a "pro rata basis" among two or more Classes of
Certificates means an allocation to each such Class of
Certificates on the basis of their then outstanding Certificate
Principal Balances in the case of the principal portion of a
Realized Loss or based on the Accrued Certificate Interest
thereon in the case of an interest portion of a Realized Loss.
With respect to any defaulted Mortgage Loan that is finally
liquidated, through foreclosure sale, disposition of the related
Mortgaged Property if acquired on behalf of the related
Certificateholders by deed in lieu of foreclosure, or otherwise,
the amount of loss realized, if any, will be equal to the portion
of the Stated Principal Balance remaining, if any, plus interest
thereon through the last day of the month in which such Mortgage
Loan was finally liquidated, after application of all amounts
recovered (net of amounts reimbursable to the Master Servicer or
any subservicer for Advances and expenses, including attorneys'
fees) towards interest and principal owing on the Mortgage Loan.
Such amount of loss realized and any Special Hazard Losses, Fraud
Losses, Bankruptcy Losses and Extraordinary Losses are referred
to herein as "Realized Losses."
The Trustee will establish and maintain one or more separate
accounts (collectively, the "Excess Proceeds Account") in which
the Master Servicer will deposit or cause to be deposited on a
daily basis, or as and when received from subservicers, the
excess, if any, of all amounts recovered on any Mortgage Loan as
to which an REO Disposition occurs (net of amounts reimbursable
to the Master Servicer or any subservicer for Advances and
expenses, including attorneys' fees) over the Stated Principal
Balance of such Mortgage Loan plus interest thereon through the
last day of the month in which such REO Disposition occurs (the
"Excess Proceeds"). The Certificateholders will be entitled to
receive on each Distribution Date, in addition to the
distributions of interest and principal described above, a
distribution of Excess Proceeds (including any interest or other
income earned thereon) in an amount equal to the lesser of (a)
the amount on deposit in the Excess Proceeds Account as of the
related Determination Date and (b) the aggregate of all Realized
Losses allocated among the Certificates on any Distribution Date
and not covered by any subsequent distribution. Such
distribution will be allocated in the following order of
priority: first, to the holders of the Variable Strip
Certificates and the Class A-1 Certificates on a pro rata basis,
to the extent of the interest portions of Realized Losses
allocated to such Classes of Certificates on any Distribution
Date and not covered by any subsequent distribution, and second,
to the holders of the Class A-2 Certificates, to the extent of
the principal portions of Realized Losses allocated to such
Classes of Certificates on any Distribution Date and not covered
by any subsequent distribution, third, to the holders of the
Class B-1 Certificates, fourth, to the holders of the Class B-2
Certificates, and fifth, to the holders of the Class B-3
Certificates, in each case to the extent of Realized Losses
allocated to such Class of Certificates on any Distribution Date
and not covered by any subsequent distribution, and then sixth,
to the holders of the Class R Certificates. If the amount on
deposit in the Excess Proceeds Account exceeds an amount
calculated periodically pursuant to the terms of the Pooling and
Servicing Agreement or is in excess of zero upon the termination
of the Trust Fund, the excess amount will be distributed to the
holders of the Class R Certificates in accordance with the terms
of the Pooling and Servicing Agreement. The distribution of
Excess Proceeds will not have the effect of reducing the
Certificate Principal Balance of or Accrued Certificate Interest
on any Class of Certificates to which such distribution is
allocated. The amount on deposit in the Excess Proceeds Account
initially will be equal to zero and is not expected to be
substantial at any time when the Certificates are outstanding.
Therefore, prospective investors in the Offered Certificates
should not rely on the Excess Proceeds Account to provide
significant protection against Realized Losses on the Mortgage
Loans. Further, prospective investors in the Offered
Certificates should not rely on the distribution of Excess
Proceeds to provide a return on the Certificates in addition to
the interest and principal to which prospective investors in the
Offered Certificates are entitled. The Excess Proceeds Account
will be an interest-bearing account of the type described in the
Prospectus under "SERVICING OF LOANS -Deposits to and Withdrawals
from the Collection Account" and may be invested in Eligible
Investments (as defined in the Prospectus) for the benefit of and
at the risk of the Certificateholders. Any interest or other
income earned on amounts in the Excess Proceeds Account will be
held therein until distributed as described above.
The application of the Senior Prepayment Percentage (when it
exceeds the Senior Percentage) as described herein to determine
the required principal distributions on the Senior Certificates
will accelerate the amortization of the Senior Certificates
relative to the actual amortization of the Mortgage Loans.
Accordingly, in the absence of offsetting Realized Losses
allocated to the Subordinate Certificates, the percentage
interest evidenced by the Senior Certificates will be decreased
(with a corresponding increase in the interest evidenced by the
Subordinate Certificates in the aggregate), thereby increasing,
as a relative matter, the Subordination afforded such Senior
Certificates by the Subordinate Certificates.
The aggregate amount of Realized Losses which may be
allocated through Subordination in connection with Special Hazard
Losses (the "Special Hazard Amount") will initially be equal to
$__________. As of any date of determination following the Cut-
off Date, the Special Hazard Amount will equal the initial amount
thereof less the sum of (A) any amounts allocated through
Subordination in respect of Special Hazard Losses and (B) the
Adjustment Amount. On each anniversary of __________ 1, 1996, the
Special Hazard Amount will be equal to the amount, if any, by
which the Special Hazard Amount, without giving effect to the
deduction of the Adjustment Amount for such anniversary, exceeds
the greater of (i) _____% (or, if greater than _____%, the
highest percentage of the Mortgage Loans, by principal balance,
in any California zip code area) multiplied by the aggregate
principal balance of all of the Mortgage Loans on such
anniversary and (ii) twice the principal balance of the single
Mortgage Loan having the largest principal balance.
The aggregate amount of Realized Losses which may be
allocated through Subordination in connection with Fraud Losses
(the "Fraud Loss Amount") will initially be equal to $__________.
As of any date of determination after the Cut-off Date, the Fraud
Loss Amount, will equal (X) prior to __________ 1, 1997 an amount
equal to __________% of the aggregate principal balance of all
the Mortgage Loans as of the Cut-off Date minus the aggregate
amounts allocated through Subordination with respect of Fraud
Losses up to such date of determination, (Y) from __________ 1,
1997 through __________, 1998 an amount equal to (1) the lesser
of (a) the Fraud Loss Amount as of __________ 1, 1997 and (b)
_____% of the aggregate principal balance of all of the Mortgage
Loans as of __________ 1, 1997 minus (2) the aggregate amounts
allocated through Subordination with respect to Fraud Losses
since __________ 1, 1997 up to such date of determination, and
(Z) from __________ 1, 1998 through __________, 20__, an amount
equal to (1) the lesser of (a) the Fraud Loss Amount as of the
most recent __________ 1st and (b) _____% of the aggregate
principal balance of all of the Mortgage Loans as of the most
recent __________ 1st minus (2) the aggregate amounts allocated
through Subordination with respect to Fraud Losses since the most
recent __________ 1st up to such date of determination. On and
after __________ 1, 20__, the Fraud Loss Amount will be zero and
Fraud Losses will not be allocated through Subordination of any
of the Certificates.
The aggregate amount of Realized Losses which may be
allocated through Subordination in connection with Bankruptcy
Losses (the "Bankruptcy Amount") will initially be equal to
$__________. As of any date of determination prior to __________
1, 1997, the Bankruptcy Amount will equal the initial amount
thereof less the sum of any amounts allocated through
Subordination for such losses up to such date of determination.
As of any date of determination on or after __________ 1, 1997,
the Bankruptcy Amount will be equal to the excess, if any, of (1)
the lesser of (a) the Bankruptcy Amount as of the business day
next preceding the most recent November 1st and (b) an amount
calculated pursuant to the terms of the Pooling and Servicing
Agreement, which amount as calculated will provide for a
reduction in the Bankruptcy Amount, over (2) the aggregate amount
of Bankruptcy Losses allocated through Subordination since such
anniversary. The Bankruptcy Amount and the related formulas
referred to above may be reduced or modified upon written
confirmation from each Rating Agency that such reduction or
modification will not adversely affect the then-current ratings
assigned to the Offered Certificates by such Rating Agency. Such
a reduction or modification may adversely affect the respective
coverage provided by the Subordination with respect to Bankruptcy
Losses.
Optional Purchase of Delinquent Mortgage Loans
The Master Servicer will have the right to purchase from the
Trust Fund any Mortgage Loan that is 90 days or more delinquent
if the Master Servicer determines that such Mortgage Loan
otherwise would become subject to foreclosure or related
proceedings. The purchase price for any such Mortgage Loan will
equal the outstanding principal balance of such Mortgage Loan
plus accrued and unpaid interest to first day of the month in
which the amount of such purchase price will be distributed to
the Certificateholders. The Master Servicer will be obligated to
deposit into the Custodial Account the purchase price for any
Mortgage Loan purchased by it as described above.
Advances
Prior to each Distribution Date, the Master Servicer is
required to make Advances (out of its own funds or funds held in
the Custodial Account for future distribution or withdrawal) with
respect to any payments of principal and interest on the Mortgage
Loans at the Net Mortgage Rate together with an amount equivalent
to interest on each outstanding REO Property which were due on
the Mortgage Loans on the immediately preceding Due Date and
delinquent on the business day next preceding the related
Determination Date.
Such Advances are required to be made only to the extent
they are deemed by the Master Servicer to be recoverable from
related late collections, Insurance Proceeds, Liquidation
Proceeds or amounts otherwise payable to the holders of the
related Classes of Subordinate Certificates or, after the
Certificate Principal Balances of the Subordinate Certificates
have been reduced to zero, amounts otherwise payable to the
holders of the Class A-2 Certificates. The purpose of making such
Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against
losses. The Master Servicer will not be required to make any
Advances with respect to reductions in the amount of the monthly
payments on the Mortgage Loans due to Debt Service Reductions or
the application of the Relief Act or similar legislation or
regulations. Any failure by the Master Servicer to make an
Advance as required under the Pooling and Servicing Agreement
will constitute an Event of Default thereunder, in which case the
Trustee, as successor Master Servicer, will be obligated to make
any such Advance, in accordance with the terms of the Pooling and
Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on
a first priority basis from either (1) late collections,
Insurance Proceeds and Liquidation Proceeds from the Mortgage
Loan as to which such unreimbursed Advance was made or (2) as to
any Advance that remains unreimbursed in whole or in part
following the final liquidation of the related Mortgage Loan,
either, (i) if the Class B-1 Certificates, the Class B-2
Certificates and the Class B-3 Certificates are outstanding, from
amounts otherwise distributable on the Class B-3 Certificates
after distributions on the Class B-2 Certificates, (ii) if the
Class B-1 Certificates and Class B-2 Certificates are outstanding
but the Certificate Principal Balance of the Class B-3
Certificates has been reduced to zero, from amounts otherwise
distributable on the Class B-2 Certificates, (iii) if the Class
B-1 Certificates are outstanding but the Certificate Principal
Balances of the Class B-2 Certificates and the Class B-3
Certificates have been reduced to zero, from amounts otherwise
distributable on the Class B-1 Certificates and (iv) if the
Certificate Principal Balances of the Classes of Subordinate
Certificates have been reduced to zero, from amounts otherwise
distributable on the Class A-2 Certificates; provided, however,
that any such Advances that were made with respect to
delinquencies which ultimately were determined to be Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses are reimbursable to the Master
Servicer out of any funds in the Custodial Account prior to
distributions on any of the Certificates and the amount of such
losses will be allocated as described herein. In addition, if the
Certificate Principal Balances of the Class A-2 Certificates and
the Subordinate Certificates have been reduced to zero, any
Advances previously made which are deemed by the Master Servicer
to be nonrecoverable from related late collections, Insurance
Proceeds and Liquidation Proceeds may be reimbursed to the Master
Servicer out of any funds in the Custodial Account prior to
distributions on the Certificates. The effect of these provisions
on the Class B-1 Certificates is that with respect to any Advance
that remains unreimbursed following the final liquidation of the
related Mortgage Loan, the entire amount of the reimbursement for
such Advance will be borne by the holders of the Class B-1
Certificates (except as described above), to the extent of the
amounts otherwise distributable to them after distributions on
the Class B-2 Certificates or, after the Certificate Principal
Balance of the Class B-2 Certificates has been reduced to zero,
to the extent of the entire amounts otherwise distributable to
the holders of the Class B-1 Certificates. The effect of these
provisions on the Class A-2 Certificates is that, after the
Certificate Principal Balances of the Subordinate Certificates
have been reduced to zero, with respect to any Advance which
remains unreimbursed following the final liquidation of the
Mortgage Loan, the entire amount of the reimbursement for such
Advance will be borne by the Class A-2 Certificateholders, except
as described above, to the extent of the amounts otherwise
distributable to them.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
General
The effective yield to the holders of the Offered
Certificates will be lower than the yield otherwise produced by
the related Certificate Rates and purchase prices because monthly
distributions will not be payable to such holders until the 25th
day (or the immediately following business day if such 25th day
is not a business day) of the month following the month in which
interest accrues on the Mortgage Loans (without any additional
distribution of interest or earnings thereon in respect of such
delay).
The yield to maturity and the aggregate amount of
distributions on the Offered Certificates will be affected by,
among other things, the rate and timing of principal payments on
the Mortgage Loans and the amount and timing of mortgagor
defaults resulting in Realized Losses. Such yield may be
adversely affected by a higher or lower than anticipated rate of
principal payments on the Mortgage Loans. The rate of principal
payments on such Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans, the rate and timing
of prepayments thereon by the mortgagors, liquidations of
defaulted Mortgage Loans and repurchases of Mortgage Loans due to
certain breaches of representations. The timing of changes in the
rate of prepayments, liquidations and repurchases of the Mortgage
Loans may, and the timing of Realized Losses will, significantly
affect the yield to an investor, even if the average rate of
principal payments experienced over time is consistent with an
investor's expectation. After the Certificate Principal Balances
of the Subordinate Certificates subordinate thereto have been
reduced to zero, the yield to maturity on the Class B-1
Certificates will be extremely sensitive to losses on the
Mortgage Loans (and the timing thereof) because the entire amount
(subject to the limits described herein with respect to certain
types of losses as described herein) of such losses (rather than
a pro rata portion thereof) will be allocable to such Class of
Certificates. After the Certificate Principal Balances of the
Subordinate Certificates have been reduced to zero, the yield to
maturity on the Class A-2 Certificates will be extremely
sensitive to losses on the Mortgage Loans (and the timing
thereof) because the entire amount (subject to the limits
described herein with respect to certain types of losses) of such
losses (rather than a pro rata portion thereof) will be allocable
to such Class of Certificates. Certain loss scenarios could lead
to the failure of the Class A-2 Certificateholders or the Class
B-1 Certificateholders to recover fully their initial investment.
Since the rate and timing of principal payments on the Mortgage
Loans will depend on future events and on a variety of factors
(as described more fully herein and in the Prospectus under
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS"), no assurance
can be given as to such rate or the timing of principal
prepayments on the Offered Certificates.
The Mortgage Loans may be prepaid by the mortgagors at any
time; however, in certain circumstances, the Mortgage Loans will
be subject to a prepayment charge for prepayments. See
"DESCRIPTION OF THE MORTGAGE POOL" herein. The Mortgage Loans
generally contain due-on-sale clauses. Prepayments, liquidations
and repurchases of the Mortgage Loans will result in
distributions to holders of the Offered Certificates (other than
the Variable Strip Certificates) of principal amounts which would
otherwise be distributed over the remaining terms of the Mortgage
Loans. Factors affecting prepayment (including defaults and
liquidations) of mortgage loans include changes in mortgagors'
housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties, changes in the value of the
mortgaged properties, mortgage market interest rates and
servicing decisions. Furthermore, as described under "DESCRIPTION
OF THE CERTIFICATES-Principal Distributions on the Class A-1
Certificates" and "-Principal Distributions on the Class A-2
Certificates" herein, during certain periods all or a
disproportionately large percentage of principal prepayments on
the Mortgage Loans will be allocated among the Class A-1
Certificates and the Class A-2 Certificates, which will cause the
Certificate Principal Balances of the Subordinate Certificates
collectively to decline more slowly than would be the case if the
Subordinate Certificates received their proportionate share of
principal prepayments. However, as described under "DESCRIPTION
OF THE CERTIFICATES-Principal Distributions on the Class B-1
Certificates" herein, holders of the Class B-1 Certificates, will
be entitled to principal distributions that include certain
amounts otherwise distributable to the holders of the Class B-3
Certificates which will cause the weighted average life of the
Class B-1 Certificates to be shorter than would otherwise be the
case.
Because it is impossible to accurately predict the timing
and dollar amount of principal prepayments on the Mortgage Loans,
if any, that will be made, as well as the percentage according to
which those prepayments will be allocated among Classes of
Certificates at any particular point in time, investors in the
Certificates, and particularly investors in the Class B-1
Certificates, may find it difficult to analyze the effect of
principal prepayments on the yield and average life of the
various Classes of Certificates.
All of the Mortgage Loans comprising the Mortgage Pool are
adjustable rate mortgage loans. The yield to maturity on the
Offered Certificates will be affected by changes in the Index
and, in certain circumstances, the Mortgage Rates as they adjust
from time to time. Each Mortgage Rate will be subject to
adjustment commencing approximately six months after its date of
origination and semi-annually thereafter on the Adjustment Date
for the related Mortgage Loan. Such Adjustment Dates will occur
in various months. Any semi-annual increases or decreases in the
Mortgage Rates will be limited on each Adjustment Date, and the
Mortgage Rates will be further subject to lifetime maximum and
minimum rates. In addition, such Mortgage Rates will be based on
the Index (which may not rise and fall consistently with other
indices or prevailing interest rates on residential mortgage
loans) plus a specified margin (which may be different from then
current margins on residential mortgage loans).
The Mortgage Rates on the Mortgage Loans adjust periodically
in response to the Index as most recently available as of the
date 45 days prior to each Adjustment Date. Furthermore, the
first distribution on the Certificates reflecting a periodic
adjustment to scheduled monthly payments on the underlying
Mortgage Loans will be distributed to Certificateholders on the
Distribution Date in the third month following the month in which
the related Index was published. The Index may not rise or fall
consistently with mortgage rates generally. Therefore, the Index
may be higher than mortgage rates generally, resulting in
prepayments when the Mortgage Rates on the Mortgage Loans are
increasing.
The rate of defaults on the Mortgage Loans will also affect
the rate and timing of principal payments on the Mortgage Loans.
In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. Increases in the Monthly
Payments to an amount in excess of the Monthly Payment required
at the time of origination may result in a default rate higher
than that on level payment mortgage loans, to the extent that the
mortgagor under each Mortgage Loan was qualified on the basis of
the Mortgage Rate in effect at origination which rate was lower
than the sum of the Index that otherwise would have been
applicable at origination and the related Gross Margin. The
repayment of such Mortgage Loans will be dependent on the ability
of the mortgagor to make larger Monthly Payments as a result of
increases in the Mortgage Rate. The rate of default on Mortgage
Loans which are refinance mortgage loans may be higher than for
other types of Mortgage Loans. As a result of the underwriting
standards for the Seller's multifamily lending program, the
Mortgage Loans are likely to experience rates of delinquency,
foreclosure, bankruptcy and loss that are higher, and that may be
substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. See "THE SELLER-Loan
Delinquency, Forbearance, Foreclosure, Bankruptcy and REO
Property Status" and "-REO Property Liquidation Experience" above
for important information regarding the delinquency, forbearance,
foreclosure, bankruptcy and REO property status and loss
experience of certain mortgage loans previously originated by the
Seller under the multifamily lending program. In addition,
because of such underwriting criteria and their likely effect on
the delinquency, foreclosure, bankruptcy and loss experience of
the Mortgage Loans, the Mortgage Loans will be serviced in a
manner intended to result in a faster exercise of remedies,
including foreclosure, in the event Mortgage Loan delinquencies
and defaults occur, than would be the case if the Mortgage Loans
were serviced in a more conventional manner. Furthermore, the
rate and timing of prepayments, defaults and liquidations on the
Mortgage Loans will be affected by the general economic condition
of the region of the country in which the related Mortgaged
Properties are located. The risk of delinquencies and loss is
greater and prepayments are less likely in regions where a weak
or deteriorating economy exists, as may be evidenced by, among
other factors, increasing unemployment or falling property
values. See "YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" in
the Prospectus.
As described under "DESCRIPTION OF THE CERTIFICATES-
Allocation of Losses; Subordination" and "DESCRIPTION OF THE
CERTIFICATES-Advances," amounts otherwise distributable to
holders of the Class B-1 Certificates will be made available to
protect the holders of the Senior Certificates against
interruptions in distributions due to certain mortgagor
delinquencies and amounts otherwise distributable to holders of
the Class A-2 Certificates will be made available to protect the
holders of the Variable Strip Certificates and the Class A-1
Certificates against interruptions in distributions due to
certain mortgagor delinquencies, in each case to the extent not
covered by Advances. Such delinquencies will affect the yield to
investors in the Class B-1 Certificates to the extent not covered
by the Subordinate Certificates subordinate thereto and such
delinquencies will affect the yield to investors in the Class A-2
Certificates to the extent not covered by the Subordinate
Certificates. Even if subsequently cured, such delinquencies may
affect the timing of the receipt of distributions by the holders
of the Class B-1 Certificates or the Class A-2 Certificates,
because the entire amount (rather than a pro rata portion)
thereof would be borne by such Class of Certificates.
When a principal prepayment in full is made on a Mortgage
Loan, the mortgagor is charged interest only for the period from
the Due Date of the immediately preceding monthly payment up to
the date of such prepayment, instead of for a full month. Partial
principal prepayments are applied as of the first day of the
month of receipt, with a resulting reduction in interest payable
for the month during which the partial prepayment is made. Full
or partial prepayments (or other liquidations) received in any
calendar month will be distributed to Certificateholders on the
Distribution Date in the month following the month of receipt.
With respect to such full or partial prepayments (or other
liquidations), the Master Servicer is obligated to fund
shortfalls in collection of one full month's interest (adjusted
to the related Net Mortgage Rate) but only to the extent of the
servicing compensation otherwise payable to the Master Servicer.
Accordingly, to the extent any such shortfall in interest
collections exceeds the amount that the Master Servicer is
obligated to fund, the effect of any such principal prepayment
will be to reduce the aggregate amount of interest that is
available for distribution to the related Certificateholders, and
will be allocated among the Certificates in proportion to the
interest otherwise distributable or accrued thereon.
In addition, the yield to maturity of the Offered
Certificates will depend on the prices paid by the holders of the
Offered Certificates and the related Certificate Rates. The
extent to which the yield to maturity of an Offered Certificate
is sensitive to prepayments will depend upon the degree to which
it is purchased at a discount or premium. For additional
considerations relating to the yield on the Certificates, see
"YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" in the
Prospectus.
Variable Strip Certificate Yield Considerations
The yield to maturity on the Variable Strip Certificates
will be highly sensitive to the prepayment, repurchase and
default experience on the Mortgage Loans included in the Trust
Fund. Investors should carefully consider the associated risks,
including the risk that a rapid rate of principal prepayments,
defaults or repurchases of the Mortgage Loans could result in the
failure of investors in the Variable Strip Certificates to fully
recover their initial investment.
Prepayments on mortgage loans are commonly measured relative
to a prepayment standard or model. The model used in this
Prospectus Supplement for the Mortgage Loans ("CPR") represents
an assumed constant 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. CPR does not purport to be
either an historical description of the prepayment experience of
any pool of mortgage loans or a prediction of the anticipated
rate of prepayment of any mortgage loans, including the Mortgage
Loans to be included in the Trust Fund.
The following table indicates the approximate pre-tax yields
to maturity (on a corporate bond equivalent basis (CBE)) on the
Variable Strip Certificates for the specified percentages of CPR
and assumed purchase prices. For the purposes of the table, it is
assumed that (i) all of the Mortgage Loans have identical payment
provisions, (ii) the original term to stated maturity of each
Mortgage Loan is 30 years, (iii) the distributions in respect of
the Certificates are received in cash on the 25th day of each
month commencing in December 1995, (iv) the Mortgage Rate of each
Mortgage Loan is initially _____% per annum from the first Due
Date through the fourth Due Day, _____% per annum from the fifth
Due Date through the tenth Due Date, and thereafter remains
constant at _____% per annum (based on an Index equal to _____%)
(v) the remaining term to stated maturity of each Mortgage Loan
is 354 months, as of the Cut-off Date, (vi) the Certificate Rate
with respect to the Variable Strip Certificates is initially
_____% per annum from the first Due Date through the fourth Due
Date, _____% from the fifth Due Date through the tenth Due Date,
and thereafter remains constant at _____% per annum; (vii) all of
the Mortgage Loans prepay at the specified constant percentages
of CPR, (viii) the Net Mortgage Rate on each Mortgage Loan is
equal to the Mortgage Rate minus _____%, (ix) One-Month LIBOR
remains fixed at _____% per annum, (x) the aggregate principal
balance of the Mortgage Loans is $__________ as of the Cut-off
Date, (xi) no defaults or delinquencies in the payment by
mortgagors of principal and interest on the Mortgage Loans are
experienced, (xii) the Master Servicer does not exercise its
option to repurchase all of the Mortgage Loans as described under
the caption "POOLING AND SERVICING AGREEMENT-Termination," (xiii)
prepayments representing payment in full of individual Mortgage
Loans are received on the last day of each month and include 30
days interest thereon, commencing in __________ 1996, (xiv) the
scheduled monthly payment for each Mortgage Loan is received on
the first day of each month commencing in __________ 1996 and has
been calculated based on its outstanding balance, interest rate
and remaining term to stated maturity such that the Mortgage Loan
will amortize in amounts sufficient to repay the remaining
balance of such Mortgage Loan by its stated maturity, (xv) the
Variable Strip Certificates are purchased on __________, 1996,
(xvi) the aggregate assumed purchase price of the Variable Strip
Certificates is equal to the sum of (a) the percentage of the
aggregate principal balance of the Mortgage Loans as of the Cut-
off Date, as specified below, and (b) 5 days of accrued interest
and (xvii) the number of days between the date the Offered
Certificates are purchased and the first Distribution Date is 0
days (such assumptions, collectively, the "Structuring
Assumptions").
Pre-Tax Yield to Maturity (CBE)
of the Variable Strip Certificates
Percentages of CPR
Assumed Purchase Price 10% 12% 18% 20% 25%
%..................... % % % % %
%..................... % % % % %
%..................... % % % % %
Investors in the Variable Strip Certificates should be aware
that the foregoing yields were calculated assuming no change in
the level of One-Month LIBOR or the Index. The Certificate Rate
on the Variable Strip Certificates is based upon, among other
factors, as described herein under "DESCRIPTION OF THE
CERTIFICATES-Interest Distributions," the excess, if any, of (i)
the Net Mortgage Rate Cap over (ii) One-Month LIBOR plus _____%.
The Net Mortgage Rate Cap is primarily based upon the value of
Six-Month LIBOR, which is generally different from the value of
One-Month LIBOR, as described herein. The yield to maturity of
investors in the Variable Strip Certificates will be extremely
sensitive to differences between One-Month LIBOR and Six-Month
LIBOR, and investors in the Variable Strip Certificates may
receive no distributions of interest. As described above, One-
Month LIBOR and the Index applicable to the Mortgage Loans may
respond differently to economic and market factors, and there is
not necessarily any correlation between them. Moreover, the
Mortgage Loans are subject to Periodic Rate Caps, Maximum
Mortgage Rates and Minimum Mortgage Rates (each as defined
herein). Thus, it is possible, for example, that One-Month LIBOR
may rise during periods in which the Index on the Mortgage Loans
is stable or falling or that, even if both One-Month LIBOR and
the Index rise during the same period, One-Month LIBOR may rise
much more rapidly than the Index.
The yields set forth in the preceding table were calculated
by determining the monthly discount rates which, when applied to
the assumed stream of cash flows to be paid on the Variable Strip
Certificates, would cause the discounted present values of such
assumed cash flows to equal the aggregate assumed purchase prices
of the Variable Strip Certificates. Such calculations do not take
into account the effect of any Prepayment Interest Shortfalls or
variations that may occur in the interest rates at which
investors may be able to reinvest funds received by them as
distributions on the Variable Strip Certificates and consequently
do not purport to reflect the return on any investment in the
Variable Strip Certificates when such reinvestment rates are
considered.
The Mortgage Loans will not have all of the characteristics
assumed above. There can be no assurance that the Mortgage Loans
will prepay at any of the constant rates shown in the table or at
any other particular rate, that the pre-tax yields on the
Variable Strip Certificates will correspond to any of the pre-tax
yields shown therein or that the aggregate purchase prices paid
for the Variable Strip Certificates will be equal to any of the
amounts assumed above. Because the rate of distributions of
principal on the Certificates will be related to the actual
amortization (including prepayments) of the Mortgage Loans, which
may include Mortgage Loans that have remaining terms to stated
maturity shorter or longer than those assumed and interest rates
higher or lower than those assumed, the pre-tax yields on the
Variable Strip Certificates will differ from those set forth
above, even if all of the Mortgage Loans prepay at the indicated
CPR percentages. It is unlikely that any Mortgage Loan will
prepay at a constant rate to maturity or that all of the Mortgage
Loans will prepay at the same rate. The foregoing table assumes
that all of the Mortgage Loans prepay at the same constant rate.
In fact, mortgage loans bearing different (or the same) mortgage
rates may prepay at different rates. Accordingly, investors
should calculate expected yields based on their own assumptions
and should not rely on the yields specified above.
The yield on the Variable Strip Certificates will be
materially and adversely affected to a greater extent than the
yield on the other Classes of Offered Certificates if the
Mortgage Loans with higher Gross Margins prepay faster than the
Mortgage Loans with lower Gross Margins, because holders of the
Variable Strip Certificates generally have rights to relatively
larger portions of interest payments on the related Mortgage
Loans with higher Gross Margins than do holders of the other
Classes of Offered Certificates.
The timing of changes in the rate of prepayments may
significantly affect the actual yields to investors on the
Variable Strip Certificates, 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 Variable Strip
Certificates will 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
Variable Strip Certificates.
Weighted Average Life of the Class B-1 Certificates
Weighted average life refers to the average amount of time
that will elapse from the date of issuance of a security to the
date of distribution to the investor of each dollar distributed
in reduction of principal of such security (assuming no losses).
The weighted average life of the Class B-1 Certificates will be
influenced by, among other things, the rate at which principal of
the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidations.
Based on the Structuring Assumptions (except for assumption
(xvi)) in the foregoing discussions the following table indicates
the weighted average life of the Class B-1 Certificates and sets
forth the percentages of the initial Certificate Principal
Balance of the Class B-1 Certificates that would be outstanding
after each of the Distribution Dates indicated at various
percentages of CPR.
Percentage of Initial Certificate Principal Balance
Outstanding at the Following Percentages of CPR
Class B-1 Certificates
Distribution Date 0% 10% 18% 20% 25% 30%
Initial Percentage 100% 100% 100% 100% 100% 100%
________, 1997...........
________, 1998...........
________, 1999...........
________, 2000...........
________, 2001..........
________, 2002...........
________, 2003...........
________, 2004...........
________, 2005...........
________, 2006...........
________, 2007...........
________, 2008...........
________, 2009...........
________, 2010...........
________, 2011...........
________, 2012...........
________, 2013...........
________, 2014...........
________, 2015...........
________, 2016...........
________, 2017...........
________, 2018...........
________, 2019 and
thereafter.............
________________________________________________________________________
Weighted Average Life
in Years*..............
________________________________________________________________________
____________________
* The weighted average life of a Certificate is determined by
(i) multiplying the amount of each distribution in reduction
of the Certificate Principal Balance by the number of years
from the date of issuance of the Certificate to the related
Distribution Date, (ii) adding the results and (iii)
dividing the sum by the initial Certificate Principal
Balance of the Certificate.
POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") dated
as of __________ 1, 1996 among the Depositor, the Master
Servicer, and [Trustee], as Trustee. Reference is made to the
Prospectus for important information in addition to that set
forth herein regarding the terms and conditions of the Pooling
and Servicing Agreement and the Offered Certificates. The Offered
Certificates will be transferable and exchangeable at the
corporate trust office of the Trustee, which will serve as
Certificate Registrar and Paying Agent. The Depositor will
provide a prospective or actual Certificateholder without charge,
on written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to Frank
Waters, Quality Mortgage Acceptance Corp., 16800 Aston Street,
Irvine, California 92714.
The Master Servicer has the right to resign from the
obligations and duties imposed on it under the Pooling and
Servicing Agreement upon the appointment of a successor servicer
and delivery to the Trustee of a letter from each Rating Agency
that such resignation and appointment will not, in and of itself,
result in a downgrading of the Certificates. The Master Servicer
may not assign its obligations and duties under the Pooling and
Servicing Agreement.
Assignment of Mortgage Loans
The Mortgage Loans will be assigned by the Depositor to the
Trustee pursuant to the terms of the Pooling and Servicing
Agreement, together with all principal and interest due on the
Mortgage Loans after the Cut-off Date. The Trustee will,
concurrently with such assignment, authenticate and deliver the
Certificates. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling and Servicing Agreement
which will specify with respect to each Mortgage Loan, among
other things, the original principal balance, the principal
balance as of the close of business on the Cut-off Date, the
Monthly Payment, the maturity date and the Mortgage Rate.
As to each Mortgage Loan, the following documents are
required to be delivered to the Trustee in accordance with the
Pooling and Servicing Agreement: (i) the related original
Mortgage Note endorsed without recourse to the Trustee, (ii) the
original Mortgage with evidence of recording indicated thereon
(or, if such original recorded Mortgage has not yet been returned
by the recording office, a copy thereof certified by the Seller
to be a true and complete copy of such Mortgage sent for
recording), (iii) an original recorded assignment of the Mortgage
to the Trustee (or if such original recorded assignment has not
yet been returned by the recording office, a copy thereof
certified by the Seller to be a true and complete copy of such
assignment sent for recording), (iv) the policies of title
insurance issued with respect to each Mortgage Loan, (v) the
originals of any assumption, modification, extension or guaranty
agreements and (vi) an original recorded UCC fixture filing (or
if such original recorded UCC fixture filing has not yet been
returned by the recording office, a copy thereof certified by the
Seller to be a true and complete copy of such UCC fixture filing
sent for recording). The assignments to the Trustee in connection
with each Mortgage Loan are required to be submitted for
recording promptly after the Delivery Date. The Trustee will
review each Mortgage File within 90 days of the Delivery Date,
and if any such document is found to be defective in any material
respect and the Seller does not cure such defect within 60 days
of notice thereof from the Trustee, the Seller will be obligated
to purchase the related Mortgage Loan from the Trust Fund within
90 days of such notice.
Pursuant to the terms of the Pooling and Servicing
Agreement, the Depositor will assign to the Trustee for the
benefit of the Certificateholders all of its right, title and
interest in and to each Purchase Agreement insofar as it relates
to the representations and warranties made by the Seller in
respect of the related Mortgage Loans and the remedies provided
for breach of such representations and warranties. The
representations and warranties made by the Seller with respect to
the Mortgage Loans differ but are similar in nature to the
representations and warranties summarized in the Prospectus under
the caption "LOAN UNDERWRITING PROCEDURES AND STANDARDS-
Representations and Warranties," modified to the extent necessary
to reflect the actual characteristics of the Mortgage Pool. Upon
discovery by the Trustee of a breach of any representation,
warranty or covenant which materially and adversely affects the
interests of the Certificateholders in a Mortgage Loan, the
Trustee will promptly notify the Seller and the Master Servicer.
The Seller will have 90 days from its discovery or its receipt of
such notice to cure such breach or repurchase the Mortgage Loan.
The Seller will not have any right to substitute another mortgage
loan for a Mortgage Loan as to which such a breach has occurred.
See "THE SELLER" above.
Neither the Depositor, the Master Servicer, the Trustee nor
any of their respective affiliates will make any representations
or warranties with respect to the Mortgage Loans, or have any
obligation to purchase a Mortgage Loan if the Seller defaults on
its obligation to repurchase a Mortgage Loan either in connection
with a breach of a representation and warranty or in connection
with a defective document as described above, and no assurance
can be given that the Seller will carry out such obligations with
respect to Mortgage Loans. Although the Subordination described
herein will not be available to support the Seller's obligation
to repurchase any Mortgage Loan, to the extent any such Mortgage
Loan is not repurchased by the Seller and losses occur on such
Mortgage Loans, Subordination with respect to such Mortgage Loans
will be available to the extent provided herein. To the extent
that the Subordination is so utilized, such Subordination will be
depleted more quickly than if such Mortgage Loans had been
repurchased by the Seller.
The Master Servicer
[Description of Master Servicer]
The following table sets forth certain information
concerning the delinquency experience (including bankruptcies)
and foreclosures in progress on five or more unit residential
mortgage loans included in The Master Servicer's servicing
portfolio at the end of the indicated periods. 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 it is one month past due on a
contractual basis.
<PAGE>
<TABLE>
<CAPTION>
At At At At
December 31, December 31, December 31, December 31,
1992 1993 1994 1995
--------------- --------------- ------------- ---------------
By Percent By Percent By Percent By Percent
Number by Number Number by Number Number by Number Number by Number
of of of of of of of of
Loans Loans Loans Loans Loans Loans Loans Loans
<S> <C> <C> <C> <C>
Total Residential
Portfolio............
Period of Delinquency:
31-60 days........... % % % %
61-90 days...........
91 days or more
Foreclosures in
Progress.............
Total Delinquent
Loans................ % % % %
Bankruptcy Loans...... % % % %
</TABLE>
<PAGE>
The aggregate principal balances of the five or more unit
residential mortgage loans included in The Master Servicer's
servicing portfolio at close of business on __________,
__________, __________, and __________ were approximately
$__________, $__________, $__________ and $__________,
respectively.
The following table sets forth certain information
concerning the foreclosure experience on one- to four- family
residential mortgage loans included in the Master Servicer's
servicing portfolio at or for the indicated periods.
Year Year Year Year
Ended Ended Ended Ended
____ ____ ____ ____
By By By By
No. No. No. No.
of of of of
Loans Loans Loans Loans
Foreclosed Loans....
Foreclosed Ratio... % % % %
There can be no assurance that the delinquency experience of
the Mortgage Loans comprising the Mortgage Pool will correspond
to the delinquency experience of the Master Servicer's mortgage
portfolio set forth in the foregoing tables. The statistics
shown above represent the delinquency experience for the Master
Servicer's residential mortgage servicing portfolio only for the
periods presented, whereas the aggregate delinquency experience
on the Mortgage Loans comprising the Mortgage Pool will depend on
the results obtained over the life of the Mortgage Pool.
Moreover, Master Servicer's residential mortgage servicing
portfolio includes mortgage loans with a variety of payment and
other characteristics (including geographic location) which are
not necessarily representative of the payment and other
characteristics of the Mortgage Loans comprising the Mortgage
Pool. [Prospective investors in the Offered Certificates
particularly should be aware that the Master Servicer's servicing
portfolio, on which the foregoing tables are based, does not
include any mortgage loans having underwriting standards similar
to those applicable to the Mortgage Loans and consists primarily
of mortgage loans underwritten in a traditional manner.]
It also should be noted that if the residential real estate
market should experience a decline in property values, the actual
rates of delinquency and foreclosure could be higher than those
previously experienced by the Master Servicer. In addition,
adverse economic conditions may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the
Mortgage Loans and, accordingly, the actual rates of delinquency,
bankruptcy and foreclosure with respect to the Mortgage Pool. See
"THE DEPOSITOR-Loan Delinquency, Forbearance, Foreclosure,
Bankruptcy and REO Property Status" and "-REO Property
Liquidation Experience" herein for important information
regarding the delinquency, forbearance, foreclosure, bankruptcy
and REO property status and loss experience of mortgage loans
previously originated by the Depositor under substantially the
same underwriting criteria pursuant to which the Mortgage Loans
were originated or acquired.
Servicing and Other Compensation and Payment of Expenses
The servicing fee (the "Servicing Fee") for each Mortgage
Loan is payable out of the interest payments on such Mortgage
Loan. The Servicing Fee in respect of each Mortgage Loan will be
payable at a rate (the "Servicing Fee Rate") equal to _____% per
annum on the outstanding principal balance of each Mortgage Loan.
The Servicing Fees consist of (a) servicing compensation payable
to the Master Servicer in respect of its master servicing
activities, (b) subservicing and other related compensation
payable to any subservicer (including such compensation paid to
the Master Servicer as the direct servicer of a Mortgage Loan for
which there is no subservicer) and (c) the fees payable to the
Trustee. The Master Servicer is entitled to retain as additional
servicing compensation any assumption and reconveyance fees, to
the extent collected from mortgagors, and any interest or other
income earned on funds held in the Custodial Account or the
Certificate Account. The Master Servicer is obligated to pay
certain ongoing expenses associated with the Trust Fund and
incurred by the Master Servicer in connection with its
responsibilities under the Pooling and Servicing Agreement. See
"SERVICING OF LOANS-Servicing Compensation and Payment of
Expenses" in the Prospectus for information regarding other
possible compensation to the Master Servicer and subservicers and
for information regarding expenses payable by the Master
Servicer.
Voting Rights
Certain actions specified in the Prospectus that may be
taken by holders of Certificates evidencing a specified
percentage of all undivided interests in the Trust Fund may be
taken by holders of Certificates entitled in the aggregate to
such percentage of the Voting Rights. __% of all Voting Rights
will be allocated among all holders of the Certificates (other
than the Variable Strip Certificates) in proportion to their then
outstanding Certificate Principal Balances, __% and __% of all
Voting Rights will be allocated among holders of the Variable
Strip Certificates and Class R Certificates, respectively, in
proportion to the Percentage Interests (as defined in the
Prospectus) evidenced by their respective Certificates. The
Pooling and Servicing Agreement will be subject to amendment
without the consent of the holders of the Residual Certificates
in certain circumstances.
Events of Default and Termination Event
Events of default ("Events of Default") under the Pooling
and Servicing Agreement will consist of (i) any failure by the
Master Servicer to distribute or cause to be distributed to
Certificateholders any required payment which continues
unremedied for five days after the giving of written notice of
such failure to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the
Trustee by the holders of Certificates evidencing not less than
25% of the Voting Rights; (ii) any failure by the Master Servicer
duly to observe or perform in any material respect any of its
other covenants or agreements in the Pooling and Servicing
Agreement which continues unremedied for thirty days after the
giving of written notice of such failure to the Master Servicer
by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights; (iii) certain
events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and certain actions by or
on behalf of the Master Servicer indicating its insolvency or
inability to pay its obligations; and (iv) any failure of the
Master Servicer to make any Advance as required which is not
remedied one business day prior to the related Distribution Date.
A termination event ("Termination Event") under the Pooling
and Servicing Agreement will consist of a determination by the
Trustee on the Determination Date in December of any year,
commencing in __________ 1997 and ending in __________ 20__, that
(a) if such Determination Date occurs in or before __________
20__, the Total Expected Losses (as defined below) on such
Determination Date is greater than 50% of the Initial Loss
Coverage Amount (as defined below) and (b) if such Determination
Date occurs after __________ 20__ and in or before __________
20__, the Total Expected Losses on such Determination Date is
greater than 75% of the Initial Loss Coverage Amount.
On any Determination Date, "Total Expected Losses" will
equal the sum of (a) all Realized Losses previously allocated
through Subordination and (b) all Prospective Losses (as defined
below) as of such Determination Date. "Prospective Losses," as of
any Determination Date, will be an amount equal to the sum of (i)
the product of (x) the aggregate Stated Principal Balance of the
Mortgage Loans that are 31 days to 60 days delinquent, (y) 25%
and (z) the Loss Severity Percentage (as defined below), (ii) the
product of (x) the aggregate Stated Principal Balance of the
Mortgage Loans that are 61 days to 90 days delinquent, (y) 50%
and (z) the Loss Severity Percentage and (iii) the product of (x)
the aggregate Stated Principal Balance of the Mortgage Loans that
are 91 days or more delinquent plus the aggregate Stated
Principal Balance of all REO Properties, if any, and (y) the Loss
Severity Percentage. For purposes of calculating Prospective
Losses, Mortgage Loans in foreclosure will be categorized based
on their respective number of days of delinquency. The "Initial
Loss Coverage Amount" will equal the aggregate initial
Certificate Principal Balance of the Class M Certificates and the
Subordinate Certificates, and the "Loss Severity Percentage" will
be equal to 43%.
Rights Upon Event of Default or Termination Event
So long as an Event of Default under the Pooling and
Servicing Agreement as described in clauses (i), (ii) and (iii)
of the third preceding paragraph remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 51% of the Voting Rights
shall, by notice in writing to the Master Servicer terminate all
of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement and in and to the Trust Fund. If
an Event of Default under the Pooling and Servicing Agreement as
described in clause (iv) of the third preceding paragraph shall
occur, the Trustee will, by notice to the Master Servicer and the
Depositor, terminate all of the rights and obligations of the
Master Servicer under the Pooling and Servicing Agreement and in
and to the Trust Fund; provided, however, that if the Trustee
determines that the failure by the Master Servicer to make any
required Advance was due to circumstances beyond its control and
the required Advance was otherwise made, the Trustee shall not
terminate the Master Servicer. If a Termination Event under the
Pooling and Servicing Agreement as described in the second
preceding paragraph shall occur, the Trustee will give notice to
the Master Servicer and the Certificateholders of such
Termination Event within 5 days and, upon the direction of
holders of Certificates entitled to at least 51% of the Voting
Rights received within 90 days of such notice, the Trustee shall,
by notice to the Master Servicer and the Depositor, terminate all
of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement and in and to the Trust Fund.
Upon receipt by the Master Servicer of any such written notice,
all authority and power of the Master Servicer under the Pooling
and Servicing Agreement will pass to and be vested in the
Trustee, and the Trustee will be authorized and empowered to
execute and deliver, on behalf of the Master Servicer, as
attorney-in-fact, or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such
termination. Upon receipt by the Master Servicer of notice of
termination, the Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer
under the Pooling and Servicing Agreement and will be entitled to
similar compensation arrangements. In the event that the Trustee
is unwilling, it may, or if it is unable or if the holders of
Certificates evidencing not less than 51% of the Voting Rights
request in writing, it shall, appoint or petition a court of
competent jurisdiction for the appointment of a mortgage loan
servicing institution, with a net worth of at least $10,000,000
to act as successor to the Master Servicer under the Pooling and
Servicing Agreement. Pending such appointment, the Trustee is
obligated to act in such capacity. 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 Pooling and Servicing Agreement. In addition, holders
of Certificates evidencing at least 66% of the Voting Rights of
Certificates affected by an Event of Default may waive such Event
of Default; provided, however, that (a) an Event of Default with
respect to the Master Servicer's obligation to make Advances may
be waived only by all of the holders of Certificates affected by
such Event of Default and (b) no such waiver is permitted that
would materially adversely affect any non-consenting
Certificateholder. See "THE POOLING AND SERVICING AGREEMENTS-
Rights Upon Event of Default" in the Prospectus.
Limitation on Resignation of the Master Servicer
The Master Servicer may resign from its obligations and
duties under the Pooling and Servicing Agreement only if such
resignation, and the appointment of a successor, will not result
in a downgrading of the ratings assigned to any Class of
Certificates, or upon a determination that its duties under the
Pooling and Servicing Agreement are no longer permissible under
applicable law. No such resignation will become effective until
the Trustee or a successor servicer has assumed the Master
Servicer's responsibilities, liabilities, obligations and duties
under the Pooling and Servicing Agreement. Any proposed
successor Master Servicer must be an established mortgage loan
servicing institution, must be reasonably acceptable to the
Trustee, must be acceptable to each Rating Agency for purposes of
maintaining its then-current ratings of the Certificates and must
comply with any further requirements of a successor Master
Servicer under the Pooling and Servicing Agreement.
Termination
The obligations created by the Pooling and Servicing
Agreement will terminate upon payment to the Certificateholders
of all amounts held in the Certificate Account and the Excess
Proceeds Account required to be paid to the Certificateholders
pursuant to such Pooling and Servicing Agreement, following the
earlier of (i) the final payment or other liquidation of the last
Mortgage Loan remaining in the Trust Fund or the disposition of
all property acquired upon foreclosure of any such Mortgage Loan
and (ii) the repurchase of all of the assets of the Trust Fund by
the Master Servicer when the aggregate principal balance of the
Mortgage Loans equals 5% or less of the aggregate principal
balance as of the Cut-off Date, pursuant to a provision of the
Agreement giving the Master Servicer the right to do so. Written
notice of termination of the Pooling and Servicing Agreement will
be given to each Certificateholder, and the final distribution
will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee
which will be specified in the notice of termination.
Any such repurchase of Mortgage Loans and property acquired
in respect of the Mortgage Loans shall be made at a price equal
to the sum of (a) 100% of the unpaid principal balance of each
outstanding Mortgage Loan (net of unreimbursed advances
attributable to principal) as of the day of such repurchase plus
accrued interest thereon at the Net Mortgage Rate to the first
day of the month of such repurchase, plus (b) the appraised value
of any property acquired in respect of any defaulted Mortgage
Loan (but not more than the unpaid principal balance of that
Mortgage Loan together with accrued interest at the applicable
Net Mortgage Rate to the first day of the month of such purchase)
less the good faith estimate of the Master Servicer of
liquidation expenses to be incurred in connection with its
disposal thereof. The exercise of the right to purchase the
assets of the Trust Fund as set forth in clause (ii) of the
preceding paragraph will effect early retirement of the
Certificates.
The Trustee
[Trustee] will be the Trustee under the Pooling and
Servicing Agreement. The Depositor and the Seller may maintain
other banking relationships in the ordinary course of business
with the Trustee. Offered Certificates may be surrendered at the
Corporate Trust Office of the Trustee located at [Address], or at
such other addresses as the Trustee may designate from time to
time by notice to the Certificateholders, the Depositor and the
Master Servicer.
The Trustee is eligible to serve as such under the Pooling
and Servicing Agreement only if it is a corporation or banking
association organized and doing business under the laws of the
United States or any state thereof, authorized under such laws to
exercise corporate trust powers and subject to supervision or
examination by federal or state authority and has combined
capital and surplus of at least $50,000,000.
The Trustee may, upon written notice to the Master Servicer,
the Depositor and all Certificateholders, resign at any time, in
which event the Master Servicer will be obligated to appoint a
successor Trustee. If no successor Trustee has been appointed and
has accepted appointment within 60 days after giving such notice
of resignation, the resigning Trustee may petition any court of
competent jurisdiction for appointment of a successor Trustee.
The appointment of any successor Trustee may not result in a
reduction in the ratings of the Certificates by [Rating Agency I]
and [Rating Agency II]. The Trustee may also be removed at any
time (i) by the Master Servicer, if the Trustee ceases to be
eligible to continue as such as described above or if the Trustee
becomes insolvent or (ii) by holders of Certificates evidencing
at least 51% of the Voting Rights. Any removal or resignation of
the Trustee and appointment of a successor Trustee as described
above will not become effective until acceptance of appointment
by the successor Trustee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Mayer, Brown
& Platt, counsel to the Depositor, will deliver its opinion
generally to the effect that, assuming compliance with all
provisions of the Pooling and Servicing Agreement, for federal
income tax purposes, the Trust Fund will qualify as a REMIC under
the Code. For federal income tax purposes, the Class R
Certificates will be the sole Class of "residual interests" in
the REMIC and the Senior Certificates and the Subordinate
Certificates will constitute the "regular interests" in the REMIC
and will be treated as debt instruments of the REMIC. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
For federal income tax reporting purposes, the Offered
Certificates will be treated as having been issued with original
issue discount. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount,
market discount and amortizable premium, if any, for federal
income tax purposes will be that subsequent to the date of any
determination the Mortgage Loans will prepay at a CPR percentage
equal to 20%. No representation is made that the Mortgage Loans
will prepay at that rate or at any other rate. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES-REMICs-Taxation of Owners of
REMIC Regular Certificates-Original Issue Discount," "-Market
Discount" and "-Premium" in the Prospectus.
The Internal Revenue Service (the "IRS") has issued
regulations (the "OID Regulations") under Sections 1271 to 1275
of the Code generally addressing the treatment of debt
instruments issued with original issue discount. Purchasers of
the Offered Certificates should be aware that the OID Regulations
do not adequately address certain issues relevant to, or are not
applicable to, securities such as the Offered Certificates. In
addition, there is considerable uncertainty concerning the
application of the OID Regulations to REMIC Regular Certificates
that provide for payments based on an adjustable rate. Because of
the uncertainty concerning the application of Section 1272(a)(6)
of the Code to such Certificates and because the rules of the OID
Regulations relating to debt instruments having an adjustable
rate of interest are limited in their application in ways that
could preclude their application to such Certificates even in the
absence of Section 1272(a)(6) of the Code, the IRS could assert
that the Offered Certificates (other than the Variable Strip
Certificates) should be governed by the rules applicable to debt
instruments having contingent payments or by some other method
not yet set forth in regulations. Prospective purchasers of the
Offered Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
It appears that a reasonable method of reporting original
issue discount with respect to the Offered Certificates (other
than the Variable Strip Certificates) generally would be to
report all income with respect to such Certificates as original
issue discount for each period, computing such original issue
discount (i) by assuming that the value of the applicable index
will remain constant for purposes of determining the original
yield to maturity of, and projecting future distributions on,
each Class of such Certificates, thereby treating such
Certificates as fixed rate instruments to which the original
issue discount computation rules described in the Prospectus can
be applied, and (ii) by accounting for any positive or negative
variation in the actual value of the applicable index in any
period from its assumed value as a current adjustment to original
issue discount with respect to such period. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES-REMICs-Taxation of Owners of REMIC
Regular Certificates-Original Issue Discount" in the Prospectus.
If the rules of the OID Regulations were applied literally
to the Offered Certificates, other than the Variable Strip
Certificates, it appears that such rules would (i) require that
the weighted average interest rate paid on such Certificates be
modified and treated as if it were an adjustable rate based on
the applicable index (plus or minus a fixed number of basis
points) rather than a fixed rate prior to the first adjustment
date of each Mortgage Loan, with the adjustable rate being such
that the fair market value of such Certificates would not be
affected by the substitution of the adjustable rate for the fixed
rate, (ii) accrue original discount, if any, on the Certificates
as so modified by assuming that the applicable index will remain
constant for purposes of determining the constant yield to
maturity of, and the cash flow projections on, the Certificates
and (iii) make a positive (or negative) adjustment to interest
income in any period in which the actual interest paid on such
Certificates (including interest paid at a fixed rate prior to
the first adjustment date of each Mortgage Loan) were greater or
less than the interest assumed to be paid thereon (including the
interest assumed to be paid thereon at an adjustable rate prior
to the first adjustment date).
If the method for computing original issue discount
described in the Prospectus results in a negative amount for any
period with respect to a Certificate issued with original issue
discount, in particular the Variable Strip Certificates, the
amount of original issue discount allocable to such period will
be zero and the holder of such a Certificate will be permitted to
offset such negative amount only against future original issue
discount, if any, attributable to such Certificate. Although
uncertain, a Certificateholder may be permitted to deduct a loss
to the extent that his or her respective remaining basis in such
Certificate exceeds the maximum amount of future payments to
which such Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. Although the matter is not
free from doubt, any such loss might be treated as a capital
loss.
The OID Regulations appear to permit in some circumstances
the holder of a debt instrument to recognize original issue
discount under a method that differs from that used by the
issuer. Accordingly, it is possible that the holder of an Offered
Certificate may be able to select a method for recognizing
original issue discount that differs from that used by the Trust
Fund in preparing reports to the Certificateholders and the IRS.
Prospective purchasers of the Offered Certificates are advised to
consult their tax advisors concerning the tax treatment of such
Certificates in this regard.
Certain Classes of Certificates may be treated as having
been issued with a premium. Certificateholders may elect to
amortize such premium under a constant yield method in which case
such amortizable premium will generally be allocated among the
interest payments on such Certificates and will be applied as an
offset against such interest payments. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES-REMICs-Taxation of Owners of REMIC
Regular Certificates-Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real
property loans" under Section 593(d) of the Code, assets
described in Section 7701(a)(19)(C) of the Code and "real estate
assets" under Section 856(c)(5)(A) of the Code generally in the
same proportion that the assets of the Trust Fund would be so
treated. In addition, interest on the Offered Certificates will
be treated as "interest on obligations secured by mortgages on
real property" under Section 856(c)(3)(B) of the Code generally
to the extent that such Offered Certificates are treated as "real
estate assets" under Section 856(c)(5)(A) of the Code. Moreover,
the Offered Certificates will be "qualified mortgages" within the
meaning of Section 860G(a)(3) of the Code. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES-REMICs-Characterization of Investment in
REMIC Certificates" in the Prospectus.
To the extent permitted by then applicable law, any
"prohibited transactions tax," "contributions tax," tax on "net
income from foreclosure property" or state or local income or
franchise tax that may be imposed on the Trust Fund will be borne
by the Master Servicer or Trustee in either case out of its own
funds, provided that the Master Servicer or the Trustee, as the
case may be, has sufficient assets to do so, and provided further
that such tax arises out of a breach of the Master Servicer's or
the Trustee's obligations, as the case may be, under the Pooling
and Servicing Agreement and in respect of compliance with then
applicable law. Any such tax not borne by the Master Servicer or
the Trustee will be payable out of the Trust Fund, which may
reduce the amounts otherwise payable to holders of the Offered
Certificates, to the extent any such tax exceeds amounts
otherwise payable to holders of the Subordinate Certificates not
offered hereby. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES-
REMICs-Prohibited Transactions Tax and Other Taxes" in the
Prospectus.
For further information regarding the federal income tax
consequences of investing in the Offered Certificates, see
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES-REMICs-Taxation of
Owners of REMIC Regular Certificates" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the
underwriting agreement (the "Underwriting Agreement") between the
Depositor and [Underwriter] (the "Underwriter"), the Depositor
has agreed to sell to the Underwriter, and the Underwriter has
agreed to purchase from the Depositor, the Offered Certificates.
The Underwriting Agreement provides that the obligation of
the Underwriter to pay for and accept delivery of the Offered
Certificates is subject to, among other things, the receipt of
certain legal opinions and to the conditions, among others, that
no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no
proceedings for such purpose shall be pending before or
threatened by the Securities and Exchange Commission.
The distribution of the Offered Certificates by the
Underwriter will be effected from time to time in one or more
negotiated transactions, or otherwise, at varying prices to be
determined, in each case, at the time of sale. The proceeds to
the Depositor from the sale of the Offered Certificates will be
approximately $__________ plus accrued interest at the weighted
average of the Net Mortgage Rates as of the Cut-off Date but
before deducting expenses payable by the Depositor. The
Underwriter may effect such transactions by selling its
Certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions
or commissions from the Underwriter for whom they act as agent.
In connection with the sale of the Offered Certificates, the
Underwriter may be deemed to have received compensation from the
Depositor in the form of an underwriting discount. The
Underwriter and any dealers that participate with the Underwriter
in the distribution of the Offered Certificates may be deemed to
be underwriters and any profit on the resale of the Offered
Certificates positioned by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Depositor will
indemnify the Underwriter, and under limited circumstances the
Underwriter will indemnify the Depositor, against certain civil
liabilities under the Securities Act of 1933, or contribute to
payments required to be made in respect thereof.
There can be no assurance that a secondary market for the
Offered Certificates will develop or, if it does develop, that it
will continue or will provide investors with a sufficient level
of liquidity. The primary source of information available to
investors concerning the Offered Certificates will be the monthly
statements discussed in the Prospectus under "THE POOLING AND
SERVICING AGREEMENTS-Reports to Certificateholders," which will
include information as to the outstanding principal balance of
the Offered Certificates and the status of the applicable form of
credit enhancement. There can be no assurance that any additional
information regarding the Offered Certificates will be available
through any other source. In addition, the Depositor is not aware
of any source through which price information about the Offered
Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Offered
Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered
Certificates becomes available.
USE OF PROCEEDS
The Depositor will apply the net proceeds from the sale of
the Offered Certificates against the purchase price of the
Mortgage Loans.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be
passed upon for the Depositor by Mayer, Brown & Platt, Los
Angeles, California.
RATINGS
It is a condition to the issuance of the Offered
Certificates that the Variable Strip Certificates and the Class
A-1 Certificates be rated "___" by [Rating Agency I] ("[Rating
Agency I]") and "___" by [Rating Agency II] ("[Rating Agency
II]"), the Class A-2 Certificates be rated "___" by [Rating
Agency I] and "___" by [Rating Agency II] and the Class B-1
Certificates be rated "___" by [Rating Agency I] and "___" by
[Rating Agency II].
[The ratings assigned by [Rating Agency I] to mortgage pass-
through and asset-backed certificates address the likelihood of
the receipt by certificateholders of all distributions on the
underlying mortgage loans to which such certificateholders are
entitled. Ratings by [Rating Agency I] address the structural,
legal and issuer related aspects associated with the
certificates, including the nature and quality of the underlying
mortgage loans. Such ratings do not represent any assessment of
the likelihood of principal prepayments by mortgagors or of the
degree by which such prepayments might differ from those
originally anticipated. With respect to the Variable Strip
Certificates, the ratings address only the likelihood of receipt
by the holders of the Variable Strip Certificates of
distributions thereon in the amounts calculated as described
herein and does not address the possibility that such
Certificateholders might suffer a lower than anticipated yield or
the possibility that investors in the Variable Strip Certificates
may fail to fully recoup their initial investment.]
[The ratings assigned by [Rating Agency II] to mortgage
pass-through and asset-backed certificates address the likelihood
of the receipt by certificateholders of all distributions to
which they are entitled under the transaction structure. [Rating
Agency II]'s ratings reflect its analysis of the riskiness of the
mortgage loans and its analysis of the structure of the
transaction as set forth in the operative documents. [Rating
Agency II]'s ratings do not address the effect on the
certificates' yield attributable to prepayments or recoveries on
the underlying mortgages. With respect to the Variable Strip
Certificates, the ratings address only the likelihood of receipt
by the holders of the Variable Strip Certificates of
distributions thereon in the amounts calculated as described
herein and does not address the possibility that such
Certificateholders might suffer a lower than anticipated yield or
the possibility that investors in the Variable Strip Certificates
may fail to fully recoup their initial investment.]
The Depositor has not requested ratings on the Offered
Certificates by any rating agency other than [Rating Agency I]
and [Rating Agency II]. However, there can be no assurance as to
whether any other rating agency will rate the Offered
Certificates, or, if it does, what ratings would be assigned by
such other rating agency. Ratings on the Offered Certificates by
another rating agency, if assigned at all, may be lower than the
ratings assigned to the Offered Certificates by [Rating Agency I]
and [Rating Agency II].
A securities rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at
any time by the assigning rating organization. Each securities
rating should be evaluated independently of similar ratings on
different securities.
LEGAL INVESTMENT
The Offered Certificates (other than the Class ___
Certificates) will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") so long as they are rated in at least the second
highest rating category by [Rating Agency I] or [Rating Agency
II] and, as such, are legal investments for certain entities to
the extent provided in SMMEA. SMMEA provided that states could
override its provisions on legal investment and restrict or
condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991. Certain states
have enacted legislation which overrides the preemption
provisions of SMMEA. The Class ___ Certificates will not
constitute "mortgage related securities" for purposes of SMMEA.
The Federal Financial Institutions Examination Council
issued a supervisory policy statement (the "Policy Statement")
applicable to all depository institutions (to the extent adopted
by the respective federal regulators) setting forth guidelines
for and significant restrictions on investments in "high-risk
mortgage securities." The Policy Statement has been adopted by
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Comptroller of the Currency,
the Office of Thrift Supervision and, in part, by the National
Credit Union Administration (the "NCUA"). In addition, the NCUA
has issued regulations governing federal credit union investments
which prohibit investment in certain specified types of
securities. The NCUA has indicated that its regulations will take
precedence over the Policy Statement. Similar policy statements
and regulations have been issued by other regulators having
jurisdiction over depository institutions. The Depositor makes no
representations regarding the application of the Policy
Statement, or of such similar statements and regulations, to any
Class of Offered Certificates or the treatment of the Offered
Certificates thereunder.
The Depositor makes no representations as to the proper
characterization of any Class of Offered Certificates for legal
investment or other purposes, or as to the ability of particular
investors to purchase any Class of Offered Certificates under
applicable legal investment restrictions. These uncertainties may
adversely affect the liquidity of any Class of Offered
Certificates. Accordingly, all institutions whose investment
activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in
determining whether and to what extent any Class of Offered
Certificates, and in particular the Class B-1 Certificates,
constitutes a legal investment or is subject to investment,
capital or other restrictions.
See "LEGAL INVESTMENT" in the Prospectus.
[ERISA CONSIDERATIONS]
Quality Mortgage Acceptance Corp.
Depositor
$__________
Mortgage Loan Asset-Backed Certificates
Series 1996-__
$ 0 Class S Certificates Variable Rate*
$__________ Class A-1 Certificates Adjustable Rate
$__________ Class A-2 Certificates Adjustable Rate
$__________ Class B-1 Certificates Adjustable Rate
* Based on the Notional Amount as described herein.
___________________________________
PROSPECTUS SUPPLEMENT
___________________________________
[Underwriter]
[Date of Prospectus Supplement]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the fees and expenses
payable by the Registrant in connection with the distribution of
the Securities:
Amount
Securities and Exchange Commission Registration Fee. . . . . . $*
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . *
Printing Costs . . . . . . . . . . . . . . . . . . . . . . . *
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . *
Accounting Fees and Expenses . . . . . . . . . . . . . . . . *
Trustee's Fees and Expenses. . . . . . . . . . . . . . . . . *
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . *
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . .____*
Total . . . . . . . . . . . . . . . . . . . . . . . . .$___*
* To be filed in a pre-effective amendment.
Item 15. Indemnification of Directors and Officers.
The Bylaws of the Depositor provide that the Depositor shall
have the power to indemnify any person who was or is a party or
is threatened to be made a party to any proceeding by reason of
the fact that such person is or was an agent of the Depositor,
against expenses, judgments, fines, settlements and other
amounts, actually and reasonably incurred in connection with such
proceeding if the person acted in good faith, reasonably
believing the acts to be in the best interest of the Depositor
and having no reason to believe the conduct unlawful. The
Depositor shall advance the expenses reasonably expected to be
incurred by such agent in defending any such proceeding upon
receipt of an undertaking of the agent to repay such amount if it
shall be determined ultimately that the agent is not entitled to
be indemnified as provided above.
The Pooling and Servicing Agreement will provide that
neither the Depositor nor any of its directors, officers
employees or agents shall have any liability to the trust fund
(the "Trust Fund") created thereunder or to any of the holders of
the Certificates for any action taken or for refraining from the
taking of any action in good faith pursuant to the Pooling and
Servicing Agreement, or for errors in judgment, except with
respect to liabilities resulting from willful misfeasance, bad
faith or gross negligence. The Pooling and Servicing Agreement
will further provide that, with the exceptions stated above, the
Depositor and its directors, officers, employees and agents are
entitled to be indemnified and held harmless by the Trust Fund
against any loss, liability or expense incurred in connection
with legal actions relating to the Pooling and Servicing
Agreements or the Certificates.
It is expected that the Underwriting Agreement will provide,
under certain circumstances, for indemnification of the Depositor
and other certain persons.
Directors and officers of the Company are covered under
policies of directors' and officers' liability insurance.
Item 16. Recent Sales of Unregistered Securities.
The Depositor has not sold any securities of the Depositor
within the past three years which were not registered under the
Securities Act.
Item 17. Exhibits and Financial Statement Schedules.
A list of exhibits filed herewith is contained in the
Exhibit Index which is incorporated herein by reference.
Item 18. Undertakings.
The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 14 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 Securities Act of 1933,
as amended, 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 such Registrant in the
successful defense of any action, suit or proceeding) is asserted
against the Registrant 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 Securities Act of 1933, as amended, and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under
the Securities Act of 1933, as amended, the information
omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933, as amended, shall be deemed to be
part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, as amended, 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.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to the Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended;
(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. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if
the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the
low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective 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 of such
information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if
the information required to be included in the post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended, that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, as amended, each such post-
effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
(3) To remove from registration by means of a post
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that:
For purposes of determining any liability under the
Securities Act of 1933, as amended, each filing of the
Registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended
(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, as amended) that is
incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
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 Irvine, State of
California, on May 15, 1996.
Quality Mortgage Acceptance Corp.
By: /s/Thomas Hood
Thomas Hood
President
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and
appoints Thomas Hood, Francisco Nebot and Frank Waters, or any of
them, such person's true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, to sign any
or all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
Signature and Title Date
/s/Thomas Hood May 15, 1996
Thomas Hood
President
and Director
(Principal Executive Officer)
/s/Francisco Nebot May 15, 1996
Francisco Nebot
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/Jude Lopez May 15, 1996
Jude Lopez
Director
/s/Frank Waters May 15, 1996
Frank Waters
Director and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Page
Number
1.1 Form of Underwriting Agreement*
4.1 Form of Pooling and Servicing Agreement
5.1 Opinion of Mayer, Brown & Platt regarding legality**
8.1 Opinion of Mayer, Brown & Platt regarding certain tax
matters (contained in Exhibit 5.1 hereto)
23.1 Consent of Mayer, Brown & Platt (contained in Exhibit
5.1 hereto)
24.1 Power of Attorney (included on the signature page to
this Registration Statement)
____________________
* To be filed as part of a Form 8-K.
** Form of opinion is filed herewith. The executed opinion will
be filed by pre-effective amendment.
<PAGE>
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
____________________
Quality Mortgage Acceptance Corp.
(Exact name of Registrant as specified in its charter)
- -------------------------------------------------------------------
- -------------------------------------------------------------------
QUALITY MORTGAGE ACCEPTANCE CORP.
Depositor,
_______________________________,
Master Servicer
and
________________________________
Trustee
_________________________________
POOLING AND SERVICING AGREEMENT
Dated as of ___________, 1996
_________________________________
Mortgage Loan Asset-Backed Certificates
Series 1996-__
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
_________________
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms..........................................2
Accretion Termination Date............................................2
Accrual Period........................................................2
Accrued Certificate Interes...........................................2
Advance .........................................................3
Agreement .........................................................3
Anniversary .........................................................3
Assignment .........................................................3
Available Distribution Amount.........................................3
Bankruptcy Amount.....................................................3
Bankruptcy Code.......................................................4
Bankruptcy Loss.......................................................4
Book-Entry Certificate................................................4
Business Day .........................................................4
Cash Liquidation......................................................4
Certificate .........................................................4
Certificate Account...................................................4
Certificate Account Deposit.Date......................................4
Certificateholder or Holder...........................................4
Certificate Owner.....................................................5
Certificate Principal Balance.........................................5
Certificate Rate......................................................6
Certificate Register..................................................6
Class .........................................................6
Class A-1 Certificate.................................................6
Class A-1 Percentage..................................................6
Class A-2 Certificate.................................................6
Class A-2 Percentage..................................................7
Class B-1 Certificate.................................................7
Class B-1 Percentage..................................................7
Class B-1 Prepayment Percentage.......................................7
Class B-2 Certificate.................................................7
Class B-2 Percentage..................................................7
Class B-2 Prepayment Percentage.......................................8
Class B-3 Certificate.................................................8
Class B-3 Percentage..................................................8
Class R Certificate...................................................8
Class S Certificate...................................................8
Closing Date .........................................................8
Code .........................................................8
Collateral Value......................................................8
Corporate Trust Office................................................8
Custodial Account.....................................................9
Cut-off Date .........................................................9
Debt Service Reduction................................................9
Deficient Valuation...................................................9
Definitive Certificate................................................9
Depositor .........................................................9
Depository .........................................................9
Depository Participant................................................9
Determination Date....................................................9
Disqualified Organization............................................10
Distribution Date....................................................10
Due Date ........................................................10
Due Period ........................................................10
Duff & Phelps........................................................10
Eligible Account.....................................................10
Event of Default.....................................................11
Excess Bankruptcy Loss...............................................11
Excess Fraud Loss....................................................11
Excess Proceeds......................................................11
Excess Proceeds Account..............................................11
Excess Special Hazard Loss...........................................11
Extraordinary Events.................................................11
Extraordinary Losses.................................................12
FDIC.................................................................12
FHLMC................................................................12
FNMA.................................................................12
Fraud Loss Amount....................................................12
Fraud Losses ........................................................12
Funding Date ........................................................13
Gross Margin ........................................................13
Index ........................................................13
Initial Certificate Principal Balance................................13
Initial Class A-1 Percentage.........................................13
Initial Class A-2 Percentage.........................................13
Initial Class B-1 Percentage.........................................13
Initial Class B-2 Percentage.........................................13
Initial Class B-3 Percentage.........................................13
Initial Loss Coverage................................................13
Initial Subordinate Percentage.......................................14
Insurance Policy.....................................................14
Insurance Proceeds...................................................14
Interest Determination Date..........................................14
Late Collections.....................................................14
Reuters One Month LIBOR..............................................14
Liquidation Proceeds.................................................14
Loan-to-Value Ratio..................................................15
London Business Day..................................................15
Loss Severity Percentage.............................................15
Master Servicer......................................................15
Maximum Rate ........................................................15
Minimum Rate ........................................................15
Monthly Payment......................................................15
Moody's..... ........................................................15
Mortgage.............................................................15
Mortgage File........................................................15
Mortgage Loan........................................................15
Mortgage Loan Accrued Interest.......................................16
Mortgage Loan Schedule...............................................16
Mortgage Note........................................................17
Mortgage Rate........................................................17
Mortgaged Property...................................................17
Mortgagor ........................................................17
Net Mortgage Rate....................................................17
Net Mortgage Rate Cap................................................17
Nonrecoverable Advance...............................................18
Non-United States Person.............................................18
Notional Amount......................................................18
Officers' Certificate................................................18
Opinion of Counsel...................................................18
Original Senior Percentage...........................................18
OTS..................................................................18
Outstanding Mortgage Loan............................................18
Ownership Interest...................................................18
Percentage Interest..................................................19
Periodic Rate Cap....................................................19
Permitted Instruments................................................19
Permitted Transferee.................................................20
Person...............................................................20
Prepayment Assumption................................................20
Prepayment Interest Shortfall........................................20
Prepayment Period....................................................20
Primary Hazard Insurance Policy......................................20
Principal Prepayment.................................................21
Prospective Losses...................................................21
Purchase Price.......................................................21
Rate Adjustment Date.................................................21
Rating Agency........................................................21
Realized Loss........................................................22
Record Date ........................................................22
Reference Banks......................................................22
Regular Certificate..................................................22
REMIC................................................................22
REMIC Provisions.....................................................22
Remittance Report....................................................22
REO Acquisition......................................................23
REO Disposition......................................................23
REO Imputed Interest.................................................23
REO Proceeds ........................................................23
REO Property ........................................................23
Request for Release..................................................23
Reserve Interest Rate................................................23
Residual Certificate.................................................23
Responsible Officer..................................................23
Rule 144A............................................................24
Scheduled Principal and Net Recoveries...............................24
Seller...............................................................24
Senior Certificate...................................................24
Senior Percentage....................................................24
Senior Prepayment Percentage.........................................24
Servicing Account....................................................26
Servicing Advances...................................................26
Servicing Fee........................................................26
Servicing Fee Rate...................................................26
Servicing Officer....................................................26
Single Certificate...................................................26
Special Hazard Amount................................................26
Special Hazard Loss..................................................26
Special Hazard Percentage............................................27
Startup Day ........................................................27
Stated Principal Balance.............................................27
Subordinate Certificate..............................................27
Sub-Servicer ........................................................27
Sub-Servicer Remittance Date.........................................27
Sub-Servicing Account................................................27
Sub-Servicing Agreement..............................................27
Tax Returns..........................................................27
Termination Event....................................................28
Total Expected Losses................................................28
Transfer.............................................................28
Transferor...........................................................28
Trust Fund...........................................................28
Trustee..............................................................28
Uninsured Cause......................................................28
United States Person.................................................28
Variable Strip Certificate...........................................29
Voting Rights........................................................29
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01. Conveyance of Mortgage Loans.................................30
2.02. Acceptance of the Trust Fund by the Trustee..................32
2.03. Representations, Warranties and Covenants of
the Master Servicer and the Depositor........................34
2.04. Representations and Warranties of the Seller.................36
2.05. Issuance of Certificates Evidencing Interests
in the Trust Fund............................................36
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
3.01. Master Servicer to Act as Master Servicer...................37
3.02. Sub-Servicing Agreements Between Master
Servicer and Sub-Servicers..................................38
3.03. Successor Sub-Servicers.....................................39
3.04. Liability of the Master Servicer............................39
3.05. No Contractual Relationship Between Sub-
Servicers and Trustee or Certificateholders.................40
3.06. Assumption or Termination of Sub-Servicing
Agreements by Trustee.......................................40
3.07. Collection of Certain Mortgage Loan Payments................40
3.08. Sub-Servicing Accounts......................................41
3.09. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts...................................41
3.10. Custodial Account...........................................42
3.11. Permitted Withdrawals From the Custodial
Account.....................................................43
3.12. Permitted Instruments.......................................44
3.13. Maintenance of Primary Hazard Insurance. ...................44
3.14. Enforcement of Due-on-Sale Clauses; Assumption
Agreements..................................................45
3.15. Realization Upon Defaulted Mortgage Loans...................46
3.16. Trustee to Cooperate; Release of Mortgage Files.............47
3.17. Servicing Compensation......................................49
3.18. Maintenance of Certain Servicing Policies...................49
3.19. Annual Statement as to Compliance...........................49
3.20. Annual Independent Public Accountants'
Servicing Statement.........................................50
3.21. Access to Certain Documentation.............................50
3.22. Title, Conservation and Disposition of REO
Property....................................................51
3.23. Additional Obligations of the Master Servicer...............53
3.24. Additional Obligations of the Depositor.....................54
3.25 Excess Proceeds Account.....................................54
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01. Certificate Account; Distributions..........................56
4.02. Statements to Certificateholders............................63
4.03. Remittance Reports; Advances by the Master
Servicer....................................................65
4.04. Allocation of Realized Losses...............................67
4.05. Allocation of Deferred Interest.............................68
4.06. Information Reports to be Filed by the Master
Servicer....................................................68
4.07. Compliance with Withholding Requirements....................68
ARTICLE V
THE CERTIFICATES
5.01. The Certificates.............................................69
5.02. Registration of Transfer and Exchange of
Certificates.................................................71
5.03. Mutilated, Destroyed, Lost or Stolen Certif-
icates.......................................................75
5.04. Persons Deemed Owners........................................75
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
6.01. Liability of the Depositor and the Master
Servicer.....................................................76
6.02. Merger, Consolidation or Conversion of the
Depositor or the Master Servicer.............................76
6.03. Limitation on Liability of the Depositor, the
Master Servicer and Others...................................76
6.04. Limitation on Resignation of the Master
Servicer.....................................................77
ARTICLE VII
DEFAULT
7.01. Events of Default............................................78
7.02. Termination Event............................................80
7.03. Trustee to Act; Appointment of Successor.....................81
7.04. Notification to Certificateholders...........................81
7.05. Waiver of Events of Default..................................82
ARTICLE VIII
CONCERNING THE TRUSTEE
8.01. Duties of Trustee............................................83
8.02. Certain Matters Affecting the Trustee........................84
8.03. Trustee Not Liable for Certificates or Mortgage
Loans........................................................85
8.04. Trustee May Own Certificates.................................86
8.05. Master Servicer to Pay Trustee's Fees........................86
8.06. Eligibility Requirements for Trustee.........................86
8.07. Resignation and Removal of the Trustee.......................86
8.08. Successor Trustee............................................87
8.09. Merger or Consolidation of Trustee...........................88
8.10. Appointment of Co-Trustee or Separate Trustee................88
ARTICLE IX
TERMINATION
9.01. Termination Upon Repurchase or Liquidation of
All Mortgage Loans............................................90
9.02. Additional Termination Requirements...........................92
ARTICLE X
REMIC PROVISIONS
10.01. REMIC Administration...........................................93
10.02. Prohibited Transactions and Activities.........................95
10.03. Master Servicer and Trustee Indemnification....................96
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01. Amendment.....................................................97
11.02. Recordation of Agreement; Counterparts........................98
11.03. Limitation on Rights of Certificateholders....................98
11.04. Governing Law.................................................99
11.05. Notices.......................................................99
11.06. Severability of Provisions...................................100
11.07. Successors and Assigns; Third Party Beneficiary..............100
11.08. Article and Section Headings.................................100
11.09. Notice to Rating Agencies and Certificateholder..............100
11.10. Streit Act...................................................101
Signatures
Acknowledgments
Exhibit A-1 Form of Senior Certificate
Exhibit B-1 Form of Class B-1 Certificate
Exhibit B-2 Form of Class B-2 Certificate
Exhibit B-3 Form of Class B-3 Certificate
Exhibit B-4 Form of Class R Certificate
Exhibit C Form of Trustee Initial Certification
Exhibit D Form of Trustee Final Certification
Exhibit E [Reserved]
Exhibit F-1 Request for Release
Exhibit F-2 Request for Release for Mortgage Loans Paid in
Full
Exhibit G-1 Form of Investor Representation Letter
Exhibit G-2 Form of Transferor Representation Letter
Exhibit G-3 Transferor Affidavit and Agreement for Transfers
to Non-United States Persons
Exhibit G-4 Transferee Affidavit and Agreement for Transfers
to Non-United States Persons
Exhibit G-5 Form of Investor Representation Letter for
Insurance Companies
Exhibit H Mortgage Loan Schedule
Exhibit I Seller Representations and Warranties
Exhibit J Form of Notice Under Section 3.24(c)
This Pooling and Servicing Agreement, dated and effec-
tive as of __________, 1996, among Quality Mortgage Acceptance
Corp., as Depositor (the "Depositor"), _________________________,
as Master Servicer (the "Master Servicer"), and _________________
_____________, as Trustee (the "Trustee").
<PAGE>
PRELIMINARY STATEMENT:
The Depositor intends to sell asset backed certificates
(collectively, the "Certificates"), to be issued hereunder in
multiple classes, which in the aggregate will evidence the entire
beneficial ownership interest in the Mortgage Loans (as defined
herein). As provided herein, the Trustee will cause an election
to be made to treat the entire segregated pool of assets subject
to this Agreement (including the Mortgage Loans) as a real estate
mortgage investment conduit (a "REMIC") for federal income tax
purposes and such segregated pool of assets will be designated as
the "Trust Fund." The Class S, Class A-1, Class A-2, Class B-1,
Class B-2 and Class B-3 Certificates will be the "regular
interests" in the Trust Fund, and the Class R Certificates will
be the "residual interests" in the Trust Fund, for purposes of
the REMIC Provisions (as defined herein) under federal income tax
law.
The following table sets forth the designation, initial
Certificate Rate, aggregate initial Certificate Principal
Balance, and the initial percentage for each Class of
Certificates comprising the certificated interests in the Trust
Fund created hereunder.
Aggregate Initial
Initial Certificate Approximate
Certificate Principal Initial Class
Designation Type Rate Balance Percentage
Class S Senior Variable Rate N/A N/A
Class A-1 Senior Adjustable Rate $___,___,___ . %
Class A-2 Senior Adjustable Rate $___,___,___ . %
Class B-1 Subordinate Adjustable Rate $___,___,___ . %
Class B-2 Subordinate Adjustable Rate $___,___,___ . %
Class B-3 Subordinate Adjustable Rate $___,___,___ . %
Class R Residual N/A N/A N/A
As of the Cut-off Date, the Mortgage Loans have an aggregate Stated
Principal Balance equal to $_______________.
In consideration of the mutual agreements herein contained, the Depositor,
the Master Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
"Accretion Termination Date": With respect to the
Class B-3 Certificates, the Distribution Date on which the
Certificate Principal Balances of the Class B-1 and Class B-2
Certificates have been reduced to zero.
"Accrual Period": With respect to any Distribution
Date, the period commencing on the 25th day of the month
immediately preceding the month in which such Distribution Date
occurs and ending on the 24th day of the month in which such
Distribution Date occurs, provided, however, that the Accrual
Period will be treated as a 30-day period regardless of the
number of days from the 25th day of the preceding month to the
24th day of such month.
"Accrued Certificate Interest": With respect to each
Distribution Date, as to any Certificate of any Class, other than
the Class S Certificates and the Class R Certificates, interest
accrued during the related Accrual Period at the then applicable
Certificate Rate on the Certificate Principal Balance thereof
immediately prior to such Distribution Date. With respect to
each Distribution Date, as to the Class S Certificates, interest
accrued during the related Accrual Period at the then applicable
Certificate Rate on the Notional Amount immediately prior to such
Distribution Date. Accrued Certificate Interest will be
calculated on the basis of a 360-day year consisting of twelve
30-day months. In each case Accrued Certificate Interest on any
such Class of Certificates will be reduced by the amount of (i)
Prepayment Interest Shortfalls, if any, which are not covered by
payments by the Master Servicer pursuant to Section 3.23 with
respect to such Distribution Date, (ii) the interest portion
(adjusted to the Net Mortgage Rate) of Realized Losses (including
Excess Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses and Extraordinary Losses) not allocated solely
to the Class A-2, Class B-1, Class B-2 or Class B-3 Certificates
pursuant to Section 4.04, (iii) the interest portion of Advances
previously made with respect to a Mortgage Loan or REO Property
which remained unreimbursed following the Cash Liquidation or REO
Disposition of such Mortgage Loan or REO Property that were made
with respect to delinquencies that ultimately constituted Excess
Special Hazard Losses, Excess Fraud Losses, Excess Bankruptcy
Losses or Extraordinary Losses, and (iv) any other interest
shortfalls not covered by the subordination provided by Class A-
2, Class B-1, Class B-2 or Class B-3 Certificates, including
interest that is not collectible from the Mortgagor pursuant to
the Soldiers' and Sailors' Civil Relief Act of 1940, as amended,
or similar legislation or regulations as in effect from time to
time, with all such reductions pursuant to clauses (i)-(iv) above
allocated among all of the Certificates on a pro rata basis in
proportion to their respective amounts of Accrued Certificate
Interest which would have resulted absent such reductions. In
addition to that portion of the reductions described in the
preceding sentence that are allocated to the Class A-2, Class B-
1, Class B-2 or Class B-3 Certificates, Accrued Certificate
Interest on the Class A-2, Class B-1, Class B-2 or Class B-3
Certificates, as applicable, will be reduced by the interest
portion (adjusted to the Net Mortgage Rate) of the portion of
Realized Losses that are allocated solely to the Class A-2, Class
B-1, Class B-2 or Class B-3 Certificates, as applicable, pursuant
to Section 4.04. There will be no Accrued Certificate Interest
on the Class R Certificates.
"Advance": As to any Mortgage Loan, any advance made
by the Master Servicer on any Distribution Date pursuant to
Section 4.03.
"Agreement": This Pooling and Servicing Agreement and
all amendments hereof.
"Anniversary": Each anniversary of _____________, 1996.
"Assignment": An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is
sufficient under the laws of the jurisdiction wherein the related
Mortgaged Property is located to reflect of record the sale of
the Mortgage.
"Available Distribution Amount": With respect to any
Distribution Date, an amount equal to (a) the sum of (i) the
balance on deposit in the Custodial Account as of the close of
business on the related Determination Date and (ii) the aggregate
amount of any Advances made, all required transfers pursuant to
Section 3.22 and all amounts required to be paid by the Master
Servicer pursuant to Sections 3.13 and 3.23 by deposits into the
Certificate Account on the immediately preceding Certificate
Account Deposit Date, reduced by (b) the sum, as of the close of
business on the related Determination Date, of (i) Monthly
Payments collected but due during a Due Period subsequent to the
Due Period ending on the first day of the month of the related
Distribution Date, (ii) all interest or other income earned on
deposits in the Custodial Account, (iii) any other amounts
reimbursable or payable to the Master Servicer or any Sub-
Servicer pursuant to Section 3.11, and (iv) Insurance Proceeds,
Liquidation Proceeds, Principal Prepayments, REO Proceeds and the
proceeds of Mortgage Loan purchases made pursuant to Section
2.02, 2.04 or 3.22, in each case received or made in the month of
such Distribution Date.
"Bankruptcy Amount": As of any date of determination
prior to the first Anniversary, an amount, equal to the excess,
if any, of (A) $[100,000] (the initial "Bankruptcy Amount"), over
(B) the aggregate amount of Bankruptcy Losses allocated solely to
the Class A-2, Class B-1, Class B-2 or Class B-3 Certificates in
accordance with Section 4.04. As of any date of determination on
or after the first Anniversary, an amount equal to the excess, if
any, of (1) the lesser of (a) the Bankruptcy Amount calculated as
of the close of business on the Business Day immediately
preceding the most recent Anniversary (for purposes of this
definition, the "Relevant Anniversary") and (b) the greater of
(i) [0.15]% times the aggregate principal balance of the Mortgage
Loans as of the Relevant Anniversary; and (ii) $[100,000] over
(2) the aggregate amount of Bankruptcy Losses allocated solely to
the Class A-2, Class B-1, Class B-2 or Class B-3 Certificates, in
accordance with Section 4.04 since the Relevant Anniversary.
The Bankruptcy Amount may be further reduced by the
Depositor (including accelerating the manner in which such
coverage is reduced) provided that prior to any such reduction,
the Depositor shall obtain written confirmation from the Rating
Agency that such reduction shall not adversely affect the then-
current rating assigned to the Certificates by the Rating Agency
and shall provide a copy of such written confirmation to the
Trustee.
"Bankruptcy Code": The Bankruptcy Code of 1978, as
amended.
"Bankruptcy Loss": With respect to any Mortgage Loan,
a Realized Loss resulting from a Deficient Valuation or Debt
Service Reduction.
"Book-Entry Certificate": Any Certificate registered
in the name of the Depository or its nominee.
"Business Day": Any day other than a Saturday, a
Sunday or a day on which banking institutions in [California or
New York] (and such other state or states in which the Custodial
Account or the Certificate Account are at the time located) or in
the city in which the Corporate Trust Office of the Trustee is
located are authorized or obligated by law or executive order to
close.
"Cash Liquidation": As to any defaulted Mortgage Loan
other than a Mortgage Loan as to which an REO Acquisition
occurred, the final receipt by or on behalf of the Master
Servicer of all Insurance Proceeds, Liquidation Proceeds and
other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable
with respect to such Mortgage Loan.
"Certificate": Any Class S, Class A-1, Class A-2,
Class B-1, Class B-2, Class B-3 or Class R Certificate.
"Certificate Account": The trust account or accounts
created and maintained pursuant to Section 4.01, which shall be
entitled "_____________________, in trust for registered
holders of Mortgage Loan Asset-Backed Certificates, Series 1996-
__", and which account or accounts must each be an Eligible
Account.
"Certificate Account Deposit Date": As to any
Distribution Date, the Business Day prior thereto.
"Certificateholder" or "Holder": The Person in whose
name a Certificate is registered in the Certificate Register,
except that, neither a Disqualified Organization nor a non-United
States Person shall be a Holder of a Class R Certificate for any
purposes hereof and, solely for the purposes of giving any
consent pursuant to this Agreement, any Certificate, other than a
Class R Certificate, registered in the name of the Depositor or
the Master Servicer or any affiliate thereof shall be deemed not
to be outstanding and the Voting Rights to which it is entitled
shall not be taken into account in determining whether the
requisite percentage of Voting Rights necessary to effect any
such consent has been obtained, except as otherwise provided in
Section 11.01. The Trustee shall be entitled to rely upon a
certification of the Depositor or the Master Servicer in
determining if any Certificates are registered in the name of a
respective affiliate. All references herein to "Holders" or
"Certificateholders" shall reflect the rights of Certificate
Owners as they may indirectly exercise such rights through the
Depository and participating members thereof, except as otherwise
specified herein; provided, however, that the Trustee shall be
required to recognize as a "Holder" or "Certificateholder" only
the Person in whose name a Certificate is registered in the
Certificate Register.
"Certificate Owner": With respect to a Book-Entry
Certificate, the Person who is the beneficial owner of such
Certificate, as reflected on the books of an indirect
participating brokerage firm for which a Depository Participant
acts as agent, if any, and otherwise on the books of a Depository
Participant, if any, and otherwise on the books of the
Depository.
"Certificate Principal Balance": With respect to each
Class A-1 or Class A-2 Certificate on any date of determination,
an amount equal to (i) the Initial Certificate Principal Balance
of such Certificate as specified on the face thereof, minus (ii)
the sum of (a) the aggregate of all amounts previously
distributed with respect to such Certificates (or any predecessor
Certificate) and applied to reduce the Certificate Principal
Balance thereof pursuant to Section 4.01(b), and (b) the
aggregate of all reductions in Certificate Principal Balance
deemed to have occurred in connection with Realized Losses which
were previously allocated to such Certificate (or any predecessor
Certificate) pursuant to Section 4.04; provided, that if the
Certificate Principal Balance of the Subordinate Certificates has
been reduced to zero, the Certificate Principal Balance of each
Class A-2 Certificate, at any given time, shall thereafter be an
amount equal to (i) the Percentage Interest evidenced by such
Certificate multiplied by (ii) the excess, if any, of (a) the
then aggregate Stated Principal Balance of the Mortgage Loans (or
related REO Properties) over (b) the aggregate Certificate
Principal Balance of the Senior Certificates senior thereto. With
respect to each Class B-1 Certificate, on any date of
determination, an amount equal to (i) the initial Certificate
Principal Balance of such Class B-1 Certificate, as specified on
the face thereof, minus (ii) the sum of (a) the aggregate of all
amounts previously distributed with respect to such Certificate
(or any predecessor Certificate) and applied to reduce the
Certificate Principal Balance thereof pursuant to Section
4.01(b), and (b) the aggregate of all reductions in Certificate
Principal Balance deemed to have occurred in connection with
Realized Losses which were previously allocated to such
Certificate (or any predecessor Certificate) pursuant to Section
4.04; provided, that if the Certificate Principal Balances of the
Subordinate Certificates subordinate thereto have been reduced to
zero, the Certificate Principal Balance of each Class B-1
Certificate, at any given time, shall thereafter be an amount
equal to (i) the Percentage Interest evidenced by such
Certificate multiplied by (ii) the excess, if any, of (a) the
then aggregate Stated Principal Balance of the Mortgage Loans (or
related REO Properties) over (b) the sum of the then aggregate
Certificate Principal Balance of all of the Senior Certificates.
With respect to each Class B-2 Certificate, on any date of
determination, an amount equal to (i) the initial Certificate
Principal Balance of such Class B-2 Certificate, as specified on
the face thereof, minus (ii) the sum of (a) the aggregate of all
amounts previously distributed with respect to such Certificate
(or any predecessor Certificate) and applied to reduce the
Certificate Principal Balance thereof pursuant to Section
4.01(b), and (b) the aggregate of all reductions in Certificate
Principal Balance deemed to have occurred in connection with
Realized Losses which were previously allocated to such
Certificate (or any predecessor Certificate) pursuant to Section
4.04; provided, that if the Certificate Principal Balance of the
Class B-3 Certificates has been reduced to zero, the Certificate
Principal Balance of each Class B-2 Certificate, at any given
time, shall thereafter be an amount equal to (i) the Percentage
Interest evidenced by such Certificate multiplied by (ii) the
excess, if any, of (a) the then aggregate Stated Principal
Balance of the Mortgage Loans (or REO Properties) over (b) the
sum of the then aggregate Certificate Principal Balance of all of
the Senior Certificates and the Subordinate Certificates senior
thereto. With respect to each Class B-3 Certificate, at any
given time, an amount equal to (i) the Percentage Interest
evidenced by such Certificate multiplied by (ii) the excess, if
any, of (a) the then aggregate Stated Principal Balance with
respect to the Mortgage Loans (or related REO Properties) over
(b) the then aggregate Certificate Principal Balance of all of
the related Senior Certificates and the Subordinate Certificates
senior thereto. The Class S and Class R Certificates have no
principal balances.
"Certificate Rate": With respect to the initial
Distribution Date, the Certificate Rate on the Class A-1, Class
A-2, Class B-1, Class B-2 and Class B-3 Certificates, ______% per
annum. With respect to the Class A-1, Class A-2, Class B-1,
Class B-2 and Class B-3 Certificates, and for any Distribution
Date thereafter, an annual rate equal to the least of: (i)
Reuters One Month LIBOR plus ____%, (ii) _____% and (iii) the Net
Mortgage Rate Cap. With respect to the initial Distribution
Date, the Certificate Rate on the Class S Certificates, ______%
per annum. With respect to the Class S Certificates, and for any
Distribution Date thereafter, a rate equal to the excess, if any,
of the Net Mortgage Rate Cap over the Certificate Rate on the
Class A-1, Class A-2, Class B-1, Class B-2 and Class B-3
Certificates.
"Certificate Register": The register maintained
pursuant to Section 5.02.
"Class": Collectively, all of the Certificates bearing
the same designation.
"Class A-1 Certificate": Any one of the Class A-1
Certificates executed, authenticated and delivered by the Trustee
substantially in the form attached hereto as Exhibit A, senior
with respect to distributions and the allocation of Realized
Losses as set forth in Section 4.04, and evidencing an interest
designated as a "regular interest" in the Trust Fund for purposes
of the REMIC Provisions.
"Class A-1 Percentage": With respect to any
Distribution Date, the lesser of 100% and a fraction, expressed
as a percentage, the numerator of which is the aggregate
Certificate Principal Balance of the Class A-1 Certificates
immediately prior to such Distribution Date and the denominator
of which is the aggregate Stated Principal Balance of all of the
Mortgage Loans (or related REO Properties) immediately prior to
such Distribution Date.
"Class A-2 Certificate": Any one of the Class A-2
Certificates executed, authenticated and delivered by the Trustee
substantially in the form attached hereto as Exhibit A,
subordinate to the Class S and Class A-1 Certificates with
respect to distributions and the allocation of Realized Losses as
set forth in Section 4.04, and evidencing an interest designated
as a "regular interest" in the Trust Fund for purposes of the
REMIC Provisions.
"Class A-2 Percentage": With respect to any
Distribution Date, the lesser of 100% and a fraction, expressed
as a percentage, the numerator of which is the aggregate
Certificate Principal Balance of the Class A-2 Certificates
immediately prior to such Distribution Date and the denominator
of which is the aggregate Stated Principal Balance of all of the
Mortgage Loans (or related REO Properties) immediately prior to
such Distribution Date; provided, that if the Certificate
Principal Balances of the Class B-1, Class B-2 and Class B-3
Certificates are reduced to zero, then thereafter the Class A-2
Percentage as of any date of determination shall be 100% minus
the then applicable Class A-1 Percentage.
"Class B-1 Certificate": Any one of the Class B-1
Certificates executed, authenticated and delivered by the Trustee
substantially in the form attached hereto as Exhibit B-1,
subordinate to the Senior Certificates with respect to
distributions and the allocation of Realized Losses as set forth
in Section 4.04, and evidencing an interest designated as a
"regular interest" in the Trust Fund for purposes of the REMIC
Provisions.
"Class B-1 Percentage": With respect to any
Distribution Date, the lesser of 100% and a fraction, expressed
as a percentage, the numerator of which is the aggregate
Certificate Principal Balance of the Class B-1 Certificates
immediately prior to such Distribution Date and the denominator
of which is the aggregate Stated Principal Balance of all of the
Mortgage Loans (or related REO Properties) immediately prior to
such Distribution Date, provided, that if the Certificate
Principal Balance of the Class B-2 Certificates and Class B-3
Certificates are reduced to zero, then thereafter the Class B-1
Percentage as of any date of determination shall be 100% minus
the then applicable Senior Percentage.
"Class B-1 Prepayment Percentage": With respect to any
Distribution Date, the product of (a) 100% minus the Senior
Prepayment Percentage related to the Class A-1 and Class A-2
Certificates for such Distribution Date multiplied by (b) a
fraction, the numerator of which is the Class B-1 Percentage and
the denominator of which is the sum of the Class B-1 Percentage,
the Class B-2 Percentage and the Class B-3 Percentage.
"Class B-2 Certificate": Any one of the Class B-2
Certificates executed, authenticated and delivered by the Trustee
substantially in the form attached hereto as Exhibit B-2,
subordinate to the Senior Certificates and Class B-1 Certificates
with respect to distributions and the allocation of Realized
Losses as set forth in Section 4.04, and evidencing an interest
designated as a "regular interest" in the Trust Fund for purposes
of the REMIC Provisions.
"Class B-2 Percentage": With respect to any
Distribution Date, the lesser of 100% and a fraction, expressed
as a percentage, the numerator of which is the aggregate
Certificate Principal Balance of the Class B-2 Certificates
immediately prior to such Distribution Date and the denominator
of which is the aggregate Stated Principal Balance of all of the
Mortgage Loans (or related REO Properties) immediately prior to
such Distribution Date, provided, that if the Certificate
Principal Balances of the Class B-3 Certificates are reduced to
zero, then thereafter the Class B-2 Percentage as of any date of
determination shall be 100% minus the then applicable Senior
Percentage and Class B-1 Percentage.
"Class B-2 Prepayment Percentage": With respect to any
Distribution Date, the product of (a) 100% minus the Senior
Prepayment Percentage related to the Class A-1 and Class A-2
Certificates for such Distribution Date multiplied by (b) a
fraction, the numerator of which is the Class B-2 Percentage and
the denominator of which is the sum of the Class B-1 Percentage,
the Class B-2 Percentage and Class B-3 Percentage.
"Class B-3 Certificate": Any one of the Class B-3
Certificates, executed, authenticated and delivered by the
Trustee substantially in the form attached hereto as Exhibit B-3,
subordinate to the Senior Certificates, the Class B-1
Certificates and the Class B-2 Certificates with respect to
distributions and the allocation of Realized Losses as set forth
in Section 4.04, and evidencing an interest designated as a
"regular interest" in the Trust Fund for purposes of the REMIC
Provisions.
"Class B-3 Percentage": With respect to any
Distribution Date, 100% minus the sum of the then applicable
Senior Percentage, Class B-1 Percentage and Class B-2 Percentage.
"Class R Certificate": Any one of the Class R
Certificates executed, authenticated and delivered by the Trustee
substantially in the form attached hereto as Exhibit B-4 and
evidencing an interest designated as a "residual interest" in
Trust Fund for purposes of the REMIC Provisions.
"Class S Certificate": Any one of the Class S
Certificates executed, authenticated and delivered by the Trustee
substantially in the form attached hereto as Exhibit A, senior
with respect to distributions and to the allocation of Realized
Losses as set forth in Section 4.04, and evidencing an interest
designated as a "regular interest" in the Trust Fund for purposes
of the REMIC Provisions.
"Closing Date": _____________, 1996.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral Value": The appraised value of a Mortgaged
Property based upon the lesser of (i) the appraisal (as reviewed
and approved by the Depositor) made at the time of the
origination of the related Mortgage Loan, or (ii) the sales price
of such Mortgaged Property at such time of origination. With
respect to a Mortgage Loan the proceeds of which were used to
refinance an existing mortgage loan, the appraised value (as
reviewed and approved by the Depositor) of the Mortgaged Property
based upon the appraisal (as reviewed and approved by the
Depositor) obtained at the time of refinancing.
"Corporate Trust Office": The principal corporate
trust office of the Trustee at which at any particular time its
corporate trust business related to this Agreement shall be
administered, which office at the date of the execution of this
Agreement is located at ________________________________________,
Attention: Quality 1996-__.
"Custodial Account": The custodial account or accounts
created and maintained pursuant to Section 3.10 in the name of a
depository institution, as custodian for the holders of the
Certificates, for the holders of certain other interests in
mortgage loans serviced or sold by the Master Servicer and for
the Master Servicer, into which the amounts set forth in Section
3.10 shall be deposited directly. Any such account or accounts
shall be an Eligible Account.
"Cut-off Date": ___________ 1, 1996.
"Debt Service Reduction": With respect to any Mortgage
Loan, a reduction in the scheduled Monthly Payment for such
Mortgage Loan by a court of competent jurisdiction in a
proceeding under the Bankruptcy Code, except such a reduction
constituting a Deficient Valuation or any reduction that results
in a permanent forgiveness of principal.
["Deferred Interest": With respect to each GPARM Loan
as of any Due Date, the amount, if any, by which the Mortgage
Loan Accrued Interest for such Due Date exceeds the Monthly
Payment for such Due Date and which amount, pursuant to the terms
of the Mortgage Note, is added to the principal balance of such
GPARM Loan.]
"Deficient Valuation": With respect to any Mortgage
Loan, a valuation by a court of competent jurisdiction of the
Mortgaged Property in an amount less than the then outstanding
indebtedness under the Mortgage Loan, which valuation results
from a proceeding initiated by the Mortgagor under the Bankruptcy
Code.
"Definitive Certificate": Any definitive, fully
registered Certificate.
"Depositor": Quality Mortgage Acceptance Corp., or its
successor in interest.
"Depository": The Depository Trust Company, or any
successor Depository hereafter named. The nominee of the initial
Depository for purposes of registering those Certificates that
are to be Book-Entry Certificates is [Cede & Co]. The Depository
shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the Uniform Commercial Code of the State of
New York and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934,
as amended.
"Depository Participant": A broker, dealer, bank or
other financial institution or other Person for whom from time to
time a Depository effects book-entry transfers and pledges of
securities deposited with the Depository.
"Determination Date": The 15th day (or if such 15th
day is not a Business Day, the Business Day immediately preceding
such 15th day) of the month of the related Distribution Date.
"Disqualified Organization": Any of (i) the United
States, any State or political subdivision thereof, any
possession of the United States, or any agency or instrumentality
of any of the foregoing (other than an instrumentality which is a
corporation if all of its activities are subject to tax and,
except for the FHLMC, a majority of its board of directors is not
selected by such governmental unit), (ii) any foreign government,
any international organization, or any agency or instrumentality
of any of the foregoing, (iii) any organization (other than
certain farmers' cooperatives described in Section 521 of the
Code) which is exempt from the tax imposed by Chapter 1 of the
Code (unless such organization is subject to the tax imposed by
Section 511 of the Code on unrelated business taxable income), or
rural electric and telephone cooperatives described in Section
1381(a)(2)(C) of the Code and (iv) any other Person so designated
by the Trustee based upon an Opinion of Counsel provided to the
Trustee that the holding of an ownership interest in a Residual
Certificate by such Person may cause the Trust Fund or any Person
having an ownership interest in any Class of Certificates (other
than such Person) to incur liability for any federal tax imposed
under the Code that would not otherwise be imposed but for the
transfer of an ownership interest in the Residual Certificate to
such Person. The terms "United States," "State" and
"international organization" shall have the meanings set forth in
Section 7701 of the Code.
"Distribution Date": The 25th day of any month, or if
such 25th day is not a Business Day, the Business Day immediately
following such 25th day, commencing on ____________, 1996.
"Due Date": The first day of the month of the related
Distribution Date.
"Due Period": With respect to any Distribution Date,
the period commencing on the second day of the month preceding
the month of such Distribution Date (or, with respect to the
first Due Period, the day following the Cut-off Date) and ending
on the related Due Date.
["Duff & Phelps": Duff & Phelps Credit Rating Co. or
its successor in interest.]
"Eligible Account": An account maintained with a
federal or state chartered depository institution (i) the short-
term obligations of which are rated by each of the Rating
Agencies in its highest rating at the time of any deposit
therein, or (ii) insured by the FDIC (to the limits established
by such corporation), the uninsured deposits in which account are
otherwise secured such that, as evidenced by an Opinion of
Counsel (obtained by the Person requesting that the account be
held pursuant to this clause (ii)) delivered to the Trustee prior
to the establishment of such account, the Certificateholders will
have a claim with respect to the funds in such account and a
perfected first priority security interest against any collateral
(which shall be limited to Permitted Instruments, each of which
shall mature not later than the Business Day immediately
preceding the Distribution Date next following the date of
investment in such collateral or the Distribution Date if such
Permitted Instrument is an obligation of the institution that
maintains the Certificate Account or Custodial Account) securing
such funds that is superior to claims of any other depositors or
general creditors of the depository institution with which such
account is maintained or (iii) a trust account or accounts
maintained with a federal or state chartered depository
institution or trust company with trust powers acting in its
fiduciary capacity or (iv) an account or accounts of a depository
institution acceptable to the Rating Agencies (as evidenced in
writing by the Rating Agencies that use of any such account as
the Custodial Account, the Excess Proceeds Account or the
Certificate Account will not have an adverse effect on the then-
current ratings assigned to the Classes of the Certificates then
rated by the Rating Agencies). Eligible Accounts may bear
interest.
"Event of Default": One or more of the events
described in Section 7.01.
"Excess Bankruptcy Loss": Any Bankruptcy Loss, or
portion thereof, which exceeds the then applicable Bankruptcy
Amount.
"Excess Fraud Loss": Any Fraud Loss, or portion
thereof, which exceeds the then applicable Fraud Loss Amount.
"Excess Proceeds": With respect to each Mortgage Loan
as to which an REO Disposition has occurred, the proceeds that
are specified as being "Excess Proceeds" in Section 3.22.
"Excess Proceeds Account": The separate account or
accounts created and maintained pursuant to Section 3.25, which
shall be entitled "___________________________, in trust for
registered holders of Mortgage Loan Asset-Backed Certificates,
Series 1996-__, Excess Proceeds Account," and which account or
accounts shall be an Eligible Account.
"Excess Special Hazard Loss": Any Special Hazard Loss,
or portion thereof, that exceeds the then applicable Special
Hazard Amount.
"Extraordinary Events": Any of the following
conditions with respect to a Mortgaged Property or Mortgage Loan
causing or resulting in a loss which causes the liquidation of
such Mortgage Loan:
(a) losses which are of a type that would be covered
by the fidelity bond and the errors and omissions insurance
policy required to be maintained pursuant to Section 3.18,
but are in excess of the coverage maintained thereunder;
(b) nuclear reaction or nuclear radiation or
radioactive contamination, all whether controlled or
uncontrolled, or remote or be in whole or in part caused by,
contributed to or aggravated by, a peril covered by the
definition of the term "Special Hazard Loss";
(c) hostile or warlike action in time of peace or war,
including action in hindering, combatting or defending
against an actual, impending or expected attack:
1. by any government or sovereign power, de jure
or de facto, or by any authority maintaining or using
military, naval or air forces; or
2. by military, naval or air forces; or
3. by an agent of any such government, power,
authority or forces;
(d) any weapon of war employing atomic fission or
radioactive force whether in time of peace or war; or
(e) insurrection, rebellion, revolution, civil war,
usurped power or action taken by governmental authority in
hindering, combatting or defending against such an
occurrence, seizure or destruction under quarantine or
customs regulations, confiscation by order of any government
or public authority, or risks of contraband or illegal
transportation or trade.
"Extraordinary Losses": Any Realized Loss incurred on
a Mortgage Loan caused by or resulting from an Extraordinary
Event.
"FDIC": Federal Deposit Insurance Corporation or any
successor.
"FHLMC": Federal Home Loan Mortgage Corporation or any
successor.
["Fitch": Fitch Investors Service, L.P. or its
successor it interest.]
"FNMA": Federal National Mortgage Association or any
successor.
"Fraud Loss Amount": With respect to any date of
determination after the Cut-off Date an amount equal to: (X)
prior to the first Anniversary, an amount equal to [3.00]% of the
aggregate outstanding principal balance of all of the Mortgage
Loans as of the Cut-off Date minus the aggregate amount of Fraud
Losses allocated solely to the Class A-2, Class B-1, Class B-2 or
Class B-3 Certificates in accordance with Section 4.04 since the
Cut-off Date, (Y) from and including the first Anniversary to but
not including the second Anniversary, an amount equal to (1) the
lesser of (a) the Fraud Loss Amount as of the day immediately
preceding the first Anniversary and (b) [2.00]% of the aggregate
outstanding principal balance of all of the Mortgage Loans as of
the first Anniversary minus (2) the Fraud Losses allocated solely
to the Class A-2, Class B-1, Class B-2 or Class B-3 Certificates,
in accordance with Section 4.04 since the first Anniversary, and
(Z) from and including the second Anniversary to but not
including the fifth Anniversary, an amount equal to (1) the
lesser of (a) the Fraud Loss Amount as of the most recent
Anniversary and (b) [1.00]% of the aggregate outstanding
principal balance of all of the Mortgage Loans, as of the most
recent Anniversary minus (2) the Fraud Losses allocated solely to
the Class A-2, Class B-1, Class B-2 or Class B-3 Certificates, in
accordance with Section 4.04 since the most recent Anniversary.
On and after the fifth Anniversary the Fraud Loss Amount shall be
zero.
"Fraud Losses": Realized Losses on Mortgage Loans as
to which there was fraud in the origination of such Mortgage
Loan.
"Funding Date": With respect to each Mortgage Loan,
the date on which funds were advanced by or on behalf of the
Depositor and interest began to accrue thereunder.
["GPARM Loan": Each Mortgage Loan which contains
provision for negative amortization, as indicated on the Mortgage
Loan Schedule.]
"Gross Margin": With respect to each Mortgage Loan,
the fixed rate set forth in the related Mortgage Note to be added
to the Index on each Rate Adjustment Date in accordance with the
terms of the related Mortgage Note used to determine the Mortgage
Rate for such Mortgage Loan. The Gross Margin as to each
Mortgage Loan is set forth on the Mortgage Loan Schedule.
"Index": With respect to the Mortgage Loans [other
than the GPARM Loans], the average of the interbank offered rates
for six-month United States dollar deposits in the London market
based on quotations of major banks, as published in the Western
Edition of The Wall Street Journal, as most recently available as
of the date 45 days prior to any Rate Adjustment Date. [With
respect to the GPARM Loans, the average of the interbank offered
rates for one-month United States dollar deposits in the London
market based on quotations of major banks, as published in the
Western Edition of The Wall Street Journal, as most recently
available as of the date 45 days prior to any Rate Adjustment
Date.] If [the] [either] Index is not so published or is
otherwise unavailable, the Master Servicer shall select an
alternate index for mortgage loans on [single family] multifamily
residential properties that is calculated and published or
otherwise made available by an independent third party.
"Initial Certificate Principal Balance": With respect
to each Class of Certificates, the Certificate Principal Balance
of such Class of Certificates as of the Cut-off Date as set forth
in the Preliminary Statement hereto.
"Initial Class A-1 Percentage": As set forth in the
Preliminary Statement hereto.
"Initial Class A-2 Percentage": As set forth in the
Preliminary Statement hereto.
"Initial Class B-1 Percentage": As set forth in the
Preliminary Statement hereto.
"Initial Class B-2 Percentage": As set forth in the
Preliminary Statement hereto.
"Initial Class B-3 Percentage": As set forth in the
Preliminary Statement hereto.
"Initial Loss Coverage": The aggregate Initial
Certificate Balance of the Class A-2, Class B-1, Class B-2 and
Class B-3 Certificates.
"Initial Subordinate Percentage": ____%, which is the
aggregate of the Initial Class B-1 Percentage, the Initial Class
B-2 Percentage and the Initial Class B-3 Percentage.
"Insurance Policy": With respect to any Mortgage Loan,
any insurance policy which is required to be maintained from time
to time under this Agreement in respect of such Mortgage Loan.
"Insurance Proceeds": Proceeds paid in respect of the
Mortgage Loans pursuant to any Primary Hazard Insurance Policy,
any title insurance policy or any other insurance policy covering
a Mortgage Loan, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to
the Mortgagor in accordance with the procedures that the Master
Servicer would follow in servicing mortgage loans held for its
own account.
"Interest Determination Date": With respect to any
Distribution Date, the second London Business Day preceding the
Due Date in the month next preceding the month in which such
Distribution Date occurs.
"Late Collections": With respect to any Mortgage Loan,
all amounts received during any Due Period, whether as late
payments of Monthly Payments or as Insurance Proceeds, Liquida-
tion Proceeds or otherwise, which represent late payments or
collections of Monthly Payments due but delinquent for a previous
Due Period and not previously recovered.
"Reuters One Month LIBOR": With respect to any
Distribution Date, the rate determined by the Trustee on the
related Interest Determination Date on the basis of the offered
rates of the Reference Banks for one-month United States dollar
deposits, as such rates appear on the Reuters Screen LIBOR Page,
as of 11:00 A.M. (London time) on such Interest Determination
Date. On each Interest Determination Date, Reuters One Month
LIBOR will be established by the Trustee as follows:
(i) If, on such Interest Determination Date, two or
more Reference Banks provide such offered
quotations, Reuters One Month LIBOR shall be the
arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest
multiple of 1/16 of 1%); or
(ii) If, on such Interest Determination Date, fewer
than two Reference Banks provide such offered
quotations, Reuters One Month LIBOR shall be the
higher of (i) Reuters One Month LIBOR, as
determined on the previous Interest Determination
Date, and (ii) the Reserve Interest Rate.
"Liquidation Proceeds": Amounts (other than Insurance
Proceeds) received by the Master Servicer in connection with the
taking of an entire Mortgaged Property by exercise of the power
of eminent domain or condemnation or in connection with the
liquidation of a defaulted Mortgage Loan through trustee's sale,
foreclosure sale or otherwise, other than amounts received in
respect of any REO Property.
"Loan-to-Value Ratio": As of any date, the fraction,
expressed as a percentage, the numerator of which is the current
principal balance of the related Mortgage Loan at the date of
determination and the denominator of which is the Collateral
Value of the related Mortgaged Property.
"London Business Day": Any day on which banks in the
City of London are open and conducting transactions in United
States dollars.
"Loss Severity Percentage": As of any Determination
Date, ____%.
"Master Servicer": ___________________________, or any
successor master servicer appointed as herein provided.
"Maximum Rate": With respect to each Mortgage Loan,
the amount set forth in the Mortgage Note as the maximum Mortgage
Rate thereunder.
"Minimum Rate": With respect to each Mortgage Loan,
the amount set forth in the Mortgage Note as the minimum Mortgage
Rate thereunder.
"Monthly Payment": With respect to any Mortgage Loan,
the scheduled monthly payment of principal and interest on such
Mortgage Loan which is payable by a Mortgagor from time to time
under the related Mortgage Note as originally executed (after
adjustment, if any, for Principal Prepayments and for Deficient
Valuations occurring prior to such Due Date, and after any
adjustment by reason of any bankruptcy or similar proceeding or
any moratorium or similar waiver or grace period).
["Moody's": Moody's Investors Service, Inc. or its
successor in interest.]
"Mortgage": The mortgage, deed of trust or any other
instrument securing the Mortgage Loan.
"Mortgage File": The mortgage documents listed in
Section 2.01 pertaining to a particular Mortgage Loan and any
additional documents required to be added to the Mortgage File
pursuant to this Agreement; provided, that whenever the term
"Mortgage File" is used to refer to documents actually received
by the Trustee, such term shall not be deemed to include such
additional documents required to be added unless they are actual-
ly so added.
"Mortgage Loan": Each of the mortgage loans, trans-
ferred and assigned to the Trustee pursuant to Section 2.01 or
Section 2.03 and from time to time held in the Trust Fund, the
Mortgage Loans originally so transferred, assigned and held being
identified in the Mortgage Loan Schedule. As used herein, the
term "Mortgage Loan" includes the related Mortgage Note and
Mortgage.
["Mortgage Loan Accrued Interest": With respect to
each GPARM Loan and each Due Date, the aggregate amount of
interest accrued at the Mortgage Rate in respect of such GPARM
Loan since the preceding Due Date (or in the case or the initial
Due Date, since the Cut-off Date) to but not including such Due
Date with respect to which the GPARM Loan Accrued Interest is
being calculated in accordance with the terms of such GPARM Loan,
after giving effect to any previous Principal Prepayments,
Deficient Valuation or Debt Service Reduction in respect of such
GPARM Loan.]
"Mortgage Loan Schedule": As of any date of determina-
tion, the schedule of Mortgage Loans included in the Trust Fund.
The initial schedule of Mortgage Loans for each Mortgage Loan
with accompanying information transferred on the Closing Date to
the Trustee as part of the Trust Fund for the Certificates,
attached hereto as Exhibit H (and, for purposes of the Trustee's
review of the Mortgage Files pursuant to Section 2.02, in
computer-readable form as delivered to the Trustee), which list
shall set forth the following information with respect to each
Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of
the Mortgaged Property;
(iii) the initial Mortgage Rate;
(iv) the maturity date;
(v) the original principal balance;
(vi) the first payment date;
(vii) the type of Mortgaged Property;
(viii) the Monthly Payment in effect as of the Cut-off
Date;
(ix) the principal balance as of the Cut-off Date;
(x) the Gross Margin;
(xi) the next Rate Adjustment Date;
(xii) the Periodic Rate Cap;
(xiii) the Rate Adjustment Date frequency;
(xiv) the Mortgage Rate as of the Cut-off Date;
(xv) the occupancy status;
(xvi) the purpose of the Mortgage Loan;
(xvii) the Collateral Value of the Mortgaged Property;
(xviii) the original term to maturity;
(xix) whether or not the Mortgage Loan provides for a
Principal Prepayment penalty;
(xx) the first Rate Adjustment Date;
(xxi) the Minimum Rate and Maximum Rate;
(xxii) the paid-through date of the Mortgage Loan;
(xxiii) the credit grade of the Mortgagor;
(xxiv) the number of units in the Mortgaged Property;
(xxv) whether or not the Mortgage Loan is a GPARM Loan;
and
[ (xxvi) with respect to each GPARM Loan, the first Payment
Adjustment Date.]
The Mortgage Loan Schedule shall also set forth the
total of the amounts described under (ix) above for all of the
Mortgage Loans. The Mortgage Loan Schedule may be in the form of
more than one schedule, collectively setting forth all of the
information required.
"Mortgage Note": The note or other evidence of the
indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to any Mortgage Loan,
the annual rate at which interest accrues on such Mortgage Loan,
as adjusted from time to time in accordance with the provisions
of the Mortgage Note.
"Mortgaged Property": The underlying property securing
a Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage
Note.
"Net Mortgage Rate": As to each Mortgage Loan, a per
annum rate of interest equal to the Mortgage Rate as in effect
from time to time minus the Servicing Fee Rate.
"Net Mortgage Rate Cap": The net per annum rate equal
to the weighted average of the Net Mortgage Rates on the then
outstanding Mortgage Loans.
"Nonrecoverable Advance": Any Advance previously made
or proposed to be made in respect of a Mortgage Loan which, in
the good faith judgment of the Master Servicer, will not or, in
the case of a proposed Advance, would not be ultimately recover-
able from related Late Collections, Insurance Proceeds, Liquida-
tion Proceeds, REO Proceeds or amounts reimbursable to the Master
Servicer pursuant to Section 4.01(b). The determination by the
Master Servicer that it has made a Nonrecoverable Advance or that
any proposed Advance would constitute a Nonrecoverable Advance,
shall be evidenced by an Officers' Certificate delivered to the
Depositor and the Trustee.
"Non-United States Person": Any Person other than a
United States Person.
"Notional Amount": As of any date of Determination the
aggregate Certificate Principal Balance of all Classes of
Certificates immediately prior to such date, except that the
initial Notional Amount shall be rounded down to the nearest
multiple of $1.00.
"Officers' Certificate": A certificate signed by the
Chairman of the Board, the Vice Chairman of the Board, the
President or a Vice President and by the Treasurer, the
Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Master Servicer or of the Sub-Servicer and
delivered to the Depositor and Trustee.
"Opinion of Counsel": A written opinion of counsel,
who may be counsel for the Depositor or the Master Servicer,
reasonably acceptable to the Trustee; except that any opinion of
counsel relating to (a) the qualification of any account required
to be maintained pursuant to this Agreement as an Eligible
Account, (b) qualification of the Trust Fund as a REMIC, (c)
compliance with the REMIC Provisions or (d) resignation of the
Master Servicer pursuant to Section 6.04 must be an opinion of
counsel who (i) is in fact independent of the Depositor and the
Master Servicer, (ii) does not have any direct financial interest
or any material indirect financial interest in the Depositor or
the Master Servicer or in an affiliate of either and (iii) is not
connected with the Depositor or the Master Servicer as an
officer, employee, director or person performing similar
functions.
"Original Senior Percentage": _____%, which is the
fraction, expressed as a percentage, the numerator of which is
the aggregate Certificate Principal Balances of the Class A-1 and
Class A-2 Certificates as of the Closing Date and the denominator
of which is the aggregate Stated Principal Balance of all of the
Mortgage Loans as of the Closing Date.
"OTS": Office of Thrift Supervision or any successor.
"Outstanding Mortgage Loan": As to any Due Date, a
Mortgage Loan (including an REO Property) which was not the
subject of a Principal Prepayment in full, Cash Liquidation or
REO Disposition and which was not purchased prior to such Due
Date pursuant to Sections 2.02, 2.03 or 2.04.
"Ownership Interest": As to any Certificate, any
ownership or security interest in such Certificate, including any
interest in such Certificate as the Holder thereof and any other
interest therein, whether direct or indirect, legal or
beneficial, as owner or as pledgee.
["Payment Adjustment Date": With respect to each GPARM
Loan, the date set forth in the related Mortgage Note on which
the Monthly Payment may change and each semi-annual anniversary
of such date. The first Payment Adjustment Date as to each GPARM
Loan is set forth in the Mortgage Loan Schedule.]
"Percentage Interest": With respect to any Certificate
(other than a Class R Certificate), the undivided beneficial
ownership interest in the related Class evidenced by such
Certificate, which as to each such Certificate shall be equal to
the initial Certificate Principal Balance (or Notional Amount, as
applicable) thereof divided by the aggregate initial Certificate
Principal Balance (or Notional Amount, as applicable) of all of
the Certificates of the same Class, expressed as a percentage
carried to four decimal places. With respect to a Residual
Certificate, the interest in distributions to be made with
respect to such Class evidenced thereby, expressed as a
percentage carried to four decimal places, as stated on the face
of such Certificate.
"Periodic Rate Cap": The provision in each Mortgage
Note [(related to the Mortgage Loans other than the GPARM Loans)]
that limits permissible increases and decreases in the Mortgage
Rate on any Rate Adjustment Date to not more than ___% or ___%
above or below the Mortgage Rate in effect immediately prior to
such Rate Adjustment Date.
"Permitted Instruments": Any one or more of the
following:
(i) 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;
(ii) repurchase obligations (the collateral for which
is held by a third party or the Trustee) with respect to any
security described in clause (i) above, provided, that the
long-term unsecured 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 rating
categories;
(iii) certificates of deposit, time deposits, demand
deposits and bankers' acceptances of any bank or trust
company incorporated under the laws of the United States or
any state thereof or the District of Columbia, provided,
that the short-term commercial paper of such bank or trust
company (or, in the case of the principal depository
institution in a depository institution holding company, the
long-term unsecured debt obligations of the depository
institution holding company) at the date of acquisition
thereof has been rated by each Rating Agency in its highest
short-term rating;
(iv) mutual funds organized under the Investment
Company Act of 1940 rated not less than [P-1 by Moody's];
(v) commercial paper (having original maturities of
not more than nine months) of any corporation incorporated
under the laws of the United States or any state thereof or
the District of Columbia which on the date of acquisition
has been rated by each Rating Agency in its highest short-
term rating; and
(vi) any other obligation or security acceptable to the
Rating Agency (as certified by a letter from each Rating
Agency to the Trustee) in respect of asset backed
certificates rated in one of its two highest rating
categories;
provided, that no such instrument shall be a Permitted Instrument
if such instrument evidences either (a) the right to receive
interest only payments with respect to the obligations underlying
such instrument or (b) both principal and interest payments
derived from obligations underlying such instrument where the
principal and interest payments with respect to such instrument
provide a yield to maturity exceeding 120% of the yield to
maturity at par of such underlying obligation.
"Permitted Transferee": Any transferee of a Class R
Certificate other than a Non-United States Person or Disqualified
Organization.
"Person": Any individual, corporation, limited
liability company, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Prepayment Assumption": A constant prepayment rate
("CPR") of [20]% per annum, used solely for determining the rate
of accrual of original issue discount, market discount and
amortizable premium on the Certificates for federal income tax
purposes. A CPR represents an annualized constant assumed rate
of prepayment each month of a pool of mortgage loans relative to
its then outstanding principal balance for the life of such
mortgage loans.
"Prepayment Interest Shortfall": With respect to any
Distribution Date, for each Mortgage Loan that was the subject of
a partial Principal Prepayment or a Principal Prepayment in full
during the related Prepayment Period, an amount equal to the
amount of interest that would have accrued at the applicable Net
Mortgage Rate on the principal balance of such Mortgage Loan
immediately prior to such prepayment, or in the case of a partial
Principal Prepayment on the amount of such prepayment, during the
period commencing on the date of prepayment, or in the case of a
Principal Prepayment in full the date as of which the prepayment
is applied, and ending on the last day of the month of prepay-
ment.
"Prepayment Period": As to any Distribution Date, the
calendar month preceding the month in which such Distribution
Date occurs.
"Primary Hazard Insurance Policy": Each primary hazard
insurance policy required to be maintained pursuant to the first
or the second paragraph of Section 3.13.
"Principal Prepayment": Any payment of principal made
by the Mortgagor on a Mortgage Loan which is received in advance
of its scheduled Due Date and which is not accompanied by an
amount of interest representing scheduled interest due on any
date or dates in any month or months subsequent to the month of
prepayment.
"Prospective Losses": As of any Determination Date, an
amount equal to the sum of the following: (i) the product of (x)
the aggregate Stated Principal Balance of the Mortgage Loans
delinquent from 31 to 60 days, (y) 0.25 and (z) the Loss Severity
Percentage; (ii) the product of (x) the aggregate Stated
Principal Balance of the Mortgage Loans delinquent 61 to 90 days,
(y) 0.50 and (z) the Loss Severity Percentage; and (iii) the
product of (x) the aggregate Stated Principal Balance of the
Mortgage Loans delinquent 91 days or more plus the aggregate
Stated Principal Balance of any related REO Properties and (y)
the Loss Severity Percentage. For purposes of calculating
Prospective Losses, Mortgage Loans in foreclosure will be
categorized based on their respective number of days of
delinquency.
"Purchase Price": With respect to any Mortgage Loan
(or REO Property) required to be purchased pursuant to Section
2.02 or 2.04 or that the Master Servicer [or the Seller] is
entitled to repurchase pursuant to Section 3.22, an amount equal
to the sum of (i) 100% of the Stated Principal Balance thereof,
(ii) unpaid accrued interest (or REO Imputed Interest) at the
applicable Net Mortgage Rate on the Stated Principal Balance
thereof outstanding during each Due Period that such interest was
not paid or advanced, from the date through which interest was
last paid by the Mortgagor or advanced and distributed to
Certificateholders together with unpaid Servicing Fees from the
date through which interest was last paid by the Mortgagor, in
each case to the first day of the month in which such Purchase
Price is to be distributed, plus (iii) the aggregate of all
Advances made in respect thereof that were not previously
reimbursed.
"Rate Adjustment Date": With respect to each Mortgage
Loan, the date set forth in the related Mortgage Note on which
the Mortgage Rate may change and each [monthly (with respect to
the GPARM Loans) or] semi-annual [(with respect to the Mortgage
Loans other than the GPARM Loans)] anniversary of such date. The
first Rate Adjustment Date as to each Mortgage Loan is set forth
in the Mortgage Loan Schedule.
"Rating Agency": [Moody's], [Duff & Phelps], [S&P],
[Fitch] or each of their successors. If such agencies and their
successors are no longer in existence, "Rating Agency" shall be
such nationally recognized statistical rating agency, or other
comparable Person, designated by the Depositor, notice of which
designation shall be given to the Trustee and Master Servicer.
References herein to the two highest long term debt rating
categories of a Rating Agency shall mean ["Aa2"] or better in the
case of [Moody's], ["AA"] or better in the case of [Duff &
Phelps], [S&P] and [Fitch] and references herein to the highest
short-term debt rating of a Rating Agency shall mean ["Prime -
1"] in the case of Moody's], ["D - 1"] or better in the case of
Duff & Phelps], ["A-1"] in the case of [S&P] and ["F-1+"] in the
case of [Fitch] and in the case of any other Rating Agency such
references shall mean such rating categories without regard to
any plus or minus.
"Realized Loss": With respect to each Mortgage Loan or
REO Property as to which a Cash Liquidation or REO Disposition
has occurred, an amount (not less than zero) equal to (i) the
Stated Principal Balance of the Mortgage Loan as of the date of
Cash Liquidation or REO Disposition, plus (ii) interest (and REO
Imputed Interest, if any) at the Net Mortgage Rate from the Due
Date as to which interest was last paid or advanced to
Certificateholders up to the last day of the month in which the
Cash Liquidation or REO Disposition occurred on the Stated
Principal Balance of such Mortgage Loan outstanding during each
Due Period that such interest was not paid or advanced, minus
(iii) the proceeds, if any, received during the month in which
such Cash Liquidation or REO Disposition occurred, to the extent
applied as recoveries of interest at the Net Mortgage Rate and to
principal of the Mortgage Loan, net of the portion thereof
reimbursable to the Master Servicer or any Sub-Servicer with
respect to related Advances not previously reimbursed. With
respect to each Mortgage Loan which has become the subject of a
Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage
Loan as reduced by the Deficient Valuation. With respect to each
Mortgage Loan which has become the subject of a Debt Service
Reduction, the amount of such Debt Service Reduction.
"Record Date": The last Business Day of the month
immediately preceding the month of the related Distribution Date.
"Reference Banks": ________________________, [Barclay's
Bank PLC], [The Bank of Tokyo] and [National Westminster Bank
PLC], and their respective successors in interest; provided, that
if any of the foregoing banks are not suitable to serve as a
Reference Bank, then any leading banks selected by the Trustee
(i) which are engaged in transactions in Eurodollar deposits in
the international Eurocurrency market (ii) which have an
established place of business in London, (iii) which are not
controlling, under the control of or under common control with
the Company or any Affiliate thereof, (iv) whose quotations
appear on the Reuters Screen LIBOR Page on the relevant Interest
Determination Date and (v) which have been designated as such by
the Trustee.
"Regular Certificate": Any of the Certificates other
than the Class R Certificates.
"REMIC": A "real estate mortgage investment conduit"
within the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income
tax law relating to real estate mortgage investment conduits,
which appear at Sections 860A through 860G of Subchapter M of
Chapter 1 of the Code, and related provisions, and proposed,
temporary and final regulations and published rulings, notices
and announcements promulgated thereunder, as the foregoing may be
in effect from time to time.
"Remittance Report": A report prepared by the Master
Servicer providing the information set forth in Exhibit E
attached hereto.
"REO Acquisition": The acquisition by the Master
Servicer on behalf of the Trustee for the benefit of the
Certificateholders of any REO Property pursuant to Section 3.15.
"REO Disposition": The final receipt by or on behalf
of the Master Servicer of all Insurance Proceeds, Liquidation
Proceeds, REO Proceeds and other payments and recoveries
(including proceeds of a final sale) which the Master Servicer
expects to be finally recoverable from the sale or other
disposition of the REO Property.
"REO Imputed Interest": As to any REO Property, for
any period, an amount equivalent to interest (at the Mortgage
Rate that would have been applicable to the related Mortgage Loan
had it been outstanding [net, with respect to a GPARM Loan, of
amounts that would have been Deferred Interest, if any]) on the
unpaid principal balance of the Mortgage Loan as of the date of
acquisition thereof (as such balance is reduced pursuant to
Section 3.15 by any income from the REO Property treated as a
recovery of principal [and, with respect to a GPARM Loan, as such
balance is increased by the addition of Deferred Interest]).
"REO Proceeds": Proceeds, net of directly related
expenses, received in respect of any REO Property (including,
without limitation, proceeds from the rental of the related
Mortgaged Property and of any REO Disposition) which proceeds are
required to be deposited into the Custodial Account as and when
received.
"REO Property": A Mortgaged Property acquired by the
Master Servicer through foreclosure or deed-in-lieu of foreclo-
sure in connection with a defaulted Mortgage Loan.
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibits F-1 or F-2 attached hereto.
"Reserve Interest Rate: With respect to any
Distribution Date, the rate per annum that the Trustee determines
to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 1/16 of 1%) of the
one-month United States dollar lending rates which New York City
banks selected by the Trustee are quoting on the related Interest
Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that
the Trustee can determine no such arithmetic mean, the lowest
one-month United States dollar lending rate which New York City
banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Residual Certificate": Any of the Class R
Certificates.
"Responsible Officer": When used with respect to the
Trustee, the Chairman or Vice Chairman of the Board of Directors
or Trustees, the Chairman or Vice Chairman of the Executive or
Standing Committee of the Board of Directors or Trustees, the
President, the Chairman of the Committee on Trust Matters, any
Vice President, any Assistant Vice President, the Secretary, any
Assistant Secretary, the Treasurer, any Assistant Treasurer, the
Cashier, any Assistant Cashier, any Trust Officer, any Assistant
Trust Officer, the Controller and any Assistant Controller or any
other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Rule 144A": Rule 144A promulgated under the
Securities Act of 1933, as amended, as in effect from time to
time.
["S&P": Standard & Poor's Rating Services, a division
of the McGraw-Hill Inc., or its successor in interest.]
"Scheduled Principal and Net Recoveries": With respect
to any Distribution Date, an amount equal to the aggregate of the
following:
(1) the principal portion of each Monthly Payment on
the Outstanding Mortgage Loans due on the related Due Date,
whether or not received on or prior to the related
Determination Date, less the principal portion of related
Debt Service Reductions which constitute Excess Bankruptcy
Losses;
(2) the Stated Principal Balance of any Mortgage Loan
repurchased during the related Prepayment Period; and
(3) the principal portion of all Insurance Proceeds,
Liquidation Proceeds and REO Proceeds received during the
related Prepayment Period minus the aggregate amount of
expenses incurred by the Master Servicer in connection with
the liquidation of the related Mortgage Loans to the extent
such expenses are not otherwise recoverable from such
Insurance Proceeds, Liquidation Proceeds or REO Proceeds;
but only to the extent that any such amounts either (A) were
not received in connection with a Cash Liquidation or REO
Disposition, or (B) were received in connection with a Cash
Liquidation or REO Disposition which resulted in an Excess
Special Hazard Loss, Excess Bankruptcy Loss, Excess Fraud
Loss or Extraordinary Loss.
"Seller": Quality Mortgage USA, Inc., and its
successors and assigns.
"Senior Certificate": Any of the Class S, Class A-1,
or Class A-2 Certificates.
"Senior Percentage": With respect to any Distribution
Date, and with respect to the Class A-1 and Class A-2
Certificates together, the sum of the then applicable Class A-1
Percentage and Class A-2 Percentage.
"Senior Prepayment Percentage": With respect to any
Distribution Date, the percentage indicated below for the time
period indicated during which such Distribution Date occurs:
Distribution Date Senior Prepayment Percentage
________ ____ through 100%
________ ____
________ ____ through Senior Percentage, plus [70]%
________ ____ of the difference between 100%
and the Senior Percentage
________ ____ through Senior Percentage, plus [60]%
________ ____ of the difference between 100%
and the Senior Percentage
________ ____ through Senior Percentage, plus [40]%
________ ____ of the difference between 100%
and the Senior Percentage
________ ____ through Senior Percentage, plus [20]%
________ ____ of the difference between 100%
and the Senior Percentage
________ ____ and Senior Percentage
thereafter
provided, however, that any scheduled reduction to the Senior
Prepayment Percentage described above shall not occur as of any
Distribution Date unless either (a)(1) the outstanding principal
balance of Mortgage Loans delinquent 60 days or more averaged
over the last six months, as a percentage of the aggregate
outstanding principal balance of all Mortgage Loans averaged over
the last six months, does not exceed [2]% and (2) Realized Losses
on the Mortgage Loans to date for such Distribution Date if
occurring during the first ten years after the Closing Date, or
occurring during the eleventh, twelfth, thirteenth, fourteenth
and fifteenth year (or any year thereafter) after the Closing
Date, are less than [30]%, [35]%, [40]%, [45]% and [50]%,
respectively, of the aggregate Initial Certificate Principal
Balance of the Subordinate Certificates or (b)(1) the outstanding
principal balance of the Mortgage Loans delinquent 60 days or
more averaged over the last six months, as a percentage of the
aggregate outstanding principal balance of all Mortgage Loans
averaged over the last six months, does not exceed [4]% and (2)
Realized Losses on the Mortgage Loans to date for such
Distribution Date are less than [10]% of the aggregate Initial
Certificate Principal Balance of the Subordinate Certificates.
For purposes of the foregoing, the percentage of the Mortgage
Loans that are delinquent as of any Distribution Date shall be
deemed to be such percentages as are to be specified in the
report pursuant to Section 4.02 with respect to such Distribution
Date. Notwithstanding the foregoing, upon the reduction of the
aggregate Certificate Principal Balance of the Class A-1
Certificates and the Class A-2 Certificates to zero, the Senior
Prepayment Percentage shall thereafter be 0%. In addition, with
respect to any Distribution Date on which the Senior Percentage
is greater than the Original Senior Percentage, the Senior
Prepayment Percentage for such Distribution shall be 100%.
"Servicing Account": The account or accounts created
and maintained pursuant to Section 3.09.
"Servicing Advances": All customary, reasonable and
necessary "out of pocket" costs and expenses incurred in
connection with a default, delinquency or other unanticipated
event by the Master Servicer in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property,
(ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of any REO
Property and (iv) compliance with the obligations under the
second paragraph of Section 3.01 and Section 3.09.
"Servicing Fee": As to each Mortgage Loan, an amount,
payable out of any payment of interest on the Mortgage Loan,
equal to interest at the applicable Servicing Fee Rate on the
Stated Principal Balance of such Mortgage Loan for the calendar
month preceding the month in which the payment is due (alterna-
tively, in the event such payment of interest accompanies a
Principal Prepayment in full made by the Mortgagor, interest for
the number of days covered by such payment of interest).
"Servicing Fee Rate": With respect to each Mortgage
Loan, the rate per annum at which the Master Servicer is
compensated for its servicing pursuant to this Agreement, which
rate is ____% per annum.
"Servicing Officer": Any officer of the Master
Servicer involved in, or responsible for, the administration and
servicing of the Mortgage Loans, whose name appears on a list of
servicing officers furnished to the Trustee by the Master Ser-
vicer, as such list may from time to time be amended.
"Single Certificate": A Certificate of any Class
evidencing the minimum denomination for Certificates of such
Class as set forth in Section 5.01.
"Special Hazard Amount": As of any Distribution Date,
an amount equal to $___________ in respect of the Mortgage Loans
minus the sum of (i) the aggregate amount of Special Hazard
Losses allocated solely to the Class A-2, Class B-1, Class B-2
and Class B-3 Certificates in accordance with Section 4.04 and
(ii) the Adjustment Amount (as defined below) as most recently
calculated. For each Anniversary, the Adjustment Amount with
respect to the Certificates shall be calculated and shall be
equal to the amount, if any, by which the amount calculated in
accordance with the preceding sentence (without giving effect to
the deduction of the Adjustment Amount for such Anniversary)
exceeds the greater of (A) the product of the Special Hazard
Percentage for such Anniversary multiplied by the outstanding
principal balance of all of the Mortgage Loans on such
Anniversary and (B) twice the outstanding principal balance of
the Mortgage Loan in the Trust Fund which has the largest
outstanding principal balance on such Anniversary.
"Special Hazard Loss": Any Realized Loss suffered by
a Mortgaged Property on account of direct physical loss, but not
including (i) any loss of a type covered by a hazard insurance
policy or a flood insurance policy required to be maintained in
respect to such Mortgaged Property pursuant to Section 3.13 to
the extent of the amount of such loss covered thereby, or (ii)
any Extraordinary Loss.
"Special Hazard Percentage": As of each Anniversary,
the greater of (i) [1]% and (ii) the largest percentage obtained
by dividing the aggregate outstanding principal balance on such
Anniversary of the Mortgage Loans secured by Mortgaged Properties
located in a single, five-digit zip code area in the State of
California by the outstanding principal balance of all the
Mortgage Loans on such Anniversary.
"Startup Day": The day designated as such pursuant to
Article X hereof.
"Stated Principal Balance": With respect to any
Mortgage Loan or related REO Property at any given time, (i) the
principal balance of the Mortgage Loan outstanding as of the Cut-
off Date, after application of principal payments due on or
before such date, whether or not received, [plus (ii) with
respect to a GPARM Loan, any Deferred Interest added to the
principal balance of such Mortgage Loan pursuant to the terms of
the related Mortgage Note,] minus (iii) the sum of (a) the
principal portion of the Monthly Payments due with respect to
such Mortgage Loan or REO Property during each Due Period ending
prior to the most recent Distribution Date which were distributed
or with respect to which an Advance was distributed, and (b) all
Principal Prepayments with respect to such Mortgage Loan or REO
Property, and all Insurance Proceeds, Liquidation Proceeds and
net income from a REO Property to the extent applied by the
Master Servicer as recoveries of principal in accordance with
Section 3.15 with respect to such Mortgage Loan or REO Property,
which were distributed pursuant to Section 4.01 on any previous
Distribution Date, and (c) any Realized Loss with respect thereto
allocated pursuant to Section 4.04 for any previous Distribution
Date.
"Subordinate Certificate": Any of the Class B-1, Class
B-2 or Class B-3 Certificates.
"Sub-Servicer": Any Person with which the Master
Servicer has entered into a Sub-Servicing Agreement and which
meets the qualifications of a Sub-Servicer pursuant to Section
3.02.
"Sub-Servicer Remittance Date": The 18th day of each
month, or if such day is not a Business Day, the immediately
preceding Business Day.
"Sub-Servicing Account": An account established by a
Sub-Servicer which meets the requirements set forth in Section
3.08 and is otherwise acceptable to the Master Servicer.
"Sub-Servicing Agreement": The written contract
between the Master Servicer and a Sub-Servicer and any successor
Sub-Servicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02.
"Tax Returns": The federal income tax return on
Internal Revenue Service Form 1066, U.S. Real Estate Mortgage
Investment Conduit Income Tax Return, including Schedule Q
thereto, Quarterly Notice to Residual Interest Holders of REMIC
Taxable Income or Net Loss Allocation, or any successor forms, to
be filed on behalf of the Trust Fund due to its classification as
a REMIC under the REMIC Provisions, together with any and all
other information, reports or returns that may be required to be
furnished to the Certificateholders or filed with the Internal
Revenue Service or any other governmental taxing authority under
any applicable provisions of federal, state or local tax laws.
"Termination Event": The event described in Section
7.02.
"Total Expected Losses": On any Determination Date,
the sum of (a)(i) the aggregate amount of Realized Losses on the
Mortgage Loans previously allocated solely to any of the Class A-
2, Class B-1, Class B-2 and Class B-3 Certificates and (b) the
Prospective Losses as of such Determination Date.
"Transfer": Any direct or indirect transfer, sale,
pledge, hypothecation or other form of assignment of any
Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer
of any Ownership Interest in a Certificate.
"Trust Fund": The segregated pool of assets subject
hereto, constituting the primary trust created hereby and to be
administered hereunder, with respect to which a REMIC election is
to be made, consisting of: (i) the Mortgage Loans (exclusive of
payments of principal and interest due on or before the Cut-off
Date, if any) as from time to time are subject to this Agreement
and all payments under and proceeds of the Mortgage Loans
(exclusive of any prepayment fees and late payment charges
received on the Mortgage Loans), together with all documents
included in the related Mortgage File, subject to Section 2.01;
(ii) such funds or assets as from time to time are deposited in
the Custodial Account, the Excess Proceeds Account or the
Certificate Account; (iii) any REO Property; and (iv) the Primary
Hazard Insurance Policies, if any, and all other Insurance
Policies with respect to the Mortgage Loans.
"Trustee": ________________________, or its successor
in interest, or any successor trustee appointed as herein
provided.
"Uninsured Cause": Any cause of damage to property
subject to a Mortgage such that the complete restoration of such
property is not fully reimbursable by the hazard insurance
policies or flood insurance policies required to be maintained
pursuant to Section 3.13.
"United States Person": A citizen or resident of the
United States, a corporation, partnership or other entity created
or organized in, or under the laws of, the United States or any
political subdivision thereof, or an estate or trust whose income
from sources without the United States is includible in gross
income for United States federal income tax purposes regardless
of its connection with the conduct of a trde or busines within
the United States. The term "United States" shall have the
meaning set forth in Section 7701 of the Code or successor
provisions.
"Variable Strip Certificate": The Class S
Certificates.
"Voting Rights": The portion of the voting rights of
all of the Certificates which is allocated to any Certificate.
At all times during the term of this Agreement, _____% of all of
the Voting Rights shall be allocated among Holders of Class A-1,
Class A-2, Class B-1, Class B-2, and Class B-3 Certificates in
proportion to the outstanding Certificate Principal Balances of
their respective Certificates; and the Holders of the Class S and
Class R Certificates, respectively, shall collectively be
entitled to ____% and ____% of all of the Voting Rights,
allocated among the Certificates of each such Class in accordance
with their respective Percentage Interests.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Depositor, as of the Closing Date, and concurrently
with the execution and delivery hereof, does hereby assign,
transfer, sell, set over and otherwise convey to the Trustee
without recourse all the right, title and interest of the
Depositor in and to the Mortgage Loans identified on the Mortgage
Loan Schedule (exclusive of any prepayment fees and late payment
charges received thereon) and all other assets included or to be
included in the Trust Fund for the benefit of the
Certificateholders. Such assignment includes all principal and
interest received by the Master Servicer on or with respect to
the Mortgage Loans (other than payment of principal and interest
due on or before the Cut-off Date).
In connection with such transfer and assignment, the
Depositor shall deliver to, and deposit with the Trustee, the
following documents or instruments:
(i) the original Mortgage Note, endorsed without
recourse to the order of "_______________________, as
trustee" with all intervening endorsements showing a
complete chain of endorsements from the originator to the
Person endorsing it to the Trustee;
(ii) the original recorded Mortgage or, if the original
Mortgage has not been returned from the applicable public
recording office, a copy of the Mortgage certified by the
Depositor to be a true and complete copy of the original
Mortgage submitted to the title insurance company for
recording;
(iii) a duly executed original Assignment of the
Mortgage in recordable form to "_______________________, as
trustee for the holders of Quality Mortgage Acceptance Corp.
Mortgage Loan Asset-Backed Certificates" or to
"_______________________, as trustee";
(iv) the original recorded Assignment or Assignments of
the Mortgage showing a complete chain of assignment from the
originator thereof to the Person assigning it to the Trustee
or, if any such Assignment has not been returned from the
applicable public recording office, a copy of such
Assignment certified by the Depositor to be a true and
complete copy of the original Assignment submitted to the
title insurance company for recording;
(v) the original lender's title insurance policy, or,
if such policy has not been issued and if the Mortgage Loan
was funded through a title insurance company pursuant to
escrow or closing instructions precluding the title
insurance company or other comparable escrow or closing
agent from funding until it is prepared to issue the
required title insurance coverage, a copy of such escrow or
closing instructions;
(vi) the original of any assumption, modification,
extension or guaranty agreement;
(vii) the original or a copy of the preliminary title
report (or equivalent thereof) on the Mortgage Property; and
(viii) if any of the documents or instruments referred
to above was executed on behalf of the Mortgagor by another
Person, the original power of attorney or other instrument
that authorized and empowered such Person to sign, or a copy
thereof certified by the Depositor (or by an officer of the
applicable title insurance or escrow company) to be a true
and correct copy of the original.
Notwithstanding anything to the contrary contained in
this Section 2.01, in those instances where the public recording
office retains the original Mortgage after it has been recorded,
the Depositor shall be deemed to have satisfied its obligations
hereunder upon delivery to the Trustee of a copy of such Mortgage
certified by the public recording office to be a true and
complete copy of the recorded original thereof.
As promptly as practicable after the Closing Date,
the Depositor shall cause to be delivered to the appropriate public
office for recordation in the real property records the
Assignment referred to in clause (iii) and to the extent
necessary in clause (iv) of this Section 2.01. While such
Assignment to be recorded is being recorded, the Trustee shall
retain a photocopy of such Assignment. If any Assignment is lost
or returned unrecorded to the Trustee because of any defect
therein, the Depositor is required to prepare a substitute
Assignment or cure such defect, as the case may be, and the
Trustee shall cause such Assignment to be recorded in accordance
with this paragraph.
The Depositor commits to exercise its best reasonable
efforts to deliver or cause to be delivered to the Trustee within
120 days of the Closing Date, the original or a photocopy of the
title insurance policy with respect to each of the related
Mortgage Loans assigned to the Trustee pursuant to this Section
2.01.
All original documents relating to the Mortgage Loans
which are not delivered to the Trustee, to the extent delivered
by the Depositor to the Master Servicer, are and shall be held by
the Master Servicer in trust for the benefit of the Trustee on
behalf of the Certificateholders.
Except as may otherwise expressly be provided herein,
neither the Depositor, the Master Servicer nor the Trustee shall
(and the Master Servicer shall ensure that no Sub-Servicer shall)
assign, sell, dispose of or transfer any interest in the Trust
Fund or any portion thereof, or permit the Trust Fund or any
portion thereof to be subject to any lien, claim, mortgage,
security interest, pledge or other encumbrance of, any other
Person.
It is intended that the conveyance of the Mortgage
Loans by the Depositor to the Trustee as provided in this Section
2.01 be, and be construed as, a sale of the Mortgage Loans by the
Depositor to the Trustee for the benefit of the
Certificateholders. It is, further, not intended that such
conveyance be deemed a pledge of the Mortgage Loans by the
Depositor to the Trustee to secure a debt or other obligation of
the Depositor. However, in the event that the Mortgage Loans are
held to be property of the Depositor, or if for any reason this
Agreement is held or deemed to create a security interest in the
Mortgage Loans, then it is intended that, (a) this Agreement
shall also be deemed to be a security agreement within the
meaning of Articles 8 and 9 of the California Uniform Commercial
Code and the Uniform Commercial Code of any other applicable
jurisdiction; (b) the conveyance provided for in this Section
2.01 shall be deemed to be (1) a grant by the Depositor to the
Trustee of a security interest in all of the Depositor's right
(including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A)
the Mortgage Loans, including the Mortgage Notes, the Mortgages,
any related insurance policies and all other documents in the
related Mortgage Files, (B) all amounts payable to the holders of
the Mortgage Loans in accordance with the terms thereof and (C)
all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, instruments, securities or other property,
including without limitation all amounts from time to time held
or invested in the Certificate Account or the Custodial Account,
whether in the form of cash, instruments, securities or other
property and (2) an assignment by the Depositor to the Trustee of
any security interest in any and all right (including the power
to convey title thereto), title and interest, whether now owned
or hereafter acquired, in and to the property described in the
foregoing clauses (1)(A) through (C); (c) the possession by the
Trustee or its agent of Mortgage Notes and such other items of
property as constitute instruments, money, negotiable documents
or chattel paper shall be deemed to be "possession by the secured
party" or possession by a purchaser or a person designated by
such secured party, for purposes of perfecting the security
interest pursuant to the California Uniform Commercial Code and
the Uniform Commercial Code of any other applicable jurisdiction
(including, without limitation, Sections 9305, 8313 or 8321
thereof); and (d) 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. The Depositor and the Trustee shall, to the
extent consistent with this Agreement, take such actions as may
be necessary to ensure that, if this 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 Agreement.
SECTION 2.02. Acceptance of the Trust Fund by the
Trustee.
The Trustee acknowledges receipt (subject to any
exceptions noted in the Initial Certification described below) of
the documents referred to in Section 2.01 above and all other
assets included in the Trust Fund and declares that it holds and
will hold such documents and the other documents delivered to it
constituting the Mortgage Files, and that it holds or will hold
such other assets included in the Trust Fund (to the extent
delivered or assigned to the Trustee), in trust for the exclusive
use and benefit of all present and future Certificateholders.
The Trustee agrees, for the benefit of the Certificate-
holders, to review each Mortgage File on or before the Closing
Date to ascertain that all documents required to be delivered to
it are in its possession, and the Trustee agrees to execute and
deliver to the Depositor and the Master Servicer on the Closing
Date an Initial Certification in the form attached hereto as
Exhibit C to the effect that, as to each Mortgage Loan listed in
the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full or any Mortgage Loan specifically identified in such
certification as not covered by such certification), (i) all
documents required to be delivered to it pursuant to this
Agreement with respect to such Mortgage Loan 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 and only as to the foregoing
documents, the information set forth in items (i) - (vi) and (x)
- - (xiii) of the definition of the "Mortgage Loan Schedule"
accurately reflects information set forth in the Mortgage File.
Neither the Trustee nor the Master Servicer shall be under any
duty to determine whether any Mortgage File should include any of
the documents specified in clause (vi) of Section 2.01. Neither
the Trustee nor the Master Servicer shall be under any duty or
obligation to inspect, review or examine said documents,
instruments, certificates or other papers to determine that the
same 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.
Within 90 days of the Closing Date the Trustee shall
deliver to the Depositor and the Master Servicer a Final
Certification in the form attached hereto as Exhibit D evidencing
the completeness of the Mortgage Files, with any applicable
exceptions noted thereon.
If in the process of reviewing the Mortgage Files and
preparing the certifications referred to above the Trustee finds
any document or documents constituting a part of a Mortgage File
to be missing or defective in any material respect, the Trustee
shall promptly notify the Seller, the Master Servicer and the
Depositor and shall request the Seller to cure any such defect
within 60 days from the date on which the Seller was notified of
such defect. If the Seller does not cure such defect in all
material respects during such period, the Trustee shall require
the Seller to repurchase such Mortgage Loan from the Trust Fund
on behalf of the Certificateholders at the Purchase Price within
90 days after the date on which the Seller was notified of such
defect; provided, however, that if such defect would have
prevented the Mortgage Loan from being a qualified mortgage
within the meaning of Section 860G(a)(3) of the Code on the
start-up date, then the Depositor shall repurchase such Mortgage
Loan not later than the date which is 90 days after the date on
which the Trustee discovered such defect. The obligation of the
Seller to cure a material defect in, or to repurchase any
Mortgage Loan as to which a material defect in a constituent
document exists shall constitute the sole remedy respecting such
defect available to Certificateholders or the Trustee on behalf
of Certificateholders. The Purchase Price for the purchased
Mortgage Loan shall be deposited or caused to be deposited upon
receipt by the Master Servicer in the Custodial Account and, upon
receipt by the Trustee of written notification of such deposit
signed by a Servicing Officer, the Trustee shall release or cause
to be released to the Seller the related Mortgage File and shall
execute and deliver such instruments of transfer or assignment,
in each case without recourse, as the Seller shall require as
necessary to vest in the Seller ownership of any Mortgage Loan
released pursuant hereto and at such time the Trustee shall have
no further responsibility with respect to the related Mortgage
File.
SECTION 2.03. Representations, Warranties and
Covenants of the Master Servicer and the
Depositor.
(a) The Master Servicer hereby represents and warrants
to and covenants with the Depositor and the Trustee for the
benefit of Certificateholders that:
(i) The Master Servicer is, and throughout the
term hereof shall remain, a corporation duly organized,
validly existing and in good standing under the laws of the
State of __________ (except as otherwise permitted pursuant
to Section 6.02), the Master Servicer is, and shall remain,
in compliance with the laws of each state in which any
Mortgaged Property is located to the extent necessary to
perform its obligations under this Agreement, and the Master
Servicer is, and shall remain, approved to sell mortgage
loans to and service mortgage loans for FNMA and FHLMC;
(ii) The execution and delivery of this
Agreement by the Master Servicer, and the performance and compliance
with the terms of this Agreement by the Master Servicer,
will not violate the Master Servicer's charter or bylaws or
constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under,
or result in the breach of, any material agreement or other
instrument to which it is a party or which is applicable to
it or any of its assets;
(iii) The Master Servicer has the full power and
authority to enter into and consummate all transactions
contemplated by this Agreement, has duly authorized the
execution, delivery and performance of this Agreement, and
has duly executed and delivered this Agreement;
(iv) This Agreement, assuming due authorization,
execution and delivery by the Depositor and the Trustee,
constitutes a valid, legal and binding obligation of the
Master Servicer, enforceable against the Master Servicer in
accordance with the terms hereof, subject to (A) applicable
bankruptcy, insolvency, reorganization, moratorium and other
laws affecting the enforcement of creditors' rights
generally, and (B) general principles of equity, regardless
of whether such enforcement is considered in a proceeding in
equity or at law;
(v) The Master Servicer is not in violation of,
and its execution and delivery of this Agreement and its
performance and compliance with the terms of this Agreement
will not constitute a violation of, any law, any order or
decree of any court or arbiter, or any order, regulation or
demand of any federal, state or local governmental or
regulatory authority, which violation is likely to affect
materially and adversely either the ability of the Master
Servicer to perform its obligations under this Agreement or
the financial condition of the Master Servicer;
(vi) No litigation is pending or, to the best of
the Master Servicer's knowledge, threatened against the
Master Servicer which would prohibit its entering into this
Agreement or performing its obligations under this Agreement
or is likely to affect materially and adversely either the
ability of the Master Servicer to perform its obligations
under this Agreement or the financial condition of the
Master Servicer;
(vii) The Master Servicer will comply in all
material respects in the performance of this Agreement with
all reasonable rules and requirements of each insurer under
each Insurance Policy;
(viii) The execution of this Agreement and the
performance of the Master Servicer's obligations hereunder
do not require any license, consent or approval of any state
or federal court, agency, regulatory authority or other
governmental body having jurisdiction over the Master
Servicer, other than such as have been obtained; and
(ix) No information, certificate of an officer,
statement furnished in writing or report delivered to the
Depositor, any affiliate of the Depositor or the Trustee by
the Master Servicer will, to the knowledge of the Master
Servicer, contain any untrue statement of a material fact or
omit a material fact necessary to make the information,
certificate, statement or report not misleading.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 2.03(a) shall
survive the execution and delivery of this Agreement, and shall
inure to the benefit of the Depositor, the Trustee and the
Certificateholders. Upon discovery by the Depositor, the Trustee
or the Master Servicer of a breach of any of the foregoing
representations, warranties and covenants that materially and
adversely affects the interests of the Depositor or the Trustee,
the party discovering such breach shall give prompt written
notice to the other parties.
(b) The Depositor hereby represents and warrants to the
Master Servicer and the Trustee for the benefit of
Certificateholders that as of the Closing Date (or, if otherwise
specified below, as of the date so specified):
(i) Assuming that representation (v) of the
Seller set forth in Exhibit I hereto is true and
correct, then, immediately prior to the assignment of
the Mortgage Loans to the Trustee, the Depositor had
good title to, and was the sole owner of, each Mortgage
Loan free and clear of any pledge, lien, encumbrance or
security interest (other than rights to servicing and
related compensation) and such assignment validly
transfers ownership of the Mortgage Loans to the
Trustee free and clear of any pledge, lien, encumbrance
or security interest; and
(ii) The representations and warranties of the
Seller with respect to the Mortgage Loans and the
remedies therefor that are contained in Exhibit I
attached hereto, are true and correct.
It is understood and agreed that the representations and
warranties set forth in this Section 2.03(b) shall survive
delivery of the respective Mortgage Files to the Trustee.
Upon discovery by either the Depositor, the Master
Servicer or the Trustee of a breach of any representation or
warranty set forth in this Section 2.03 which materially and
adversely affects the interests of the Certificateholders in any
Mortgage Loan, the party discovering such breach shall give
prompt written notice to the other parties.
SECTION 2.04. Representations and Warranties of the
Seller.
The Depositor hereby assigns to the Trustee for the
benefit of the Certificateholders its interest in respect of
representations and warranties made by the Seller in each
Mortgage Loan Purchase Agreement or the exhibits thereto.
Insofar as any Mortgage Loan Purchase Agreement relates to any
such representations and warranties and any remedies provided
thereunder for breach of such representations and warranties,
such right, title and interest may be enforced by the Trustee on
behalf of the Certificateholders. Upon the discovery by the
Depositor, the Master Servicer or the Trustee of a breach of any
of the representations and warranties made in respect of any
Mortgage Loan which are set forth in Exhibit I attached hereto
which materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan, the party discovering
such breach shall give prompt written notice to the other
parties. The Trustee shall promptly notify the Depositor of such
breach and request that Depositor shall, within 90 days from the
date that the Master Servicer or the Trustee was notified of such
breach, either (i) cure such breach in all material respects or
(ii) purchase such Mortgage Loan from the Trust Fund at the
Purchase Price and in the manner set forth in Section 2.02.
Except as expressly set forth herein neither the Trustee nor the
Master Servicer is under any obligation to discover any breach of
the above mentioned representations and warranties. It is
understood and agreed that the obligation of the Depositor to
cure such breach or purchase such Mortgage Loan as to which such
a breach has occurred and is continuing shall constitute the sole
remedy respecting such breach available to Certificateholders or
the Trustee on behalf of Certificateholders.
SECTION 2.05. Issuance of Certificates Evidencing
Interests in the Trust Fund.
The Trustee acknowledges the assignment to it of the
Mortgage Loans and the delivery of the Mortgage Files to it
together with the assignment to it of all other assets included
in the Trust Fund, receipt of which is hereby acknowledged.
Concurrently with such delivery and in exchange therefor, the
Trustee, pursuant to the written request of the Depositor,
executed by an officer of the Depositor, has executed and caused
to be authenticated and delivered to, or upon the order of, the
Depositor the Certificates in authorized denominations which
evidence ownership of the entire Trust Fund.
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE TRUST FUND
SECTION 3.01. Master Servicer to Act as Master
Servicer.
The Master Servicer shall service and administer the
Mortgage Loans in accordance with this Agreement and the custom-
ary and usual standards of practice of prudent mortgage lenders
in the respective states in which the Mortgaged Properties are
located, and shall have full power and authority, acting alone
and/or through Sub-Servicers as provided in Section 3.02, to do
or cause to be done any and all things in connection with such
servicing and administration that it may deem necessary or
desirable. Without limiting the generality of the foregoing, the
Master Servicer in its own name or in the name of a Sub-Servicer
is hereby authorized and empowered by the Trustee when the Master
Servicer believes it appropriate in its best judgment, to (i)
execute and deliver, on behalf of the Certificateholders and the
Trustee or any of them, any and all instruments of satisfaction
or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Mortgage
Loans and the Mortgaged Properties, (ii) institute foreclosure
proceedings or obtain a deed-in-lieu of foreclosure so as to
convert the ownership of such properties, and (iii) hold or cause
to be held title to such properties, on behalf of the Trustee and
Certificateholders. The Master Servicer shall service and
administer the Mortgage Loans in accordance with applicable state
and federal law and shall provide to the Mortgagors any reports
required to be provided to them thereby. Subject to Section
3.16, the Trustee shall execute based on the written request of
the Master Servicer and furnish to the Master Servicer and any
Sub-Servicer any special or limited powers of attorney and other
documents necessary or appropriate to enable the Master Servicer
and any Sub-Servicer to carry out their servicing and
administrative duties hereunder. The Trustee shall not be liable
for any action taken by the Master Servicer or any Sub-Servicer
pursuant to the application of such special or limited powers of
attorney.
In accordance with the standards of the preceding
paragraph, the Master Servicer shall advance or cause to be
advanced funds as necessary for the purpose of effecting the
payment of taxes and assessments on the Mortgaged Properties,
which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.09,
and further as provided in Section 3.11. No costs incurred by
the Master Servicer or by Sub-Servicers in effecting the payment
of taxes and assessments on the Mortgaged Properties shall, for
the purpose of calculating distributions to Certificateholders,
be added to the amount owing under the related Mortgage Loans,
notwithstanding that the terms of such Mortgage Loans so permit.
It is expressly understood and agreed that in light of
the underwriting criteria applicable to the Mortgage Loans,
special servicing procedures are desirable in order to minimize
the delinquency and loss experience of the Mortgage Loans. The
Master Servicer hereby covenants that it will use reasonable
efforts to prevent and to resolve delinquencies promptly and
appropriately in light of the underwriting criteria applicable to
the Mortgage Loans and that it will modify its procedures from
time to time in accordance with the reasonable written request of
the Depositor. Notwithstanding anything in this Agreement to the
contrary, the Master Servicer shall not (unless the Mortgagor is
in default with respect to the Mortgage Loan or such default is,
in the judgment of the Master Servicer, reasonably foreseeable)
make or permit any modification, waiver or amendment of any term
of any Mortgage Loan that would (i) both effect an exchange or
reissuance of such Mortgage Loan under Section 1001 of the Code
(or final, temporary or proposed Treasury regulations promulgated
thereunder) and cause the Trust Fund to fail to qualify as a
REMIC under the Code or (ii) cause the imposition of any tax on
"prohibited transactions" or "contributions" after the Startup
Day under the REMIC Provisions.
The relationship of the Master Servicer (and of any
successor to the Master Servicer under this Agreement) to the
Trustee under this Agreement is intended by the parties to be
that of an independent contractor and not that of a joint
venturer, partner or agent.
SECTION 3.02. Sub-Servicing Agreements Between Master
Servicer and Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing
Agreements with Sub-Servicers for the servicing and
administration of the Mortgage Loans and for the performance of
any and all other activities of the Master Servicer hereunder.
Each Sub-Servicer shall be either (i) an institution the accounts
of which are insured by the FDIC or (ii) another entity that
engages in the business of originating or servicing mortgage
loans, and in either case shall be authorized to transact
business in the state or states in which the related Mortgaged
Properties it is to service are situated, if and to the extent
required by applicable law to enable the Sub-Servicer to perform
its obligations hereunder and under the Sub-Servicing Agreement,
and in either case shall be a FHLMC or FNMA approved mortgage
servicer. Each Sub-Servicing Agreement must impose on the Sub-
Servicer requirements conforming to the provisions set forth in
Section 3.08 and provide for servicing of the Mortgage Loans
consistent with the terms of this Agreement. With the consent of
the Trustee, which consent shall not be unreasonably withheld,
the Master Servicer and the Sub-Servicers may enter into Sub-
Servicing Agreements and make amendments to the Sub-Servicing
Agreements or enter into different forms of Sub-Servicing
Agreements; provided, however, that any such amendments or
different forms shall be consistent with and not violate the
provisions of this Agreement, and that no such amendment or
different form shall be made or entered into which could be
reasonably expected to be materially adverse to the interests of
the Certificateholders, without the consent of the Holders of
Certificates entitled to at least 51% of the Voting Rights.
(b) As part of its servicing activities hereunder, the
Master Servicer, for the benefit of the Trustee and the Certifi-
cateholders, shall enforce the obligations of each Sub-Servicer
under the related Sub-Servicing Agreement, including, without
limitation, any obligation to make advances in respect of delin-
quent payments as required by a Sub-Servicing Agreement, or to
purchase a Mortgage Loan on account of defective documentation or
on account of a breach of a representation or warranty, as
described in Section 2.02. Such enforcement, including, without
limitation, the legal prosecution of claims, termination of Sub-
Servicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent
and at such time as the Master Servicer, in its good faith
business judgment, would require were it the owner of the related
Mortgage Loans. The Master Servicer shall pay the costs of such
enforcement at its own expense, but shall be reimbursed therefor
only (i) from a general recovery resulting from such enforcement
only to the extent, if any, that such recovery exceeds all
amounts due in respect of the related Mortgage Loans or (ii) from
a specific recovery of costs, expenses or attorneys' fees against
the party against whom such enforcement is directed.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement and the rights and obligations of any
Sub-Servicer pursuant to any Sub-Servicing Agreement in accor-
dance with the terms and conditions of such Sub-Servicing Agree-
ment. In the event of termination of any Sub-Servicer, all
servicing obligations of such Sub-Servicer shall be assumed
simultaneously by the Master Servicer without any act or deed on
the part of such Sub-Servicer or the Master Servicer, and the
Master Servicer either shall service directly the related Mort-
gage Loans or shall enter into a Sub-Servicing Agreement with a
successor Sub-Servicer which qualifies under Section 3.02. Each
Sub-Servicing Agreement, if any, shall include the provision that
such agreement may be immediately terminated by any successor
Master Servicer without cause and without payment of any fee or
penalty in the event that the Master Servicer shall, for any
reason, no longer be the Master Servicer (including by reason of
an Event of Default).
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the
provisions of this Agreement relating to agreements or arrange-
ments between the Master Servicer and a Sub-Servicer or reference
to actions taken through a Sub-Servicer or otherwise, the Master
Servicer shall remain obligated and primarily liable to the
Trustee and Certificateholders for the servicing and administer-
ing of the Mortgage Loans in accordance with the provisions of
Section 3.01 without diminution of such obligation or liability
by virtue of such Sub-Servicing Agreements or arrangements or by
virtue of indemnification from the Sub-Servicer and to the same
extent and under the same terms and conditions as if the Master
Servicer alone were servicing and administering the Mortgage
Loans. For purposes of this Agreement, the Master Servicer shall
be deemed to have received payments on Mortgage Loans when the
Sub-Servicer has received such payments. The Master Servicer
shall be entitled to enter into any agreement with a Sub-Servicer
for indemnification of the Master Servicer by such Sub-Servicer
and nothing contained in this Agreement shall be deemed to limit
or modify such indemnification.
SECTION 3.05. No Contractual Relationship Between Sub-
Servicers and Trustee or
Certificateholders.
Any Sub-Servicing Agreement that may be entered into
and any transactions or services relating to the Mortgage Loans
involving a Sub-Servicer in its capacity as such and not as an
originator shall be deemed to be between the Sub-Servicer and the
Master Servicer alone, and the Trustee and Certificateholders
shall not be deemed parties thereto and shall have no claims,
rights, obligations, duties or liabilities with respect to the
Sub-Servicer except as set forth in Section 3.06.
SECTION 3.06. Assumption or Termination of Sub-
Servicing Agreements by Trustee.
In the event the Master Servicer shall for any reason
no longer be the master servicer (including by reason of an Event
of Default), the Trustee or its designee shall thereupon assume
all of the rights and obligations of the Master Servicer under
each Sub-Servicing Agreement that the Master Servicer may have
entered into, unless the Trustee is then permitted and elects to
terminate any Sub-Servicing Agreement in accordance with its
terms. Subject to Section 3.03, the Trustee, its designee or the
successor servicer for the Trustee shall be deemed to have
assumed all of the Master Servicer's interest therein and to have
replaced the Master Servicer as a party to each Sub-Servicing
Agreement to the same extent as if the Sub-Servicing Agreements
had been assigned to the assuming party, except that the Master
Servicer shall not thereby be relieved of any liability or
obligations under the Sub-Servicing Agreements, and the Master
Servicer shall continue to be entitled to any rights or benefits
which arose prior to its termination as master servicer.
The Master Servicer at its expense shall, upon request
of the Trustee, deliver to the assuming party all documents and
records relating to each Sub-Servicing Agreement and the Mortgage
Loans then being serviced and an accounting of amounts collected
and held by it and otherwise use its best efforts to effect the
orderly and efficient transfer of the Sub-Servicing Agreements to
the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan
Payments.
The Master Servicer shall make reasonable efforts to
collect all payments called for under the terms and provisions of
the Mortgage Loans, and shall, to the extent such procedures
shall be consistent with this Agreement and the terms and pro-
visions of any related Insurance Policy, follow such collection
procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account.
The Master Servicer shall not be required to institute or join in
litigation with respect to collection of any payment (whether
under a Mortgage, Mortgage Note, Primary Hazard Insurance Policy
or otherwise or against any public or governmental authority with
respect to a taking or condemnation) if it reasonably believes
that it is prohibited by applicable law from enforcing the
provision of the Mortgage or other instrument pursuant to which
such payment is required. Notwithstanding the foregoing, the
Master Servicer may not waive any late payment charge or any
prepayment charge or penalty interest in connection with the
prepayment of a Mortgage Loan without the express written consent
of the Seller. The Master Servicer shall send to the Seller on a
daily basis copies of (a) the Master Servicer's loan activity
reports detailing all payment and payoff activity on the Mortgage
Loans and (b) a report separately detailing each payoff of any of
the Mortgage Loans. In addition, the Seller shall have the right
to audit the Master Servicer regarding the assessment and the
collection of late payment and prepayment charges upon reasonable
notice. The Master Servicer shall be responsible for preparing
and distributing all information statements relating to payments
on the Mortgage Loans, in accordance with all applicable federal
and state tax laws and regulations.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a
Mortgage Loan pursuant to a Sub-Servicing Agreement, the Sub-
Servicer will be required to establish and maintain one or more
accounts (collectively, the "Sub-Servicing Account"). The Sub-
Servicing Account shall be an Eligible Account and shall
otherwise be acceptable to the Master Servicer. All amounts held
in a Sub-Servicing Account shall be held in trust for the Trustee
for the benefit of the Certificateholders. The Sub-Servicer will
be required to deposit into the Sub-Servicing Account no later
than the first Business Day after receipt all proceeds of
Mortgage Loans received by the Sub-Servicer, less its servicing
compensation and any unreimbursed expenses and advances, to the
extent permitted by the Sub-Servicing Agreement. On each Sub-
Servicer Remittance Date the Sub-Servicer will be required to
remit to the Master Servicer all funds held in the Sub-Servicing
Account with respect to any Mortgage Loan as of the Sub-Servicer
Remittance Date, after deducting from such remittance an amount
equal to the servicing compensation and unreimbursed expenses and
advances to which it is then entitled pursuant to the related
Sub-Servicing Agreement, to the extent not previously paid to or
retained by it. In addition, on each Sub-Servicer Remittance
Date the Sub-Servicer will be required to remit to the Master
Servicer any amounts required to be advanced pursuant to the
related Sub-Servicing Agreement. The Sub-Servicer will also be
required to remit to the Master Servicer, within one Business Day
of receipt, the proceeds of any Principal Prepayment made by the
Mortgagor and any Insurance Proceeds or Liquidation Proceeds.
SECTION 3.09. Collection of Taxes, Assessments and
Similar Items; Servicing Accounts.
The Master Servicer and the Sub-Servicers shall estab-
lish and maintain one or more accounts (the "Servicing
Accounts"), and shall deposit and retain therein all collections
from the Mortgagors (or related advances from Sub-Servicers) for
the payment of taxes, assessments, Primary Hazard Insurance
Policy premiums, and comparable items for the account of the
Mortgagors, to the extent that the Master Servicer customarily
escrows for such amounts. Withdrawals of amounts so collected
from a Servicing Account may be made only to (i) effect payment
of taxes, assessments, Primary Hazard Insurance Policy premiums
and comparable items; (ii) reimburse the Master Servicer (or a
Sub-Servicer to the extent provided in the related Sub-Servicing
Agreement) out of related collections for any payments made pur-
suant to Sections 3.01 (with respect to taxes and assessments),
and 3.13 (with respect to Primary Hazard Insurance Policies);
(iii) refund to Mortgagors any sums as may be determined to be
overages; or (iv) clear and terminate the Servicing Account at
the termination of this Agreement pursuant to Section 9.01. As
part of its servicing duties, the Master Servicer or Sub-
Servicers shall, if and to the extent required by law, pay to the
Mortgagors interest on funds in Servicing Accounts from its or
their own funds, without any reimbursement therefor.
SECTION 3.10. Custodial Account.
(a) The Master Servicer shall establish and maintain
one or more accounts (collectively, the "Custodial Account") in
which the Master Servicer shall deposit or cause to be deposited
on a daily basis, or as and when received from the Sub-Servicers,
the following payments and collections received or made by or on
behalf of it subsequent to the Cut-off Date, or received by it
prior to the Cut-off Date but allocable to a period subsequent
thereto (other than in respect of principal and interest on the
Mortgage Loans due on or before the Cut-off Date):
(i) all payments on account of principal, including
Principal Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mort-
gage Loans, exclusive of any portion thereof representing
interest in excess of the related Net Mortgage Rate;
(iii) all Insurance Proceeds, other than proceeds that
represent reimbursement of costs and expenses incurred by
the Master Servicer in connection with presenting claims
under the related Insurance Policies, Liquidation Proceeds
and REO Proceeds;
(iv) all proceeds of any Mortgage Loan or REO Property
repurchased or purchased in accordance with Sections 2.02,
2.04, 3.22 or 9.01;
(v) any amounts required to be deposited pursuant to
Sections 3.12 or 3.13; and
(vi) all amounts transferred from the Certificate
Account to the Custodial Account in accordance with Section
4.01(b).
The foregoing requirements for deposit in the Custodial
Account shall be exclusive. In the event the Master Servicer
shall deposit in the Custodial Account any amount not required to
be deposited therein, it may withdraw such amount from the
Custodial Account, any provision herein to the contrary notwith-
standing. The Custodial Account shall be maintained as a
segregated account, separate and apart from trust funds created
for asset backed certificates of other series, and the other
accounts of the Master Servicer.
(b) Funds in the Custodial Account may be invested in
Permitted Instruments in accordance with the provisions set forth
in Section 3.12. The Master Servicer shall give notice to the
Trustee and the Depositor of the location of the Custodial
Account after any change thereof.
(c) Payments in the nature of prepayment fees and late
payment charges received on the Mortgage Loans shall not be
deposited in the Custodial Account, but rather shall be received
and held by the Master Servicer solely for the benefit of and at
the direction of the Seller. Upon receipt, such amounts shall be
distributed by the Master Servicer to the Seller by wire transfer
of immediately available funds on a daily basis. Such amounts
shall not be applied or made available by the Master Servicer for
any other purpose.
SECTION 3.11. Permitted Withdrawals From the Custodial
Account.
The Master Servicer may, from time to time as provided
herein, make withdrawals from the Custodial Account of amounts on
deposit therein pursuant to Section 3.10 that are attributable to
the Mortgage Loans for the following purposes:
(i) to make deposits into the Certificate Account
in the amounts and in the manner provided for in Section
4.01;
(ii) to pay to itself, the Depositor or any other
appropriate person, as the case may be, with respect to each
Mortgage Loan that has previously been purchased or
repurchased pursuant to Sections 2.02, 2.04 or 9.01 all
amounts received thereon and not yet distributed as of the
date of purchase or repurchase;
(iii) to reimburse itself or any Sub-Servicer for
Advances not previously reimbursed, the Master Servicer's or
any Sub-Servicer's right to reimbursement pursuant to this
clause (iii) being limited to amounts received which
represent Late Collections (net of the Servicing Fees) of
Monthly Payments on any Mortgage Loan or REO Property with
respect to which such Advances were made and as further
provided in Section 3.15;
(iv) to reimburse itself, the Trustee or the
Depositor for expenses incurred by or reimbursable to the
Master Servicer, the Trustee or the Depositor pursuant to
Sections 3.22, 6.03 or 10.01(c), except as otherwise
provided in such Sections;
(v) to reimburse itself or any Sub-Servicer for
costs and expenses incurred by or reimbursable to it
relating to the prosecution of any claims pursuant to
Section 3.13 that are in excess of the amounts so recovered;
(vi) to reimburse itself or any Sub-Servicer for
unpaid Servicing Fees and unreimbursed Servicing Advances,
the Master Servicer's or any Sub-Servicer's right to
reimbursement pursuant to this clause (vi) with respect to
any Mortgage Loan being limited to late recoveries of the
payments for which such advances were made pursuant to
Section 3.01 or Section 3.09 and any other related Late
Collections;
(vii) to pay itself as servicing compensation (in
addition to the Servicing Fee), on or after each
Distribution Date, any interest or investment income earned
on funds deposited in the Custodial Account for the period
ending on such Distribution Date, subject to Section 8.05;
(viii) to reimburse itself or any Sub-Servicer for
any Advance previously made which the Master Servicer has
determined to be a Nonrecoverable Advance, provided, that
either (a) such Advance was made with respect to a
delinquency that ultimately constituted an Excess Special
Hazard Loss, Excess Fraud Loss, Excess Bankruptcy Loss or
Extraordinary Loss or (b) the Certificate Principal Balances
of the Class A-2, Class B-1, Class B-2, or Class B-3
Certificates have been reduced to zero; and
(ix) to clear and terminate the Custodial Account
at the termination of this Agreement pursuant to Section
9.01.
The Master Servicer shall keep and maintain separate
accounting records on a Mortgage Loan by Mortgage Loan basis, for
the purpose of justifying any withdrawal from the Custodial
Account pursuant to such clauses (ii), (iii), (iv), (vi), (vii)
and (viii).
In connection with clause (viii) above, the Trustee
shall notify the Master Servicer if and when the Certificate
Principal Balances of the Class A-2, Class B-1, Class B-2 and
Class B-3 Certificates have been reduced to zero.
SECTION 3.12. Permitted Instruments.
Any institution maintaining the Custodial Account shall
at the direction of the Master Servicer invest the funds in such
account in Permitted Instruments, each of which shall mature not
later than the Business Day immediately preceding the Certificate
Account Deposit Date next following the date of such investment
(except that if such Permitted Instrument is an obligation of the
institution that maintains such account, then such Permitted
Instrument shall mature not later than such Certificate Account
Deposit Date) and shall not be sold or disposed of prior to its
maturity. All income and gain realized from any such investment
as well as any interest earned on deposits in the Custodial
Account shall be for the benefit of the Master Servicer. The
Master Servicer shall deposit in the Custodial Account (with
respect to investments made hereunder of funds held therein) an
amount equal to the amount of any loss incurred in respect of any
such investment immediately upon realization of such loss without
right of reimbursement.
SECTION 3.13. Maintenance of Primary Hazard Insurance.
(a) The Master Servicer shall cause to be maintained
for each Mortgage Loan primary hazard insurance with extended
coverage on the related Mortgaged Property in an amount equal to
the replacement value of the improvements, as determined by the
insurance company, on such Mortgaged Property. The Master
Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage
Loan, fire insurance with extended coverage in an amount equal to
the replacement value of the improvements thereon. Pursuant to
Section 3.10, any amounts collected by the Master Servicer under
any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or
property thus acquired or amounts released to the Mortgagor in
accordance with the Master Servicer's normal servicing
procedures) shall be deposited in the Custodial Account, subject
to withdrawal pursuant to Section 3.11. Any cost incurred by the
Master Servicer in maintaining any such insurance shall not, for
the purpose of calculating monthly distributions to
Certificateholders, be added to the amount owing under the
Mortgage Loan, notwithstanding that the terms of the Mortgage
Loan so permit. It is understood and agreed that no earthquake
or other additional insurance is to be required of any Mortgagor
or maintained on property acquired in respect of a Mortgage Loan
other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such
additional insurance. Whenever the improvements securing a
Mortgage Loan are located in a federally designated special flood
hazard area, the Master Servicer shall cause flood insurance (to
the extent available) to be maintained in respect thereof. Such
flood insurance shall be in an amount equal to the lesser of (i)
the replacement value of the improvements, which are part of such
Mortgaged Property on a replacement cost basis and (ii) the
maximum amount of such insurance available for the related
Mortgaged Property under the national flood insurance program
(assuming that the area in which such Mortgaged Property is
located is participating in such program).
In the event that the Master Servicer shall obtain and
maintain a blanket fire insurance policy with extended coverage
insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations as
set forth in the first two sentences of this Section 3.13, it
being understood and agreed that such policy may contain a
deductible clause, in which case the Master Servicer shall, in
the event that there shall not have been maintained on the
related Mortgaged Property a policy complying with the first two
sentences of this Section 3.13 and there shall have been a loss
which would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the
blanket policy because of such deductible clause. Any such
deposit by the Master Servicer shall be made on the Certificate
Account Deposit Date next preceding the Distribution Date which
occurs in the month following the month in which payments under
any such policy would have been deposited in the Custodial
Account. In connection with its activities as administrator and
servicer of the Mortgage Loans, the Master Servicer agrees to
present, on behalf of itself, the Trustee and Certificateholders,
claims under any such blanket policy.
SECTION 3.14. Enforcement of Due-on-Sale Clauses;
Assumption Agreements.
The Master Servicer will, to the extent it has knowl-
edge of any conveyance or prospective conveyance by any Mortgagor
of the Mortgaged Property (whether by absolute conveyance or by
contract of sale, and whether or not the Mortgagor remains or is
to remain liable under the Mortgage Note or the Mortgage),
exercise or cause to be exercised its rights to accelerate the
maturity of such Mortgage Loan under any "due-on-sale" clause
applicable thereto; provided, however, that the Master Servicer
shall not exercise any such rights if it reasonably believes that
it is prohibited by law from doing so. If the Master Servicer is
unable to enforce such "due-on-sale" clause (as provided in the
previous sentence) or if no "due-on-sale" clause is applicable,
the Master Servicer or the Sub-Servicer will enter into an
assumption and modification agreement with the Person to whom
such property has been conveyed or is proposed to be conveyed,
pursuant to which such Person becomes liable under the Mortgage
Note and, to the extent permitted by applicable state law, the
Mortgagor remains liable thereon. The Master Servicer is also
authorized to enter into a substitution of liability agreement
with such Person, pursuant to which the original Mortgagor is
released from liability and such Person is substituted as the
Mortgagor and becomes liable under the Mortgage Note. Any fee
collected by or on behalf of the Master Servicer for entering
into an assumption or substitution of liability agreement will be
retained by or on behalf of the Master Servicer as additional
servicing compensation. In connection with any such assumption,
no material term of the Mortgage Note (including but not limited
to the Mortgage Rate, the amount of the Monthly Payment, the
Maximum Rate, the Minimum Rate, the Gross Margin, the Periodic
Rate Cap and any other term affecting the amount or timing of
payment on the Mortgage Loan) may be changed. The Master
Servicer shall not enter into any substitution or assumption if
such substitution or assumption shall either (i) both constitute
a "significant modification" effecting an exchange or reissuance
of such Mortgage Loan under the Code (or final, temporary or
proposed Treasury regulations promulgated thereunder) and cause
the Trust Fund to fail to qualify as a REMIC under the REMIC
Provisions or (ii) cause the imposition of any tax on "prohibited
transactions" or "contributions" after the Startup Day under the
REMIC Provisions. The Master Servicer shall notify the Trustee
that any such substitution or assumption agreement has been
completed by forwarding to the Trustee the original copy of such
substitution or assumption agreement, which copy shall be added
to the related Mortgage File and shall, for all purposes, be con-
sidered a part of such Mortgage File to the same extent as all
other documents and instruments constituting a part thereof.
Notwithstanding the foregoing paragraph or any other
provision of this Agreement, the Master Servicer shall not be
deemed to be in default, breach or any other violation of its
obligations hereunder by reason of any assumption of a Mortgage
Loan by operation of law or any assumption that the Master
Servicer may be restricted by law from preventing, for any reason
whatsoever. For purposes of this Section 3.14, the term "assump-
tion" is deemed to also include a sale of a Mortgaged Property
that is not accompanied by an assumption or substitution of
liability agreement.
SECTION 3.15. Realization Upon Defaulted Mortgage
Loans.
The Master Servicer shall exercise reasonable efforts,
consistent with the procedures that the Master Servicer would use
in servicing loans for its own account, to foreclose upon or
otherwise comparably convert (which may include an REO
Acquisition) the ownership of properties securing such of the
Mortgage Loans as come into and continue in default and as to
which no satisfactory arrangements can be made for collection of
delinquent payments pursuant to Section 3.07, and which are not
released from the Trust Fund pursuant to any other provision
hereof. The Master Servicer shall use reasonable efforts to
realize upon such defaulted Mortgage Loans in such manner as will
maximize the receipt of principal and interest by
Certificateholders, taking into account, among other things, the
timing of foreclosure proceedings. The foregoing is subject to
the provisions that, in any case in which Mortgaged Property
shall have suffered damage from an Uninsured Cause, the Master
Servicer shall not be required to expend its own funds toward the
restoration of such property unless it shall determine in its
sole discretion (i) that such restoration will increase the net
proceeds of liquidation of the related Mortgage Loan to
Certificateholders after reimbursement to itself for such
expenses, and (ii) that such expenses will be recoverable by the
Master Servicer through Insurance Proceeds or Liquidation
Proceeds from the related Mortgaged Property, as contemplated in
Section 3.11. The Master Servicer shall be responsible for all
other costs and expenses incurred by it in any such proceedings;
provided, however, that it shall be entitled to reimbursement
thereof from the related property, as contemplated in Section
3.11.
The proceeds of any Cash Liquidation or REO
Disposition, as well as any recovery resulting from a partial
collection of Insurance Proceeds or Liquidation Proceeds or any
income from an REO Property, will be applied in the following
order of priority: first, to reimburse the Master Servicer or
any Sub-Servicer for any related unreimbursed Servicing Advances,
pursuant to Section 3.11(vi) or 3.22; second, to accrued and
unpaid interest on the Mortgage Loan or REO Imputed Interest, at
the Mortgage Rate, to the last day of the month in which the Cash
Liquidation or REO Disposition occurred, or to the Due Date prior
to the Distribution Date on which such amounts are to be
distributed if not in connection with a Cash Liquidation or REO
Disposition; and third, as a recovery of principal of the
Mortgage Loan. If the amount of the recovery so allocated to
interest is less than a full recovery thereof, that amount will
be allocated as follows: first, to unpaid Servicing Fees; and
second, to interest at the Net Mortgage Rate. The portion of the
recovery so allocated to unpaid Servicing Fees shall be
reimbursed to the Master Servicer or any Sub-Servicer pursuant to
Section 3.11(vi). The portions of the recovery so allocated to
interest at the Net Mortgage Rate and to principal of the
Mortgage Loan shall be applied as follows: first, to reimburse
the Master Servicer or any Sub-Servicer for any related
unreimbursed Advances in accordance with Section 3.11(iii) or
3.22, and second, for distribution in accordance with the
provisions of Section 4.01(b), subject to Section 3.22 with
respect to certain recoveries from an REO Disposition
constituting Excess Proceeds.
SECTION 3.16. Trustee to Cooperate; Release of
Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the
receipt by the Master Servicer of a notification that payment in
full shall be escrowed in a manner customary for such purposes,
the Master Servicer will immediately notify the Trustee by a
certification (which certification shall include a statement to
the effect that all amounts received or to be received in
connection with such payment which are required to be deposited
in the Custodial Account pursuant to Section 3.10 have been or
will be so deposited) of a Servicing Officer and shall request
delivery to it of the Mortgage File in the form of the Request
for Release attached hereto as Exhibit F-2. Upon receipt of such
certification and request, the Trustee shall promptly release the
related Mortgage File to the Master Servicer. Subject to the
receipt by the Master Servicer of the proceeds of such payment in
full and the payment of all related fees and expenses, the Master
Servicer shall arrange for the release to the Mortgagor of the
original cancelled Mortgage Note. All other documents in the
Mortgage File shall be retained by the Master Servicer to the
extent required by applicable law. No expenses incurred in
connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the Custodial Account, the
Excess Proceeds Account or the Certificate Account.
From time to time and as appropriate for the servicing
or foreclosure of any Mortgage Loan, including, for this purpose,
collection under any insurance policy relating to the Mortgage
Loan, the Trustee shall, upon request of the Master Servicer and
delivery to the Trustee of a Request for Release in the form
attached hereto as Exhibit F-1, release the related Mortgage File
to the Master Servicer, and the Trustee shall execute such
documents as the Master Servicer shall prepare and request as
being necessary to the prosecution of any such proceedings. Such
Request for Release shall obligate the Master Servicer to return
each document previously requested from the Mortgage File to the
Trustee when the need therefor by the Master Servicer no longer
exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been
deposited in the Custodial Account or the Mortgage 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 Mortgaged Property either judicially or
non-judicially, and the Master Servicer has delivered to the
Trustee a certificate of a Servicing Officer certifying as to the
name and address of the Person to which such Mortgage File or
such document was delivered and the purpose or purposes of such
delivery. Upon receipt of a certification of a Servicing Officer
in the form of the Request for Release attached hereto as Exhibit
F-1, 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 Custodial
Account have been or will be so deposited, or that such Mortgage
Loan has become an REO Property, a copy of such Request for
Release shall be released by the Trustee to the Master Servicer.
Upon written request of a Servicing Officer, the
Trustee shall execute and deliver to the Master Servicer any
court pleadings, requests for trustee's sale or other documents
prepared by the Master Servicer that are necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Property
or to any legal action brought to obtain judgment against any
Mortgagor on the Mortgage Note or Mortgage or to obtain a
deficiency judgment, or to enforce any other remedies or rights
provided by the Mortgage Note or Mortgage or otherwise available
at law or in equity. Each such request that such pleadings or
documents be executed by the Trustee shall include a
certification as to the reason such documents or pleadings are
required and that the execution and delivery thereof by the
Trustee will not invalidate or otherwise affect the lien of the
Mortgage, except for the termination of such a lien upon com-
pletion of the foreclosure or trustee's sale.
SECTION 3.17. Servicing Compensation.
As compensation for its activities hereunder, the
Master Servicer shall be entitled to retain, from deposits to the
Custodial Account of amounts representing payments or recoveries
of interest, the Servicing Fees with respect to each Mortgage
Loan (less any portion of such amounts retained by any Sub-
Servicer). In addition, the Master Servicer shall be entitled to
recover unpaid Servicing Fees out of related Late Collections to
the extent permitted in Section 3.11.
The Master Servicer also shall be entitled pursuant to
Section 3.11 to receive from the Custodial Account as additional
servicing compensation interest or other income earned on depos-
its therein, subject to Section 3.23, as well as any assumption
fees and reconveyance fees. The Master Servicer shall be re-
quired to pay all expenses incurred by it in connection with its
servicing activities hereunder (including payment of the premiums
for any blanket policy insuring against hazard losses pursuant to
Section 3.13, servicing compensation of the Sub-Servicers to the
extent not retained by it and the fees and expenses of the
Trustee), and shall not be entitled to reimbursement therefor
except as specifically provided in Section 3.11. The Servicing
Fee may not be transferred in whole or in part except in
connection with the transfer of all of the Master Servicer's
responsibilities and obligations under this Agreement.
SECTION 3.18. Maintenance of Certain Servicing
Policies.
During the term of its service as Master Servicer, the
Master Servicer shall maintain in force (i) a policy or policies
of insurance covering errors and omissions in the performance of
its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy
or policies and bond shall, together, comply with the require-
ments from time to time of FNMA or FHLMC for persons performing
servicing for mortgage loans purchased by such corporation. The
Master Servicer shall prepare and present, on behalf of itself,
the Trustee and Certificateholders, claims under any such errors
and omissions policy or policies or fidelity bond in a timely
fashion in accordance with the terms of such policy or bond, and
upon the filing of any claim on any policy or bond described in
this Section 3.18, the Master Servicer shall promptly notify the
Trustee of any such claims and the Trustee shall notify the
Rating Agency of such claim.
SECTION 3.19. Annual Statement as to Compliance.
The Master Servicer will deliver to the Trustee and the
Depositor on or before April 30 of each year, beginning with
April 30, 199_, an Officers' Certificate stating, as to each
signatory thereof, that (i) a review of the activities of the
Master Servicer during the preceding fiscal year and of its
performance under this Agreement has been made under such
officers' supervision, and (ii) to the best of such officers'
knowledge, based on such review, the Master Servicer has
fulfilled all of its obligations under this Agreement throughout
such year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such
officers and the nature and status thereof.
SECTION 3.20. Annual Independent Public Accountants'
Servicing Statement.
On or before April 30 of each year, beginning with
April 30, 199__, the Master Servicer at its expense shall furnish
to the Depositor and the Trustee (i) an opinion by a firm of
independent certified public accountants on the financial
position of the Master Servicer at the end of its fiscal year and
the results of operations and changes in financial position of
the Master Servicer for such year then ended on the basis of an
examination conducted in accordance with generally accepted
auditing standards, and (ii) if the Master Servicer is then
servicing any Mortgage Loans, a statement from such independent
certified public accountants to the effect that based on an
examination of certain specified documents and records relating
to the servicing of the Master Servicer's mortgage loan portfolio
conducted substantially in compliance with the audit program for
mortgages serviced for FNMA and FHLMC, the United States
Department of Housing and Urban Development Mortgage Audit
Standards, or the Uniform Single Audit Program for Mortgage
Bankers (the "Applicable Accounting Standards"), such firm is of
the opinion that such servicing has been conducted in compliance
with the Applicable Accounting Standards except for (a) such
exceptions as such firm shall believe to be immaterial and (b)
such other exceptions as shall be set forth in such statement.
In rendering such statement, such firm may rely, as to matters
relating to direct servicing of mortgage loans by Sub-Servicers,
upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Audit Program
for Mortgage Bankers or the audit program for mortgages serviced
for FHLMC (rendered within one year of such statement) of
independent public accountants with respect to the related Sub-
Servicer. Copies of such statement shall be provided by the
Trustee to any Certificateholder upon request at the Master
Servicer's expense, provided such statement is delivered by the
Master Servicer to the Trustee.
SECTION 3.21. Access to Certain Documentation.
(a) The Master Servicer shall provide to the OTS,
the FDIC and other federal banking regulatory agencies, and their
respective examiners, access to the documentation regarding the
Mortgage Loans required by applicable regulations of the OTS, the
FDIC and such other agencies. Such access shall be afforded
without charge, but only upon reasonable and prior written
request and during normal business hours at the offices of the
Master Servicer designated by it. Nothing in this Section 3.21
shall derogate from the obligation of the Master Servicer to
observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Master Servicer
to provide access as provided in this Section as a result of such
obligation shall not constitute a breach of this section.
(b) The Master Servicer shall afford the Depositor
and the Trustee, upon reasonable notice, during normal business hours
access to all records maintained by the Master Servicer in
respect of its rights and obligations hereunder and access to
officers of the Master Servicer responsible for such obligations.
Upon request, the Master Servicer shall furnish the Depositor and
the Trustee with its most recent financial statements and such
other information as the Master Servicer possesses regarding its
business, affairs, property and condition, financial or otherwise
to the extent related to the servicing of the Mortgage Loans.
The Depositor may, but is not obligated to, enforce the
obligations of the Master Servicer hereunder and may, but is not
obligated to, perform, or cause a designee to perform, any
defaulted obligation of the Master Servicer hereunder or exercise
the rights of the Master Servicer hereunder; provided, that the
Master Servicer shall not be relieved of any of its obligations
hereunder by virtue of such performance by the Depositor or its
designee. The Depositor shall not have any responsibility or
liability for any action or failure to act by the Master Servicer
and is not obligated to supervise the performance of the Master
Servicer under this Agreement or otherwise.
SECTION 3.22. Title, Conservation and Disposition of
REO Property.
This Section 3.22 shall apply only to REO Properties
acquired for the account of the Trust Fund, and shall not apply
to any REO Property relating to a Mortgage Loan which was
purchased or repurchased from the Trust Fund pursuant to any
provision hereof. In the event that title to any such REO
Property is acquired, the deed or certificate of sale shall be
issued to the Trustee, or to its nominee, on behalf of the
Certificateholders. The Master Servicer, on behalf of the Trust
Fund, shall either sell any REO Property within two years after
the Trust Fund acquires ownership of such REO Property for
purposes of Section 860G(a)(8) of the Code or, at the expense of
the Trust Fund, request, more than 60 days before the day on
which the two-year grace period would otherwise expire, an
extension of the two-year grace period, unless the Master
Servicer has delivered to the Trustee an Opinion of Counsel,
addressed to the Trustee and the Master Servicer, to the effect
that the holding by the Trust Fund of such REO Property
subsequent to two years after its acquisition will not result in
the imposition on the Trust Fund of taxes on "prohibited
transactions" thereof, as defined in Section 860F of the Code, or
cause the Trust Fund to fail to qualify as a REMIC under the
REMIC Provisions or comparable provisions of the laws of the
State of California at any time that any Certificates are
outstanding. The Master Servicer shall manage, conserve, protect
and operate each REO Property for the Certificateholders solely
for the purpose of its prompt disposition and sale in a manner
which does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8)
or result in the receipt by the Trust Fund of any "income from
non-permitted assets" within the meaning of Section 860F(a)(2)(B)
of the Code or any "net income from foreclosure property" which
is subject to taxation under the REMIC Provisions. Pursuant to
its efforts to sell such REO Property, the Master Servicer shall
either itself or through an agent selected by the Master Servicer
protect and conserve such REO Property in the same manner and to
such extent as is customary in the locality where such REO
Property is located and may, incident to its conservation and
protection of the interests of the Certificateholders, rent the
same, or any part thereof, as the Master Servicer deems to be in
the best interest of the Certificateholders for the period prior
to the sale of such REO Property.
Any REO Disposition shall be for cash only (unless
changes in the REMIC Provisions made subsequent to the Startup
Day allow a sale for other consideration).
The Master Servicer shall segregate and hold all funds
collected and received in connection with the operation of any
REO Property separate and apart from its own funds and general
assets. The Master Servicer shall deposit, or cause to be
deposited, on a daily basis in the Custodial Account all revenues
received with respect to the REO Properties, net of any directly
related expenses incurred and funds withheld therefrom that are
necessary for the proper operation, management and maintenance of
the REO Property.
If as of the date of acquisition of title to any REO
Property there remain outstanding unreimbursed Servicing Advances
with respect to such REO Property or any outstanding Advances
allocated thereto the Master Servicer, upon an REO Disposition,
shall be entitled to reimbursement for any related unreimbursed
Servicing Advances and any unreimbursed related Advances as well
as any unpaid Servicing Fees from proceeds received in connection
with the REO Disposition, as further provided in Section 3.15.
The REO Disposition shall be carried out by the Master
Servicer at such price and upon such terms and conditions as the
Master Servicer shall determine.
The Master Servicer shall deposit the proceeds from the
REO Disposition, net of any payment to the Master Servicer as
provided above, in the Custodial Account upon receipt thereof for
distribution in accordance with Section 4.01; provided, that any
such net proceeds which are in excess of the applicable Stated
Principal Balance plus all unpaid REO Imputed Interest thereon
through the last day of the month in which the REO Disposition
occurred ("Excess Proceeds") shall be deposited into the Excess
Proceeds Account in accordance with the provisions of Section
3.25(a).
Notwithstanding the foregoing provisions of this
Section 3.22, with respect to any Mortgage Loan as to which the
Master Servicer has received notice of, or has actual knowledge
of, the presence of any toxic or hazardous substance on the
Mortgaged Property, the Master Servicer shall promptly request
the Depositor to provide directions and instructions with respect
to such Mortgage Loan and shall act in accordance with any such
directions and instructions provided by the Depositor.
Notwithstanding the preceding sentence of this Section 3.22, with
respect to any Mortgage Loan described by such sentence, the
Master Servicer shall not, on behalf of the Trustee, either (i)
obtain title to the related Mortgaged Property as a result of or
in lieu of foreclosure or otherwise, or (ii) otherwise acquire
possession of, the related Mortgaged Property, unless (i) the
Depositor and the Trustee jointly direct the Master Servicer to
take such action and (ii) either (A) the Master Servicer has, at
least 30 days prior to taking such action, obtained and delivered
to the Depositor an environmental audit report prepared by a
Person who regularly conducts environmental audits using
customary industry standards or (B) the Depositor has directed
the Master Servicer not to obtain an environmental audit report.
If the Depositor has not provided directions and instructions to
the Master Servicer in connection with any such Mortgage Loan
within 30 days of a request by the Master Servicer for such
directions and instructions, then the Master Servicer shall take
such action as it deems to be in the best economic interest of
the Trust Fund (other than proceeding against the Mortgaged
Property) and is hereby authorized at such time as it deems
appropriate to release such Mortgaged Property from the lien of
the related Mortgage.
The cost of the environmental audit report contemplated
by this Section 3.22 shall be advanced by the Master Servicer as
an expense of the Trust Fund, and the Master Servicer shall be
reimbursed therefor from the Custodial Account as provided in
Section 3.11, any such right of reimbursement being prior to the
rights of the Certificateholders to receive any amount in the
Custodial Account.
If the Master Servicer determines, as described above,
that it is in the best economic interest of the Trust Fund to
take such actions as are necessary to bring any such Mortgaged
Property in compliance with applicable environmental laws, or to
take such action with respect to the containment, clean-up or
remediation of hazardous substances, hazardous materials,
hazardous wastes, or petroleum-based materials affecting any such
Mortgaged Property, then the Master Servicer shall take such
action as it deems to be in the best economic interest of the
Trust Fund. The cost of any such compliance, containment, clean-
up or remediation shall be advanced by the Master Servicer as an
expense of the Trust Fund, and the Master Servicer shall be
entitled to be reimbursed therefor from the Custodial Account as
provided in Section 3.11, any such right of reimbursement being
prior to the rights of the Certificateholders to receive any
amount in the Custodial Account.
The Master Servicer shall have the option to purchase
from the Trust Fund any Mortgage Loan that is 90 days or more
delinquent (90 days or more delinquent shall mean delinquent as
to three or more Monthly Payments) and that the Master Servicer
determines in good faith will otherwise become subject to
foreclosure proceedings (such determination to be evidenced by an
Officer's Certificate of the Master Servicer delivered to the
Trustee prior to purchase) for an amount equal to the Purchase
Price. The Purchase Price for any Mortgage Loan purchased
pursuant to this Section 3.22 shall be deposited in the Custodial
Account, and upon receipt of written certification from the
Master Servicer of such deposit, the Trustee shall release or
cause to be released to the Master Servicer the related Mortgage
File and shall execute and deliver such instruments of transfer
or assignment, in each case without recourse, as the Master
Servicer shall furnish and as shall be necessary to vest in the
Master Servicer title to any Mortgage Loan released pursuant to
this Section 3.22.
The Seller will have the option to purchase any REO
Property acquired or to be acquired from the Trust Fund for an
amount equal to the Purchase Price together with all unreimbursed
expenses or Advances in connection therewith, in each case as
promptly as possible but in any event within 30 days following
the later of the date on which (a) such Mortgage Loan becomes an
REO Property and (b) the Master Servicer notifies the Seller that
such Mortgage Loan has become an REO Property.
SECTION 3.23. Additional Obligations of the Master
Servicer.
On each Certificate Account Deposit Date, the Master
Servicer shall deliver to the Trustee for deposit in the
Certificate Account from its own funds and without any right of
reimbursement therefor, a total amount equal to the aggregate of
the Prepayment Interest Shortfalls for such Distribution Date;
provided, that the Master Servicer's obligations under this
subsection on any Distribution Date shall not be more than the
total amount of its servicing compensation payable in such month.
SECTION 3.24. Additional Obligations of the Depositor.
The Depositor agrees that on or prior to the tenth day
after the Closing Date, the Depositor shall provide the Trustee
with a written notification, substantially in the form of Exhibit
J attached hereto, relating to each Class of Certificates,
setting forth (i) in the case of each Class of such Certificates,
(a) if less than 10% of the aggregate Certificate Principal
Balance of such Class of Certificates has been sold as of such
date, the value calculated pursuant to clause (b)(iii) of Exhibit
J hereto, or, (b) if 10% or more of such Class of Certificates
has been sold as of such date but no single price is paid for at
least 10% of the aggregate Certificate Principal Balance of such
Class of Certificates, then the weighted average price at which
the Certificates of such Class were sold and the aggregate
percentage of Certificates of such Class sold, (c) the first
single price at which at least 10% of the aggregate Certificate
Principal Balance of such class of Certificates was sold, or (d)
if any Certificates of each Class of Certificates are retained by
the Depositor or an affiliate corporation, (ii) the prepayment
assumption used in pricing the Certificates, and (iii) such other
information as to matters of fact as the Trustee may reasonably
request to enable it to comply with its reporting requirements
with respect to each Class of such Certificates to the extent
such information can in the good faith judgment of the Depositor
be determined by it.
SECTION 3.25 Excess Proceeds Account
(a) The Trustee shall establish and maintain one or
more accounts (collectively, the "Excess Proceeds Account") in
which the Master Servicer shall, on behalf of the Trust Fund,
deposit or cause to be deposited on a daily basis, or as and when
received from the Sub-Servicers, the Excess Proceeds, if any,
with respect to each Mortgage Loan as to which an REO Disposition
occurs. The Excess Proceeds Account shall be maintained as a
segregated account, separate and apart from trust funds created
for mortgage pass-through certificates and asset-backed
certificates of other series, from funds of investors, from funds
or other assets of the Trustee, and from the other accounts of
the Trustee.
(b) On or before 2:00 P.M. Los Angeles time on each
Certificate Account Deposit Date, the Trustee shall withdraw or
cause to be withdrawn from the Excess Proceeds Account, to the
extent of the amount on deposit therein at such time, and deposit
or cause to be deposited in the Certificate Account, by wire
transfer of immediately available funds, an amount equal to the
lesser of (i) the amount, if any, on deposit in the Excess
Proceeds Account as of the close of business on the related
Determination Date and (ii)(A) the sum of the aggregate amount of
all Realized Losses allocated among the Certificates on any
previous Distribution Date pursuant to Section 4.04 and the
aggregate amount of all Realized Losses to be allocated among the
Certificates on the related Distribution Date pursuant to Section
4.04 minus (B) the aggregate amount of all distributions
allocated among the Certificateholders on any previous
Distribution Date in accordance with Section 4.01(b)(xx), (xxi),
or (xxii) or in accordance with Section 4.01(f).
(c) If the amount on deposit in the Excess Proceeds
Account as of the close of business on any Determination Date
would exceed the product of 1.00% and the aggregate Certificate
Principal Balance of all of the Certificates outstanding
immediately after the close of business on the related
Distribution Date, the Trustee shall, on or before 2:00 P.M. Los
Angeles time on the related Certificate Account Deposit Date,
withdraw or cause to be withdrawn from the Excess Proceeds
Account, to the extent of the amount on deposit therein at such
time, and deposit or cause to be deposited in the Certificate
Account, by wire transfer of immediately available funds, the
excess of such amount over such product.
(d) The Excess Proceeds Account shall be an Eligible
Account in accordance with the definition of "Excess Proceeds
Account" in Section 1.01. The Trustee shall, upon written
request from the Master Servicer, invest or cause the institution
maintaining the Excess Proceeds Account to invest the funds in
the Excess Proceeds Account in one or more Permitted Instruments
designated in the name of the Trustee for the benefit of the
Certificateholders, each of which Permitted Instruments shall be
held to maturity, unless payable on demand, and shall mature,
unless payable on demand, not later than the Business Day
immediately preceding the Certificate Account Deposit Date next
following the date of such investment (except that if such
Permitted Instrument is an obligation of the institution with
which the Excess Proceeds Account is maintained, then such
Permitted Instrument shall mature not later than such Certificate
Account Deposit Date). All income and gain realized from any
such investment as well as any interest earned on deposits in the
Excess Proceeds Account shall be for the benefit of the
Certificateholders and shall be held in the Excess Proceeds
Account (or in Permitted Instruments in which the funds in the
Excess Proceeds Account are invested) until transferred from the
Excess Proceeds Account to the Certificate Account in accordance
with Section 3.25(b) or (c). The amount of any loss incurred in
respect of any such investment shall be borne by the
Certificateholders without any right of reimbursement.
(e) As part of each Determination Date Report
delivered to the Trustee in accordance with Section 4.03(a), the
Master Servicer shall provide information with respect to the
amount, if any, of Excess Proceeds deposited in the Excess
Proceeds Account in respect of each Mortgage Loan as to which an
REO Disposition occurred during the related Prepayment Period.
(f) The Trustee shall promptly provide notice to the
Depositor and the Master Servicer of the initial location of the
Excess Proceeds Account and shall promptly provide notice to the
Depositor and the Master Servicer of the location of the Excess
Proceeds Account after any change in location of the Excess
Proceeds Account.
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Certificate Account; Distributions.
(a) The Trustee shall establish and maintain a
Certificate Account, in which the Master Servicer shall cause to
be deposited on behalf of the Trustee on or before 2:00 P.M. Los
Angeles time on each Certificate Account Deposit Date by wire
transfer of immediately available funds an amount equal to the
sum of (i) any Advance for the immediately succeeding
Distribution Date, (ii) any amount required to be deposited in
the Certificate Account pursuant to Sections 3.13, 3.22 or 3.23
and (iii) all other amounts constituting the Available
Distribution Amount for the immediately succeeding Distribution
Date.
(b) On each Distribution Date the Trustee shall
distribute to the Master Servicer, in the case of a distribution
pursuant to Section 4.01(b)(iii), (vi), (ix) or (xii) and to each
Certificateholder of record on the next preceding Record Date
(other than as provided in Section 9.01 respecting the final
distribution) either in immediately available funds (by wire
transfer or otherwise) to the account of such Certificateholder
at a bank or other entity having appropriate facilities therefor,
if such Certificateholder has so notified the Trustee at least
five Business Days prior to the related Record Date and such
Certificateholder is the registered owner of Certificates the
aggregate initial Certificate Principal Balance of which is not
less than $___________ (or, with respect to the Class S
Certificates is the registered owner of an initial Notional
Amount of not less than $__________ of such Class), or otherwise
by check mailed to such Certificateholder at the address of such
Holder appearing in the Certificate Register, such
Certificateholder's share (based on the aggregate of the
Percentage Interests represented by Certificates of the
applicable Class held by such Holder) of the following amounts,
in the following order of priority, in each case to the extent of
the Available Distribution Amount:
(i) to the Class S and Class A-1
Certificateholders, on a pro rata basis based on Accrued
Certificate Interest payable thereon, Accrued Certificate
Interest on such Class of Certificates for such Distribution
Date, plus any Accrued Certificate Interest thereon
remaining unpaid from any previous Distribution Date;
(ii) to the Class A-1 Certificateholders, the
sum of the following amounts applied to reduce the Certificate
Principal Balance thereof:
(A) the Class A-1 Percentage for such
Distribution Date multiplied by the Scheduled Principal
and Net Recoveries for such Distribution Date;
(B) an amount equal to (1) the Class A-1
Percentage for such Distribution Date divided by the
related Senior Percentage for such Distribution Date
multiplied by (2) the Senior Prepayment Percentage for
such Distribution Date multiplied by the aggregate of
all Principal Prepayments received in the related
Prepayment Period;
(C) with respect to each Mortgage Loan for which
a Cash Liquidation or an REO Disposition occurred
during the related Prepayment Period and did not result
in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary
Losses, an amount equal to the lesser of (i) the then
applicable Class A-1 Percentage of the Stated Principal
Balance of such Mortgage Loan and (ii)(a) the Class A-1
Percentage for such Distribution Date divided by the
related Senior Percentage multiplied by (b) the Senior
Prepayment Percentage for such Distribution Date
multiplied by the related collections (including
without limitation Insurance Proceeds, Liquidation
Proceeds and REO Proceeds) to the extent applied by the
Master Servicer as recoveries of principal of the
related Mortgage Loan pursuant to Section 3.15; and
(D) any amounts described in clauses (A), (B)
and (C) above, as determined for any previous Distribution
Date, which remain unpaid after application of amounts
previously distributed pursuant to this clause (D) to
the extent that any such amounts are not attributable
to Realized Losses that were allocated to the Class A-2
Certificates and the Subordinate Certificates;
(iii) if the Certificate Principal Balances of the
Class B-1, Class B-2 and Class B-3 Certificates have been
reduced to zero, to the Master Servicer or a Sub-Servicer,
by remitting for deposit to the Custodial Account, to the
extent of and in reimbursement for any Advances previously
made with respect to any Mortgage Loan or REO Property which
remain unreimbursed in whole or in part following the Cash
Liquidation or REO Disposition of such Mortgage Loan or REO
Property, minus any such Advances that were made with
respect to delinquencies that ultimately constituted Excess
Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses;
(iv) to the Class A-2 Certificateholders,
Accrued Certificate Interest on such Certificates for such
Distribution Date, plus any Accrued Certificate Interest
thereon remaining unpaid from any previous Distribution
Date;
(v) to the Class A-2 Certificateholders, the
sun of the following amounts applied to reduce the Certificate
Principal Balance thereof:
(A) the Class A-2 Percentage for such
Distribution Date multiplied by the Scheduled Principal
and Net Recoveries for such Distribution Date;
(B) an amount equal to (1) the Class A-2
Percentage for such Distribution Date divided by the
Senior Percentage for such Distribution Date multiplied
by (2) the Senior Prepayment Percentage for such
Distribution Date multiplied by the aggregate of all
Principal Prepayments received in the related
Prepayment Period;
(C) with respect to each Mortgage Loan for
which a Cash Liquidation or an REO Disposition occurred
during the related Prepayment Period and did not result
in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary
Losses, an amount equal to the lesser of (i) the then
applicable Class A-2 Percentage of the Stated Principal
Balance of such Mortgage Loan and (ii) the Senior
Prepayment Percentage for such Distribution Date
multiplied by the related collections (including
without limitation Insurance Proceeds, Liquidation
Proceeds and REO Proceeds) to the extent applied by the
Master Servicer as recoveries of principal pursuant to
Section 3.15 and to the extent such percentage thereof
is not otherwise payable to the Class A-1 Certificates
pursuant to Section 4.01(b)(ii)(C); and
(D) any amounts described in clauses (A), (B)
and (C) above, as determined for any previous Distribution
Date, which remain unpaid after application of amounts
previously distributed pursuant to this clause (D) to
the extent that any such amounts are not attributable
to Realized Losses that were allocated to the
Subordinate Certificates;
(vi) if the Certificate Principal Balances of
the Class B-2 and Class B-3 Certificates have been reduced to
zero, to the Master Servicer or a Sub-Servicer, by remitting
for deposit to the Custodial Account, to the extent of and
in reimbursement for any Advances previously made with
respect to any Mortgage Loan or REO Property in respect of
the Mortgage Loans which remain unreimbursed in whole or in
part following the Cash Liquidation or REO Disposition of
such Mortgage Loan or REO Property, minus any such Advances
that were made with respect to delinquencies that ultimately
constituted Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary Losses;
(vii) to the Class B-1 Certificateholders,
Accrued Certificate Interest on the Class B-1 Certificates for such
Distribution Date, plus any Accrued Certificate Interest
thereon remaining unpaid from any previous Distribution
Date;
(viii) to the Class B-1 Certificateholders, the
sum of the following amounts applied to reduce the Certificate
Principal Balance thereof:
(A) the Class B-1 Percentage for such
Distribution Date multiplied by the Scheduled Principal
and Net Recoveries for such Distribution Date;
(B) an amount equal to the product of the
Class B-1 Prepayment Percentage multiplied by the aggregate
of all Principal Prepayments received during the
related Prepayment Period;
(C) such Class's pro rata share, based on the
Certificate Principal Balance of each related Class of
Subordinate Certificates then outstanding, of all
amounts received in connection with a Cash Liquidation
or an REO Disposition (x) that occurred during the
preceding calendar month and (y) that did not result in
any Excess Special Hazard Losses, Excess Fraud Losses,
Excess Bankruptcy Losses or Extraordinary Losses, to
the extent applied as recoveries of principal pursuant
to Section 3.15 and to the extent not otherwise payable
to the Class A-1 Certificates pursuant to Section
4.01(b)(ii)(C) and the Class A-2 Certificates pursuant
to Section 4.01(b)(v)(C); and
(D) any amounts described in clauses (A), (B)
and (C) above, as determined for any previous Distribution
Date, which remain unpaid after application of amounts
previously distributed pursuant to this clause (D) to
the extent that such amounts are not attributable to
Realized Losses which have been allocated to the Class
B-2 or Class B-3 Certificates;
(ix) if the Certificate Principal Balance of
the Class B-3 Certificates has been reduced to zero, to the
Master Servicer or a Sub-Servicer, by remitting for deposit
to the Custodial Account, to the extent of and in
reimbursement for any Advances previously made with respect
to any Mortgage Loan or REO Property which remain
unreimbursed in whole or in part following the Cash
Liquidation or REO Disposition of such Mortgage Loan or REO
Property, minus any such Advances that were made with
respect to delinquencies that ultimately constituted Excess
Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses;
(x) to the Class B-2 Certificateholders,
Accrued Certificate Interest on the Class B-2 Certificates for such
Distribution Date, plus any Accrued Certificate Interest
thereon remaining unpaid from any previous Distribution
Date;
(xi) to the Class B-2 Certificateholders, the
sum of the following, applied to reduce the Certificate
Principal Balances thereof:
(A) the Class B-2 Percentage for such
Distribution Date multiplied by the Scheduled Principal
and Net Recoveries for such Distribution Date;
(B) an amount equal to the product of the
Class B-2 Prepayment Percentage multiplied by the aggregate
of all Principal Prepayments received during the
related Prepayment Period;
(C) such Class's pro rata share, based on the
Certificate Principal Balance of each Class of
Subordinate Certificates then outstanding, of all
amounts received in connection with a Cash Liquidation
or an REO Disposition (x) that occurred during the
related Prepayment Period and (y) that did not result
in any Excess Special Hazard Losses, Excess Fraud
Losses, Excess Bankruptcy Losses or Extraordinary
Losses, to the extent applied as recoveries of
principal pursuant to Section 3.15 and to the extent
not otherwise payable to the Class A-1 Certificates
pursuant to Section 4.01(b)(ii)(C) and the Class A-2
Certificates pursuant to Section 4.01(b)(v)(C); and
(D) any amounts described in clauses (A), (B)
and (C) above, as determined for any previous Distribution
Date, which remain unpaid after application of amounts
previously distributed pursuant to this clause (D) to
the extent that such amounts are not attributable to
Realized Losses which have been allocated to the Class
B-3 Certificates;
(xii) to the Master Servicer or a Sub-Servicer,
by remitting for deposit to the Custodial Account, to the
extent of and in reimbursement for any Advances previously
made with respect to any Mortgage Loan or REO Property which
remain unreimbursed in whole or in part following the Cash
Liquidation or REO Disposition of such Mortgage Loan or REO
Property, minus any such Advances that were made with
respect to delinquencies that ultimately constituted Excess
Special Hazard Losses, Excess Fraud Losses, Excess
Bankruptcy Losses or Extraordinary Losses;
(xiv) to the Class B-1 Certificateholders, the
portion, if any of the Available Distribution Amount
remaining after the foregoing distributions, applied to
reduce the Certificate Principal Balance of the Class B-1
Certificates, but in no event more than the outstanding
Certificate Principal Balance of the Class B-1 Certificates;
(xv) to the Class B-2 Certificateholders, the
portion, if any of the Available Distribution Amount
remaining after the foregoing distributions, applied to
reduce the Certificate Principal Balance of the Class B-2
Certificates, but in no event more than the outstanding
Certificate Principal Balance of the Class B-2 Certificates;
(xvi) on and after the related Accretion
Termination Date, to the Class B-3 Certificateholders,
Accrued Certificate Interest on the Class B-3 Certificates
for such Distribution Date, plus any Accrued Certificate
Interest thereon remaining unpaid from any previous
Distribution Date;
(xvii) on and after the related Accretion
Termination Date, to the Class B-3 Certificateholders, the
portion, if any of the Available Distribution Amount
remaining after the foregoing distributions, applied to
reduce the Certificate Principal Balance of the Class B-3
Certificates;
(xviii) to the Class A-1 Certificateholders, the
portion, if any, of the Available Distribution Amount
remaining, but in no event more than the principal portion
of Realized Losses previously allocated thereto and not
previously reimbursed pursuant to this clause;
(xix) to the Class A-2 Certificateholders, the
portion, if any, of the Available Distribution Amount
remaining, but in no event more than the principal portion
of Realized Losses previously allocated thereto and not
previously reimbursed pursuant to this clause;
(xx) to the Class B-1 Certificateholders, the
portion, if any, of the Available Distribution Amount
remaining, but in no event more than the principal portion
of Realized Losses previously allocated thereto and not
previously reimbursed pursuant to this clause;
(xxi) to the Class B-2 Certificateholders, the
portion, if any, of the Available Distribution Amount
remaining, but in no event more than the principal portion
of Realized Losses previously allocated thereto and not
previously reimbursed pursuant to this clause;
(xxii) to the Class B-3 Certificateholders, the
portion, if any, of the Available Distribution Amount
remaining, but in no event more than the principal portion
of Realized Losses previously allocated thereto and not
previously reimbursed pursuant to this clause; and
(xxiii) to the Class R Certificateholders, the
balance, if any, of the Available Distribution Amount;
(c) The Trustee shall, upon written request from the
Master Servicer, invest or cause the institution maintaining the
Certificate Account to invest the funds in the Certificate
Account in Permitted Instruments designated in the name of the
Trustee for the benefit of the Certificateholders, which shall
mature not later than the Business Day next preceding the
Distribution Date next following the date of such investment
(except that (i) any investment in obligations of the institution
with which the Certificate Account is maintained may mature on
such Distribution Date and (ii) any other investment may mature
on such Distribution Date if the Trustee shall agree to advance
funds on such Distribution Date to the Certificate Account in the
amount payable on such investment on such Distribution Date,
pending receipt thereof to the extent necessary to make
distributions on the Certificates) and shall not be sold or
disposed of prior to maturity. All income and gain realized from
any such investment shall be for the benefit of the Master
Servicer and shall be subject to its withdrawal or order from
time to time. The amount of any losses incurred in respect of
any such investments shall be deposited in the Certificate
Account by the Master Servicer out of its own funds immediately
as realized without right of reimbursement.
(d) On each Distribution Date prior to the related
Accretion Termination Date, Accrued Certificate Interest on the
Class B-3 Certificates for such Distribution Date that would
otherwise be distributed on such Certificates on such
Distribution Date shall instead be added to the Certificate
Principal Balance thereof, to the extent provided by operation of
the definition of Certificate Principal Balance. On and after
the Accretion Termination Date, the entire Accrued Certificate
Interest on the Class B-3 Certificates for such Distribution Date
shall be payable to the Class B-3 Certificateholders, as
applicable, to the extent that any portion of such Accrued
Certificate Interest is not required to retire the Class B-1
Certificates and Class B-2 Certificates. Any portion of the
Accrued Certificate Interest on the Class B-3 Certificates not
payable to the Class B-3 Certificates on the Accretion
Termination Date in accordance with the foregoing shall be added
to the Certificate Principal Balance thereof on such date.
(e) Except as otherwise provided in Section 9.01,
whenever the Trustee expects that the final distribution with
respect to any Class of Certificates will be made on the next
Distribution Date, the Trustee shall, no later than five days
after the Determination Date, mail to each Holder on such date of
such Class of Certificates a notice to the effect that:
(i) the Trustee expects that the final distribution
with respect to such Class of Certificates will be made on
such Distribution Date but only upon presentation and
surrender of such Certificates at the office of the Trustee
therein specified, and
(ii) no interest shall accrue on such Certificates from
and after the end of the related Interest Accrual Period.
Any funds not distributed to any Holder or Holders of
Certificates of such Class on such Distribution Date because of
the failure of such Holder or Holders to tender their
Certificates shall, on such date, be set aside and held in trust
and credited to the account of the appropriate non-tendering
Holder or Holders. If any Certificates as to which notice has
been given pursuant to this Section 4.01(e) shall not have been
surrendered for cancellation within six months after the time
specified in such notice, the Trustee shall mail a second notice
to the remaining non-tendering Certificateholders to surrender
their Certificates for cancellation in order to receive the final
distribution with respect thereto. If within six months after the
second notice all such Certificates shall not have been
surrendered for cancellation, the Trustee shall take reasonable
steps as directed by the Depositor, or appoint an agent to take
reasonable steps, to contact the remaining non-tendering
Certificateholders concerning surrender of their Certificates.
The costs and expenses of maintaining the funds in trust and of
contacting such Certificateholders shall be paid out of the
assets remaining in the Trust Fund. If within nine months after
the second notice any such Certificates shall not have been
surrendered for cancellation, the Class R Certificateholders
shall be entitled to all unclaimed funds and other assets which
remain subject hereto. No interest shall accrue or be payable to
any Certificateholder on any amount held in trust as a result of
such Certificateholder's failure to surrender its Certificate(s)
for final payment thereof in accordance with this Section
4.01(e).
(f) On each Distribution Date, the Trustee shall
distribute to each Certificateholder of record on the next
preceding Record Date (other than as provided in Section 9.01
respecting the final distribution), in the manner set forth in
Section 4.01(b), such Certificateholder's share (based on the
aggregate of the Percentage Interests represented by the
Certificates of the applicable Class held by such
Certificateholder) of the amount transferred from the Excess
Proceeds Account to the Certificate Account on the related
Certificate Account Deposit Date in accordance with Section
3.25(b), in the following order of priority: first, to the
Holders of the Class S Certificates and the Class A-1
Certificates on a pro rata basis, to the extent of and in
proportion to the interest portion of the aggregate amount of all
Realized Losses allocated to the Certificates of such Classes on
such Distribution Date or any previous Distribution Date in
accordance with Section 4.04 and not subsequently recovered
through any distribution in accordance with this Section 4.01(f),
and then second, to the Holders of the Class A-1 Certificates,
third, to the Holders of the Class A-2 Certificates, fourth, to
the Holders of the Class B-1 Certificates, fifth, to the Holders
of the Class B-2 Certificates, and sixth, to the Holders of the
Class B-3 Certificates, in each case to the extent of the
aggregate amount of all Realized Losses allocated to the
Certificates of such Class on such Distribution Date or any
previous Distribution Date in accordance with Section 4.04 and
not subsequently recovered through any distribution in accordance
with Section 4.01(b)(xviii), (xix), (xx), (xxi) or (xxii) or in
accordance with this Section 4.01(f), and then seventh, to the
Holders of the Class R Certificates. The distribution of any
amount in accordance with this Section 4.01(f) shall not have the
effect of reducing the Certificate Principal Balance of any
Certificate to which such distribution is allocated.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date the Trustee shall forward or
cause to be forwarded by mail to each Holder of a Certificate and
to the Depositor and the Master Servicer a statement as to such
distribution setting forth:
(i) (a) the amount of such distribution to the
Certificateholders of such Class applied to reduce the
Certificate Principal Balance thereof, (b) the aggregate
amount included therein representing Principal Prepayments
and (c) the Senior Prepayment Percentage with respect to the
Class A-1 and Class A-2 Certificates, the Class B-1
Prepayment Percentage and the Class B-2 Prepayment
Percentage applicable to such distribution;
(ii) the amount of such distribution to the
Certificateholders of such Class allocable to interest;
(iii) the amount of related servicing compensation
received by or on behalf of the Master Servicer and any Sub-
Servicers with respect to such Distribution Date and such
other customary information as the Master Servicer deems
necessary or desirable and supplies to the Trustee, or which
a Certificateholder reasonably requests, to enable
Certificateholders to prepare their tax returns;
(iv) the aggregate amount of Advances included in
such distribution on such Distribution Date;
(v) the number and aggregate Stated Principal
Balance of the Mortgage Loans at the close of business on
such Distribution Date [and the amount of Deferred Interest
added on the related Distribution Date to the Stated
Principal Balance];
(vi) the Certificate Principal Balance of a Single
Certificate of such Class, the aggregate Certificate Princi-
pal Balance of the Class A-1, Class A-2, Class B-1, Class B-
2 and Class B-3 Certificates, respectively, and the Senior
Percentage with respect to the Class A-1 and Class A-2
Certificates, the Class A-1 Percentage and Class A-2
Percentage, and the aggregate of the Class B-1, Class B-2
and Class B-3 Percentages, after giving effect to the
amounts distributed on such Distribution Date separately
identifying any reduction thereof due to Realized Losses
other than pursuant to an actual distribution of principal;
(vii) the number and aggregate Stated Principal
Balance of Mortgage Loans (a) delinquent 31 to 60 days, (b)
delinquent 61 to 90 days, (c) delinquent 91 days or more;
(viii) the number and aggregate Stated Principal
Balance of Mortgage Loans as to which foreclosure
proceedings have been commenced in each case as of the
related Determination Date and which are (a) delinquent 31
to 60 days, (b) delinquent 61 to 90 days, (c) delinquent 91
days or more;
(ix) the number and aggregate Stated Principal
Balance of Mortgage Loans as to which bankruptcy proceedings
have been commenced in each case as of the related
Determination Date and which are (a) delinquent 31 to 60
days, (b) delinquent 61 to 90 days, (c) delinquent 91 days
or more;
(x) with respect to any Mortgage Loan that became
a REO Property during the preceding calendar month, the loan
number and Stated Principal Balance of such Mortgage Loan as
of the close of business on the Distribution Date in such
month and the date of acquisition thereof;
(xi) the book value of any REO Property as of the
close of business on the last Business Day of the calendar
month preceding the Distribution Date;
(xii) the related Certificate Rate in effect for
the preceding calendar month with respect to each Class of
Certificates;
(xiii) the aggregate Accrued Certificate Interest
remaining unpaid, if any, for each Class of Certificates,
after giving effect to the distribution made on such
Distribution Date;
(xiv) the Special Hazard Amount, Fraud Loss Amount
and Bankruptcy Amount remaining available immediately after
such Distribution Date;
(xv) the aggregate Realized Losses incurred since
the Cut-off Date; and
(xvi) the amount of any Excess Proceeds distributed
to each class of Certificates.
In the case of information furnished pursuant to
subclauses (i)-(iii) above, the amounts shall also be expressed
as a dollar amount per Single Certificate.
Within a reasonable period of time after the end of
each calendar year, the Trustee shall prepare and forward, to
each Person who at any time during the calendar year was a Holder
of a Certificate (other than a Class R Certificate) a statement
containing the information set forth in subclauses (i)-(iii)
above, aggregated for such calendar year or applicable portion
thereof during which such person was a Certificateholder. Such
obligation of the Trustee shall be deemed to have been satisfied
to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code
and regulations thereunder as from time to time are in force.
On each Distribution Date the Trustee shall prepare and
forward, to each Holder of a Class R Certificate a copy of the
reports forwarded to each of the Certificateholders (other than
the Class R Certificateholders) on such Distribution Date and a
statement setting forth the amounts actually distributed with
respect to the Class R Certificates on such Distribution Date.
Within a reasonable period of time after the end of
each calendar year, the Trustee shall prepare and forward, to
each Person who at any time during the calendar year was a Holder
of a Class R Certificate a statement containing the information
provided pursuant to the previous paragraph aggregated for such
calendar year or applicable portion thereof during which such
Person was a Class R Certificateholder. Such obligation of the
Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the
Trustee pursuant to any requirements of the Code as from time to
time are in force.
SECTION 4.03. Remittance Reports; Advances by the
Master Servicer.
(a) On the second Business Day following each
Determination Date, the Master Servicer shall deliver to the
Trustee a report, prepared as of the close of business on the
Determination Date (the "Determination Date Report"), in the form
of an electromagnetic tape or disk. The Determination Date
Report and any written information supplemental thereto shall
include such information with respect to the Mortgage Loans that
is reasonably available to the Master Servicer and that is
required by the Trustee for purposes of making the calculations
referred to in the following paragraph, as set forth in written
specifications or guidelines issued by the Trustee from time to
time. Not later than 10:00 A.M. Los Angeles time on the Business
Day preceding each Certificate Account Deposit Date, the Trustee
shall furnish by telecopy to the Master Servicer a statement (the
information in such statement to be made available to
Certificateholders or the Depositor by the Master Servicer on
request) setting forth (i) the Available Distribution Amount and
(ii) the amounts required to be withdrawn from the Custodial
Account and deposited into the Certificate Account on the
immediately succeeding Certificate Account Deposit Date pursuant
to clause (iii) of Section 4.01(a). The Trustee shall have no
obligation to recompute, recalculate or verify any information
provided to it by the Master Servicer. The determination by the
Trustee of such amounts shall, in the absence of obvious error,
be presumptively deemed to be correct for all purposes hereunder.
(b) Prior to the close of business on the Business Day
preceding each Certificate Account Deposit Date, the Trustee
shall notify the Master Servicer of the aggregate amount of
Advances required to be made for the related Distribution Date,
which shall be in an aggregate amount equal to the aggregate
amount of Monthly Payments (with each interest portion thereof
adjusted to the Net Mortgage Rate), less the amount of any
related Debt Service Reductions or reductions in the amount of
interest collectable from the Mortgagor pursuant to the Soldiers'
and Sailors' Civil Relief Act of 1940, on the Outstanding
Mortgage Loans as of the related Due Date, which Monthly Payments
were delinquent as of the close of business as of the related
Determination Date; provided, that following the reduction of the
Certificate Principal Balances of the Class A-2, Class B-1, Class
B-2 and Class B-3 Certificates to zero, no Advance shall be made
if it would be a Nonrecoverable Advance. On or before 2:00 P.M.
Los Angeles time on each Certificate Account Deposit Date, the
Master Servicer shall either (i) deposit in the Certificate
Account from its own funds, or funds received therefor from the
Sub-Servicers, an amount equal to the Advances to be made by the
Master Servicer in respect of the related Distribution Date, (ii)
withdraw from amounts on deposit in the Custodial Account and
deposit in the Certificate Account all or a portion of the
amounts held for future distribution in discharge of any such
Advance, or (iii) make advances in the form of any combination of
(i) and (ii) aggregating the amount of such Advance. Any portion
of the amounts held for future distribution so used shall be
replaced by the Master Servicer by deposit in the Certificate
Account on or before 11:00 A.M. Los Angeles time on any future
Certificate Account Deposit Date to the extent that funds
attributable to the Mortgage Loans that are available in the
Custodial Account for deposit in the Certificate Account on such
Certificate Account Deposit Date shall be less than payments to
Certificateholders required to be made on the following
Distribution Date. The amount of any reimbursement pursuant to
any clause under Section 4.01(b), in respect of outstanding
Advances on any Distribution Date shall be allocated to specific
Monthly Payments due but delinquent for previous Due Periods,
which allocation shall be made, to the extent practicable, to
Monthly Payments which have been delinquent for the longest
period of time. Such allocations shall be conclusive for
purposes of reimbursement to the Master Servicer from recoveries
on related Mortgage Loans pursuant to Section 3.11. The
determination by the Master Servicer that it has made a
Nonrecoverable Advance or that any proposed Advance, if made,
would constitute a Nonrecoverable Advance, shall be evidenced by
a certificate of a Servicing Officer delivered to the Depositor
and the Trustee. The Trustee shall deposit all funds it receives
pursuant to this Section 4.03 into the Certificate Account.
(c) In the event that the Master Servicer determines
as of the Business Day preceding any Certificate Account Deposit
Date that it will be unable to deposit in the Certificate Account
an amount equal to the Advance required to be made for the
immediately succeeding Distribution Date in the amount determined
by the Trustee pursuant to paragraph (b) above, it shall give
notice to the Trustee of its inability to advance (such notice
may be given by telecopy), not later than 3:00 P.M., Los Angeles
time, on such Business Day, specifying the portion of such amount
that it will be unable to deposit. Not later than 5:30 P.M., Los
Angeles time, on the Certificate Account Deposit Date, unless by
such time the Master Servicer shall have directly or indirectly
deposited in the Certificate Account the entire amount of the
Advances required to be made for the related Distribution Date,
pursuant to Section 7.01, the Trustee shall (a) terminate all of
the rights and obligations of the Master Servicer under this
Agreement in accordance with Section 7.01 and (b) assume the
rights and obligations of the Master Servicer hereunder,
including the obligation to deposit in the Certificate Account an
amount equal to the Advance for the immediately succeeding
Distribution Date; provided, however, that the Trustee's
obligation to advance such amounts shall be as of the related
Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
Prior to each Distribution Date, the Master Servicer
shall determine the total amount of Realized Losses, if any, that
resulted from any Cash Liquidation, Debt Service Reduction,
Deficient Valuation or REO Disposition that occurred during the
related Prepayment Period. The amount of each Realized Loss
shall be evidenced by an Officers' Certificate by the Master
Servicer. Realized Losses shall be allocated among the various
Classes of Certificates as determined by the Trustee in
accordance with the following provisions. All Realized Losses,
other than Excess Special Hazard Losses, Extraordinary Losses,
Excess Bankruptcy Losses or Excess Fraud Losses, shall be
allocated first to the Class B-3 Certificates until the
Certificate Principal Balance of such Class B-3 Certificates has
been reduced to zero, then, to the Class B-2 Certificates until
the Certificate Principal Balance of such Class B-2 Certificates
has been reduced to zero, then, to the Class B-1 Certificates
until the Certificate Principal Balance of such Class B-1
Certificates has been reduced to zero, then, to the Class A-2
Certificates until the Certificate Principal Balance thereof is
reduced to zero, and then the principal portion thereof to the
Class A-1 Certificates and the interest portion thereof to the
Class S Certificates and the Class A-1 Certificates on a pro rata
basis as described below. Any Excess Special Hazard Losses,
Excess Bankruptcy Losses, Excess Fraud Losses and Extraordinary
Losses will be allocated on a pro rata basis among: (i) the
Class S Certificates, the Class A-1 Certificates, Class A-2
Certificates, the Class B-1 Certificates, Class B-2 Certificates
and Class B-3 Certificates, in each case to the extent
outstanding, in respect of such Realized Losses; in each case
with the interest portion thereof allocated among all other
classes, and the principal portion thereof allocated among all
such classes other than the Class S Certificates. As used
herein, an allocation of a Realized Loss on a "pro rata basis"
among two or more specified Classes of Certificates means an
allocation on a pro rata basis, without priority among the
various Classes so specified, to each such Class of Certificates
on the basis of the then outstanding Certificate Principal
Balances thereof in the case of the principal portion of a
Realized Loss or based on the Accrued Certificate Interest
thereon in the case of an interest portion of a Realized Loss.
Any allocation of the principal portion of Realized Losses (other
than Debt Service Reductions) to a Certificate (except as
follows) shall be made by reducing the Certificate Principal
Balance thereof by the amount so allocated, which allocation
shall be deemed to have occurred at the close of business on such
Distribution Date. Any allocation of the principal portion of
Realized Losses (other than Debt Service Reductions) to the most
subordinate Class of Certificates outstanding, shall be made by
operation of the definition of "Certificate Principal Balance,"
and by operation of the provisions of Section 4.01(b).
Allocations of the interest portions of Realized Losses shall be
made by operation of the definition of "Accrued Certificate
Interest" and by operation of the provisions of Section 4.01(b).
Allocations of the principal portion of Debt Service Reductions
shall be made by operation of the provisions of Section 4.01(b).
All Realized Losses and all other losses allocated to a Class of
Certificates hereunder will be allocated among the Certificates
of such Class in proportion to the Percentage Interests evidenced
thereby. For purposes of the foregoing, the Trustee shall
maintain records relating to the Bankruptcy Amount, Fraud Loss
Amount and Special Hazard Amount, as in effect from time to time.
[SECTION 4.05. Allocation of Deferred Interest.
Prior to each Distribution Date, the Master Servicer
shall determine the total amount of Deferred Interest to be added
to the Stated Principal Balance. Deferred Interest shall be
allocated as follows: first, to the Class R Certificates, second
to the Class B Certificates, third, to the Class A-2 Certificates
and fourth to the Class A-1 Certificates, in each case to the
extent of the Accrued Certificate Interest thereon as calculated
hereunder without regard to the allocation of Deferred Interest
thereto. Deferred Interest allocated to a Class of Certificates
on any Distribution Date will be added to the Certificate
Principal Balance thereof on such Distribution Date and will
thereafter bear interest at the then applicable Certificate
Rate.]
SECTION 4.06. Information Reports to be Filed by the
Master Servicer.
The Master Servicer or Sub-Servicers shall file
information returns with respect to the receipt of mortgage
interest received in a trade or business, reports of foreclosures
and abandonments of any Mortgaged Property and cancellation of
indebtedness income with respect to any Mortgaged Property as
required by Sections 6050H, 6050J and 6050P of the Code,
respectively, and promptly deliver upon such filing to the
Trustee an Officer's Certificate stating that such reports have
been filed. Such reports shall be in form and substance
sufficient to meet the reporting requirements imposed by such
Sections 6050H, 6050J and 6050P of the Code.
SECTION 4.07. Compliance with Withholding
Requirements.
Notwithstanding any other provision of this Agreement,
the Trustee shall comply with all federal withholding require-
ments respecting payments to Certificateholders of interest or
original issue discount on the Mortgage Loans, and payments of
interest or discount on amounts invested by the Trustee as agent
for Certificateholders pursuant to an election made under Section
4.01 hereof, that the Trustee reasonably believes are applicable
under the Code. The consent of Certificateholders shall not be
required for such withholding. In the event the Trustee
withholds any amount from interest or original issue discount
payments or advances thereof to any Certificateholder pursuant to
federal withholding requirements, the Trustee shall, together
with its monthly report to such Certificateholders pursuant to
Section 4.02 hereof, indicate such amount withheld.
ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
(a) The Certificates will be substantially in the
respective forms annexed hereto as Exhibits A, B-1, B-2, B-3 and
B-4. The Certificates will be issuable in registered form only.
Except as provided in Section 5.01(b) below, the Class A-1
Certificates will be issuable in denominations evidencing initial
Certificate Principal Balances of not less than $[1.00] and
integral multiples of $[1.00] in excess thereof, the Class A-2
Certificates will be issuable in denominations evidencing initial
Certificate Principal Balances of not less than $[25,000] and
integral multiples of $[1,000] in excess thereof, and the Class
B-1, Class B-2 and Class B-3 Certificates will be issuable in
denominations evidencing initial Certificate Principal Balances
of not less than $[250,000] and integral multiples of $[1,000] in
excess thereof, except that one Certificate of each of the Class
A-1, Class A-2, Class B-1, Class B-2, and Class B-3 Certificates
may be issued in an amount (whether greater or less than the
applicable minimum denomination) such that the denomination of
such Certificate and the aggregate denomination of all other
outstanding Certificates of such Class together equal the
aggregate Certificate Principal Balance of such Class. The Class
S Certificates will be issuable in denominations evidencing an
initial Notional Amount of not less than $[1.00] and integral
multiples of $[1.00] in excess thereof, except that one
Certificate of the Class S Certificates may be issuable in an
amount such that the denomination of such Certificate and the
aggregate denomination of all other outstanding Certificates of
such Class together equal the initial Notional Amount of such
Class. The Class R Certificates will each be issuable in
denominations of any Percentage Interest representing [5.00]% and
multiples of [0.01]% in excess thereof; provided, however, that
one Class R Certificate may be issued to the "tax matters
person," pursuant to Article X, in a minimum denomination
representing a Percentage Interest of not less than [0.01]%.
Upon original issue, the Certificates shall, upon the
written request of the Depositor executed by an officer of the
Depositor, be executed and delivered by the Trustee,
authenticated by the Trustee and delivered to or upon the order
of the Depositor upon receipt by the Trustee of the documents
specified in Section 2.01. The Certificates shall be executed by
manual or facsimile signature on behalf of the Trustee in its
capacity as trustee hereunder by a Responsible Officer. Cer-
tificates bearing the manual or facsimile signatures of individ-
uals who were at any time the proper officers of the Trustee
shall bind the Trustee, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the
authentication and delivery of such Certificates or did not hold
such offices at the date of such Certificates. No Certificate
shall be entitled to any benefit under this Agreement, or be
valid for any purpose, unless there appears on such Certificate a
certificate of authentication substantially in the form provided
for herein executed by the Trustee by manual signature, and such
certificate upon any Certificate shall be conclusive evidence,
and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued
on the Closing Date shall be dated the Closing Date and any
Certificates delivered thereafter shall be dated the date of
their authentication.
(b) The Class S Certificates and the Class A-1
Certificates shall initially be issued as one or more
Certificates registered in the name of the Depository or its
nominee and, except as provided below, registration of such
Certificates may not be transferred by the Trustee except to
another Depository that agrees to hold such Certificates for the
respective Certificate Owners with Ownership Interests therein.
The Certificate Owners shall hold their respective Ownership
Interests in and to each of the Class S Certificates and the
Class A-1 Certificates through the book-entry facilities of the
Depository and, except as provided below, shall not be entitled
to Definitive Certificates in respect of such Ownership
Interests. All transfers by Certificate Owners of their
respective Ownership Interests in the Book-Entry Certificates
shall be made in accordance with the procedures established by
the Depository Participant or brokerage firm representing such
Certificate Owner. Each Depository Participant shall transfer
the Ownership Interests only in the Book-Entry Certificates of
Certificate Owners it represents or of brokerage firms for which
it acts as agent in accordance with the Depository's normal
procedures.
The Trustee, the Master Servicer and the Depositor may
for all purposes (including the making of payments due on the
respective Classes of Book-Entry Certificates) deal with the
Depository as the authorized representative of the Certificate
Owners with respect to the respective Classes of Book-Entry
Certificates for the purposes of exercising the rights of
Certificateholders hereunder. The rights of Certificate Owners
with respect to the respective Classes of Book-Entry Certificates
shall be limited to those established by law and agreements
between such Certificate Owners and the Depository Participants
and brokerage firms representing such Certificate Owners.
Multiple requests and directions from, and votes of, the
Depository as Holder of any Class of Book-Entry Certificates with
respect to any particular matter shall not be deemed inconsistent
if they are made with respect to different Certificate Owners.
The Trustee shall utilize the next available record date in
connection with solicitations of consents from or voting by
Certificateholders and shall give notice to the Depository of
such record date.
If (i)(A) the Depositor advises the Trustee in writing
that the Depository is no longer willing or able to properly
discharge its responsibilities as Depository and (B) the
Depositor is unable to locate a qualified successor or (ii) the
Depositor at its option advises the Trustee in writing that it
elects to terminate the book-entry system through the Depository,
the Trustee shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the
availability of Definitive Certificates to Certificate Owners
requesting the same. Upon surrender to the Trustee of the Book-
Entry Certificates by the Depository, accompanied by registration
instructions from the Depository for registration of transfer,
the Trustee shall, at the Depositor's expense, issue the
Definitive Certificates. The Definitive Certificates shall be
issuable in denominations evidencing initial Certificate
Principal Balances or Notional Amounts, as applicable, of
$[1,000] and integral multiples of $[1.00] in excess thereof,
except that any such Definitive Certificate that was represented
by a Book-Entry Certificate evidencing an initial Certificate
Principal Balance or Notional Amount of less than $[1,000]
immediately prior to the issuance of such Definitive Certificate
shall be issued in a denomination equal to the initial
Certificate Principal Balance or Notional Amount, as the case may
be, evidenced by such Book-Entry Certificate. Neither the
Depositor, the Master Servicer nor the Trustee shall be liable
for any actions taken by the Depository or its nominee,
including, without limitation, any delay in delivery of such
instructions and may conclusively rely on, and shall be protected
in relying on, such instructions. Upon the issuance of
Definitive Certificates, all references herein to obligations
imposed upon or to be performed by the Depository in connection
with the issuance of the Definitive Certificates pursuant to this
Section 5.01 shall be deemed to be imposed upon and performed by
the Trustee, and the Trustee and the Master Servicer shall
recognize the Holders of the Definitive Certificates as
Certificateholders hereunder.
SECTION 5.02. Registration of Transfer and Exchange of
Certificates.
(a) The Trustee shall maintain a Certificate Register
in which, subject to such reasonable regulations as it may pre-
scribe, the Trustee shall provide for the registration of Certif-
icates and of transfers and exchanges of Certificates as herein
provided.
(b) No transfer, sale, pledge or other disposition of
a Class B-2, Class B-3 or Class R Certificate shall be made
unless such transfer, sale, pledge or other disposition is exempt
from the registration requirements of the Securities Act of 1933,
as amended (the "Act"), and any applicable state securities laws
or is made in accordance with said Act and laws. In the event
that a transfer of a Class B-2, Class B-3 or Class R Certificate
is to be made (i) the Depositor may direct the Trustee to require
a written Opinion of Counsel acceptable to and in form and
substance satisfactory to the Trustee and the Depositor that such
transfer shall be made pursuant to an exemption, describing the
applicable exemption and the basis therefor, from said Act and
laws or is being made pursuant to said Act and laws, which
Opinion of Counsel shall not be an expense of the Trustee, the
Depositor or the Master Servicer, provided that such Opinion of
Counsel will not be required in connection with the initial
transfer of any such Certificate by the Depositor or any
affiliate thereof, to a non-affiliate of the Depositor and (ii)
the Trustee shall require the transferee to execute a
representation letter, substantially in the form of Exhibit G-1
attached hereto, and the Trustee shall require the transferor to
execute a representation letter, substantially in the form of
Exhibit G-2 attached hereto, each acceptable to and in form and
substance satisfactory to the Depositor and the Trustee
certifying to the Depositor and the Trustee the facts surrounding
such transfer, which representation letters shall not be an
expense of the Trustee, the Depositor or the Master Servicer;
provided however that such representation letters will not be
required in connection with any transfer of any such Certificate
by the Depositor to an affiliate of the Depositor and the Trustee
shall be entitled to conclusively rely upon a representation
(which, upon the request of the Trustee, shall be a written
representation) from the Depositor of the status of such
transferee as an affiliate of the Depositor. Any such
Certificateholder desiring to effect such transfer shall, and
does hereby agree to, indemnify the Trustee, the Depositor and
the Master Servicer against any liability that may result if the
transfer is not so exempt or is not made in accordance with such
applicable federal and state laws.
(c) The Trustee shall require a written Opinion of
Counsel from a prospective transferee prior to the transfer of
any Class A-2, Class B-1, Class B-2, Class B-3 or Class R
Certificate to any employee benefit plan or other retirement
arrangement, including individual retirement accounts and Keogh
plans, that is subject to Section 406 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Section 4975
of the Code (any of the foregoing, a "Plan"), to a trustee or
other Person acting on behalf of any Plan, or to any other person
who is using "plan assets" of any Plan to effect such acquisition
(including any insurance company using funds in its general or
separate accounts that may constitute "plan assets"). Such
Opinion of Counsel must establish to the satisfaction of the
Depositor and the Trustee or the Certificate Registrar that such
disposition will not violate the prohibited transaction
provisions of Section 406 of ERISA and Section 4975 of the Code.
Neither the Depositor, the Master Servicer nor the Trustee will
be required to obtain such Opinion of Counsel on behalf of any
prospective transferee. In the case of any transfer of the
foregoing Certificates to an insurance company, in lieu of such
Opinion of Counsel, the Trustee shall require a certification in
the form of Exhibit G-5 attached hereto substantially to the
effect that all funds used by such transferee to purchase such
Certificates will be funds held by it in its general account
which it reasonably believes do not constitute "plan assets" of
any Plan (as defined above); provided however that such
certification will not be required in connection with any
transfer of any such Certificate by the Depositor to an affiliate
of the Depositor and the Trustee shall be entitled to
conclusively rely upon a representation (which, upon the request
of the Trustee, shall be a written representation) from the
Depositor of the status of such transferee as an affiliate of the
Depositor. The permission of any transfer in violation of the
restriction on transfer set forth in this paragraph shall not
constitute a default or an Event of Default.
(d) (i) Each Person who has or who acquires any
Ownership Interest in a Class R Certificate shall be deemed by
the acceptance or acquisition of such Ownership Interest to have
agreed to be bound by the following provisions and to have
irrevocably authorized the Trustee or its designee under clause
(iii)(A) below to deliver payments to a Person other than such
Person and to negotiate the terms of any mandatory sale under
clause (iii)(B) below and to execute all instruments of transfer
and to do all other things necessary in connection with any such
sale. The rights of each Person acquiring any Ownership Interest
in a Class R Certificate are expressly subject to the following
provisions:
(A) Each Person holding or acquiring any Ownership
Interest in a Class R Certificate shall be a Permitted
Transferee and shall promptly notify the Trustee of any
change or impending change in its status as a Permitted
Transferee.
(B) In connection with any proposed Transfer of any
Ownership Interest in a Class R Certificate, the Trustee
shall require delivery to it, and shall not register the
Transfer of any Class R Certificate until its receipt of (I)
an affidavit and agreement (a "Transfer Affidavit and
Agreement" in the form attached hereto as Exhibit G-3) from
the proposed Transferee, in form and substance satisfactory
to the Master Servicer and the Trustee representing and
warranting, among other things, that it is a Permitted
Transferee, that it is not acquiring its Ownership Interest
in the Class R Certificate that is the subject of the
proposed Transfer as a nominee, trustee or agent for any
Person who is not a Permitted Transferee, that for so long
as it retains its Ownership Interest in a Class R
Certificate, it will endeavor to remain a Permitted
Transferee, and that it has reviewed the provisions of this
Section 5.02 and agrees to be bound by them, and (II) a
certificate, in the form attached hereto as Exhibit G-4,
from the Holder wishing to transfer the Class R Certificate,
in form and substance satisfactory to the Master Servicer
and the Trustee representing and warranting, among other
things, that no purpose of the proposed Transfer is to
impede the assessment or collection of tax.
(C) Notwithstanding the delivery of a Transfer
Affidavit and Agreement by a proposed Transferee under
clause (B) above, if a Responsible Officer of the Trustee
assigned to this transaction has actual knowledge that the
proposed Transferee is not a Permitted Transferee, no
Transfer of an Ownership Interest in a Class R Certificate
to such proposed Transferee shall be effected.
(D) Each Person holding or acquiring any Ownership
Interest in a Class R Certificate shall agree (x) to require
a Transfer Affidavit and Agreement from any other Person to
whom such Person attempts to transfer its Ownership Interest
in a Class R Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate to the
Trustee in the form attached hereto as Exhibit G-4.
(E) Each Person holding or acquiring an Ownership
Interest in a Class R Certificate, by purchasing an
Ownership Interest in such Certificate, agrees to give the
Trustee written notice that it is a "pass-through interest
holder" within the meaning of Temporary Treasury Regulations
Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Class R Certificate, if it is "a
pass-through interest holder," or is holding an Ownership
Interest in a Class R Certificate on behalf of a "pass-
through interest holder."
(ii) The Trustee will register the Transfer of any
Class R Certificate only if it shall have received the Transfer
Affidavit and Agreement in the form attached hereto as Exhibit G-
3, a certificate of the Holder requesting such transfer in the
form attached hereto as Exhibit G-4 and all of such other
documents as shall have been reasonably required by the Trustee
as a condition to such registration. Transfers of the Class R
Certificates to Non-United States Persons and Disqualified
Organizations are prohibited.
(iii) (A) If any Disqualified Organization shall
become a Holder of a Class R Certificate, then the last preceding
Permitted Transferee shall be restored, to the extent permitted
by law, to all rights and obligations as Holder thereof
retroactive to the date of registration of such Transfer of such
Class R Certificate. If a Non-United States Person shall become
a Holder of a Class R Certificate, then the last preceding
Permitted Transferee shall be restored, to the extent permitted
by law, to all rights and obligations as Holder thereof
retroactive to the date of registration of such Transfer of such
Class R Certificate. If a transfer of a Class R Certificate is
disregarded pursuant to the provisions of Treasury Regulations
Section 1.860E-1 or Section 1.860G-3, then the last preceding
Permitted Transferee shall be restored, to the extent permitted
by law, to all rights and obligations as Holder thereof
retroactive to the date of registration of such Transfer of such
Class R Certificate. The Trustee shall be under no liability to
any Person for any registration of Transfer of a Class R
Certificate that is in fact not permitted by this Section 5.02 or
for making any payments due on such Certificate to the holder
thereof or for taking any other action with respect to such
holder under the provisions of this Agreement.
(B) If any purported Transferee shall become a
Holder of a Class R Certificate in violation of the restrictions
in subsection (i) or (ii) of this Section 5.02(e) and to the
extent that the retroactive restoration of the rights of the
Holder of such Class R Certificate as described in clause
(iii)(A) above shall be invalid, illegal or unenforceable, then
the Trustee shall have the right, without notice to the holder or
any prior holder of such Class R Certificate, to sell such Class
R Certificate to a purchaser selected by the Trustee on such
terms as the Trustee may choose. Such purported Transferee shall
promptly endorse and deliver each Class R Certificate in
accordance with the instructions of the Trustee. Such purchaser
may be the Trustee itself. The proceeds of such sale, net of the
commissions (which may include commissions payable to the
Trustee), expenses and taxes due, if any, will be remitted by the
Trustee to such purported Transferee. The terms and conditions
of any sale under this clause (iii)(B) shall be determined in the
sole discretion of the Trustee, and the Trustee shall not be
liable to any Person having an Ownership Interest in a Class R
Certificate as a result of its exercise of such discretion.
(iv) The Trustee shall make available to the Internal
Revenue Service and those Persons specified by the REMIC
Provisions, all information necessary to compute any tax imposed
(A) as a result of the transfer of an ownership interest in a
Class R Certificate to any Person who is a Disqualified
Organization, including the information regarding "excess
inclusions" of such Class R Certificates required to be provided
to the Internal Revenue Service and certain Persons as described
in Treasury Regulations Sections 1.860D-1(b)(5) and 1.860E-
2(a)(5), and (B) as a result of any regulated investment company,
real estate investment trust, common trust fund, partnership,
trust, estate or organization described in Section 1381 of the
Code that holds an Ownership Interest in a Class R Certificate
having as among its record holders at any time any Person who is
a Disqualified Organization. The Trustee may charge and shall be
entitled to reasonable compensation for providing such
information as may be required from those Persons which may have
had a tax imposed upon them as specified in clauses (A) and (B)
of this paragraph for providing such information.
(e) Subject to the preceding paragraphs, upon
surrender for registration of transfer of any Certificate at the
office of the Trustee maintained for such purpose, the Trustee
shall execute and the Trustee or the Authenticating Agent 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 initial Certificate Principal
Balance. Every Certificate surrendered for transfer shall be
accompanied by notification of the account of the designated
transferee or transferees for the purpose of receiving distri-
butions pursuant to Section 4.01 by wire transfer, if any such
transferee desires and is eligible for distribution by wire
transfer.
(f) At the option of the Certificateholders,
Certificates may be exchanged for other Certificates of
authorized denominations of the same Class of a like aggregate
initial Certificate Principal Balance, upon surrender of the
Certificates to be exchanged at the office of the Certificate
Registrar. Whenever any Certificates are so surrendered for
exchange the Trustee shall execute, authenticate and deliver the
Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered
for transfer or exchange shall (if so required by the Trustee or
the Certificate Registrar) be duly endorsed by, or be accompanied
by a written instrument of transfer in the form satisfactory to
the Trustee or the Certificate Registrar duly executed by, the
Holder thereof or his attorney duly authorized in writing.
(g) No service charge shall be made to the
Certificateholders for any transfer or exchange of Certificates,
but the Trustee may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection
with any transfer or exchange of Certificates.
(h) All Certificates surrendered for transfer and
exchange shall be canceled and retained by the Trustee in
accordance with the Trustee's standard procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the
Trustee and the Trustee receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there
is delivered to the Trustee such security or indemnity as may be
required by it to save it harmless, then, in the absence of
notice to the Trustee that such Certificate has been acquired by
a bona fide purchaser, the Trustee shall execute, authenticate
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 initial Certificate Principal Balance. Upon the
issuance of any new Certificate under this Section, the Trustee
may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto
and any other expenses (including the fees and expenses of the
Trustee) connected therewith. Any replacement Certificate issued
pursuant to this Section shall constitute complete and indefeasi-
ble evidence of ownership in the Trust Fund, as if originally
issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Depositor, the Master Servicer, the Trustee and any
agent of any 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 pursuant to Section 4.01
and for all other purposes whatsoever, and neither the Depositor,
the Master Servicer, the Trustee nor any agent of any of them
shall be affected by notice to the contrary.
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01. Liability of the Depositor and the
Master Servicer.
The Depositor and the Master Servicer each shall be
liable in accordance herewith only to the extent of the obliga-
tions specifically imposed upon and undertaken by the Depositor
and the Master Servicer herein.
SECTION 6.02. Merger, Consolidation or Conversion of
The Depositor or the Master Servicer.
The Depositor and the Master Servicer each will keep in
full effect its existence, rights and franchises as a corporation
under the laws of the state of its incorporation, and each will
obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability
of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement.
Any Person into which the Depositor may be merged,
consolidated or converted, or any corporation resulting from any
merger or consolidation to which the Depositor shall be a party,
or any Person succeeding to the business of the Depositor, shall
be the successor of the Depositor hereunder, 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.
Any Person into which the Master Servicer may be
merged, consolidated or converted, or any corporation resulting
from any merger or consolidation to which the Master Servicer
shall be a party, or any Person succeeding to the business of the
Master Servicer (including by a transfer of servicing portfolio
or operations by the Master Servicer), shall be the successor of
the Master Servicer hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties
hereto; provided, however, that the successor or surviving Person
to the Master Servicer must meet the criteria set forth in
Section 7.03 for a successor Master Servicer and shall be
qualified to sell mortgage loans to and service mortgage loans
for FNMA or FHLMC.
SECTION 6.03. Limitation on Liability of the
Depositor, the Master Servicer and
Others.
Neither the Depositor, the Master Servicer nor any of
the directors, officers, employees or agents of the Depositor or
the Master Servicer shall be under any liability to the Trust
Fund or the Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant
to this Agreement, or for errors in judgment; provided, however,
that this provision shall not protect the Depositor or the Master
Servicer (but this provision shall protect the above described
persons) against any breach of warranties or representations made
herein, or against any specific liability imposed on the Master
Servicer pursuant to Section 3.01 or any other Section hereof;
and provided further that this provision shall not protect the
Depositor, the Master Servicer or any such person, 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
hereunder. The Depositor, the Master Servicer and any director,
officer, employee or agent of the Depositor or the Master
Servicer may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting
any matters arising hereunder. The Depositor, the Master
Servicer and any director, officer, employee or agent of the
Depositor or the Master Servicer shall be indemnified and held
harmless by the Trust Fund against any loss, liability or expense
incurred in connection with any legal action relating to this
Agreement or the Certificates, other than any loss, liability or
expense related to Master Servicer's servicing obligations with
respect to any specific Mortgage Loan or Mortgage Loans (except
as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) or related to the Master
Servicer's obligations under Section 3.01, or any loss, liability
or expense incurred by reason of willful misfeasance, bad faith
or negligence in the performance of duties hereunder or by reason
of reckless disregard of obligations and duties hereunder.
Neither the Depositor nor the Master Servicer shall be under any
obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective duties under this
Agreement and which in its opinion may involve it in any expense
or liability; provided, however, that the Depositor or the Master
Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable with respect to this
Agreement and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event,
the legal expenses and costs of such action and any liability
resulting therefrom (except any action or liability related to
the Master Servicer's obligations under Section 3.01) shall be
expenses, costs and liabilities of the Trust Fund, and the
Depositor and the Master Servicer shall be entitled to be
reimbursed therefor from the Certificate Account as provided in
Section 3.11, any such right of reimbursement being prior to the
rights of Certificateholders to receive any amount in the
Certificate Account.
SECTION 6.04. Limitation on Resignation of the Master
Servicer.
The Master Servicer shall not resign from the obliga-
tions and duties hereby imposed on it except (a) upon appointment
of a successor servicer and receipt by the Trustee of a letter
from the Rating Agency that such a resignation and appointment
will not, in and of itself, result in a downgrading of the
Certificates or (b) upon determination that its duties hereunder
are no longer permissible under applicable law. Any such deter-
mination 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 servicer shall have assumed the Master
Servicer's responsibilities, duties, liabilities and obligations
hereunder.
ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default", wherever used herein, means any one
of the following events:
(i) any failure by the Master Servicer to remit to the
Trustee for distribution to the Certificateholders any
payment (other than an Advance) required to be made under
the terms of the Certificates or this Agreement which
continues unremedied for a period of five days after the
date upon which written notice of such failure, requiring
the same to be remedied, shall have been given to the Master
Servicer by the Depositor (with a copy to the Trustee) or
the Trustee, or to the Master Servicer, the Depositor and
the Trustee by the Holders of Certificates entitled to at
least 25% of the Voting Rights; or
(ii) any failure on the part of the Master Servicer
duly to observe or perform in any material respect any other
of the covenants or agreements on the part of the Master
Servicer contained in the Certificates or in this Agreement
(including any breach of the Master Servicer's
representations and warranties pursuant to Section 2.03(a)
which materially and adversely affects the interests of the
Certificateholders) which continues 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 Depositor (with a copy
to the Trustee) or the Trustee, or to the Master Servicer,
the Depositor and the Trustee by the Holders of Certificates
entitled to at least 25% of the Voting Rights; or
(iii) a decree or order of a court or agency or super-
visory authority having jurisdiction in an involuntary case
under any present or future federal or state bankruptcy,
insolvency or similar law or the appointment of a
conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities
or similar proceedings, 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 or unstayed for a period of 60
consecutive days; or
(iv) the Master Servicer shall consent to the appoint-
ment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the
Master Servicer or of or relating to all or substantially
all of its property; or
(v) 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 or otherwise voluntari-
ly commence a case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar
statute, make an assignment for the benefit of its credi-
tors, or voluntarily suspend payment of its obligations; or
(vi) the Master Servicer shall fail to deposit in the
Certificate Account on any Certificate Account Deposit Date
an amount equal to any required Advance.
If an Event of Default described in clauses (i)-(v) of this
Section shall occur, then, and in each and every such case, so
long as such Event of Default shall not have been remedied, the
Depositor or 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 to the Master Servicer (and to the
Depositor if given by the Trustee or to the Trustee if given by
the Depositor) terminate all of the rights and obligations of the
Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder. If
an Event of Default described in clause (vi) hereof shall occur,
the Trustee shall, by notice to the Master Servicer and the
Depositor, terminate all of the rights and obligations of the
Master Servicer under this Agreement and in and to the Trust
Fund, other than its rights as a Certificateholder hereunder;
provided, however, that if the Trustee determines that the
failure by the Master Servicer to make any required Advance was
due to circumstances beyond its control, and the required Advance
was otherwise made, the Trustee shall not terminate the Master
Servicer. On or after the receipt by the Master Servicer of such
notice, all authority and power of the Master Servicer under this
Agreement, whether with respect to the Certificates (other than
as a holder thereof) or the Mortgage Loans or otherwise, shall
pass to and be vested in the Trustee pursuant to and under this
Section, and, without limitation, the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the
Master Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all
other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the
transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. The Master Servicer agrees to
cooperate with the Trustee in effecting the termination of the
Master Servicer's responsibilities and rights hereunder, includ-
ing, without limitation, the transfer to the Trustee or its
appointed agent for administration by it of all cash amounts
which shall at the time be deposited by the Master Servicer or
should have been deposited to the Custodial Account, the Excess
Proceeds Account or the Certificate Account or thereafter be
received with respect to the Mortgage Loans. The Trustee shall
not be deemed to have breached any obligation hereunder as a
result of a failure to make or delay in making any distribution
as and when required hereunder caused by the failure of the
Master Servicer to remit any amounts received on it or to deliver
any documents held by it with respect to the Mortgage Loans. For
purposes of this Section 7.01, the Trustee shall not be deemed to
have knowledge of an Event of Default unless a Responsible
Officer of the Trustee assigned to and working in the Trustee's
Corporate Trust Division has actual knowledge thereof or unless
notice of any event which is in fact such an Event of Default is
received by the Trustee and such notice references the
Certificates, the Trust Fund or this Agreement.
Notwithstanding any termination of the activities of
____________ ("_____") in its capacity as Master Servicer
hereunder, ____ shall be entitled to receive, out of any Late
Collection of a Monthly Payment on a Mortgage Loan which was due
prior to the notice terminating ____'s rights and obligations as
Master Servicer hereunder and received after such notice, that
portion to which ____ would have been entitled pursuant to
Sections 3.11(ii), (iii), (iv), (v) and (viii) and Sections
4.01(b)(iii), (vi) and (ix) as well as its Servicing Fee in
respect thereof, and any other amounts payable to ____ hereunder
the entitlement to which arose prior to the termination of its
activities hereunder.
SECTION 7.02. Termination Event.
The Trustee shall determine, beginning with the
Determination Date in December [1996] and as determined by the
Trustee annually thereafter based on information provided by the
Master Servicer, whether the following tests are satisfied: (a)
if such Determination Date is in or before December [2000],
whether the related Total Expected Losses are greater than 50% of
the Initial Loss Coverage or (b) if such Determination Date is
after December [2000] and in or before December [2005], whether
the related Total Expected Losses are greater than 75% of the
Initial Loss Coverage. If either of the tests in the previous
sentence is satisfied, a termination event (a "Termination
Event") shall occur, and the Trustee shall give notice to the
Certificateholders within 5 days of the occurrence of such
Termination Event, and upon the direction of Holders of
Certificates entitled to at least 51% of the Voting Rights,
received within 90 days of such notice, the Trustee shall, by
notice to the Master Servicer and the Depositor, terminate all of
the rights and obligations of the Master Servicer under this
Agreement and in and to the Trust Fund, other than its rights as
a Certificateholder hereunder. On or after the receipt by the
Master Servicer of such notice, all authority and power of the
Master Servicer under this Agreement, whether with respect to the
Certificates (other than as a holder thereof) or the Mortgage
Loans or otherwise, shall pass to and be vested in the Trustee
pursuant to and under this Section, and, without limitation, the
Trustee is hereby authorized and empowered to execute and deliv-
er, on behalf of the Master Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do
or accomplish all other acts or things necessary or appropriate
to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the
Mortgage Loans and related documents, or otherwise. The Master
Servicer agrees to cooperate with the Trustee in effecting the
termination of the Master Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the
Trustee or its appointed agent for administration by it of all
cash amounts which shall at the time be deposited by the Master
Servicer or should have been deposited to the Custodial or the
Certificate Account or thereafter be received with respect to the
Mortgage Loans. The Trustee shall not be deemed to have breached
any obligation hereunder as a result of a failure to make or
delay in making any distribution as and when required hereunder
caused by the failure of the Master Servicer to remit any amounts
received on it or to deliver any documents held by it with
respect to the Mortgage Loans.
SECTION 7.03. Trustee to Act; Appointment of
Successor.
On and after the time the Master Servicer receives a
notice of termination pursuant to Section 7.01 or Section 7.02,
the Trustee or its appointed agent shall be the successor in all
respects to the Master Servicer in its capacity as Master Ser-
vicer under this Agreement and the transactions set forth or
provided for herein and shall be subject thereafter to all the
responsibilities, duties and liabilities relating thereto placed
on the Master Servicer including the obligation to make Advances
which have been or will be required to be made (except for the
responsibilities, duties and liabilities contained in Section
2.03 and its obligations to deposit amounts in respect of losses
pursuant to Section 3.12 and 4.01(c)) by the terms and provisions
hereof; and provided further, that any failure to perform such
duties or responsibilities caused by the Master Servicer's
failure to provide information required by Section 4.03 shall not
be considered a default by the Trustee hereunder. As compen-
sation therefor, the Trustee shall be entitled to all funds
relating to the Mortgage Loans which the Master Servicer would
have been entitled to charge to the Custodial Account and the
Certificate Account if the Master Servicer had continued to act
hereunder. Notwithstanding the above, the Trustee may, if it
shall be unwilling to so act, or shall, if it is unable to so act
(exclusive of the obligations set forth in Section 4.03) or if
the Holders of Certificates entitled to at least 51% of the
Voting Rights so request in writing to the Trustee, appoint, or
petition a court of competent jurisdiction to appoint, any
mortgage loan servicing institution (acceptable to the Rating
Agencies) having a net worth of not less than $_____________ (or
other amount acceptable to the Rating Agencies) as the successor
to the Master Servicer hereunder in the assumption of all or any
part of the responsibilities, duties or liabilities of the Master
Servicer hereunder. Pending appointment of a successor to the
Master Servicer hereunder, the Trustee shall act in such capacity
as hereinabove provided. In connection with such appointment and
assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans
as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of that permitted the Master
Servicer hereunder. The Depositor, the Trustee and such
successor shall take such action, consistent with this Agreement,
as shall be necessary to effectuate any such succession.
Any successor, including the Trustee, to the Master
Servicer shall maintain in force during its term as master
servicer hereunder policies and fidelity bonds to the same extent
as the Master Servicer is so required pursuant to Section 3.18.
SECTION 7.04. Notification to Certificateholders.
(a) Upon any such termination or appointment of a
successor to the Master Servicer, the Trustee shall give prompt
notice thereof to Certificateholders.
(b) Within 60 days after the occurrence of any Event
of Default, the Trustee shall transmit by mail to all Holders of
Certificates notice of each such Event of Default hereunder known
to the Trustee, unless such Event of Default shall have been
cured or waived.
SECTION 7.05. Waiver of Events of Default.
The Holders representing at least 66% of the Voting
Rights of Certificates affected by a default or Event of Default
hereunder, may waive such default or Event of Default; provided,
however, that (a) a default or Event of Default under clause (i)
of Section 7.01 may be waived only by all of the Holders of
Certificates affected by such default or Event of Default and (b)
no waiver pursuant to this Section 7.05 shall affect the Holders
of Certificates in the manner set forth in the third paragraph of
Section 11.01. Upon any such waiver of a default or Event of
Default by the Holders representing the requisite percentage of
Voting Rights of Certificates affected by such default or Event
of Default, such default or Event of Default shall cease to exist
and shall be deemed to have been remedied for every purpose
hereunder. No such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent
thereon except to the extent expressly so 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 all Events of Default which may
have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement. If an
Event of Default occurs and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their
exercise as a prudent man would exercise or use under the circum-
stances in the conduct of his own affairs. Any permissive right
of the Trustee enumerated in this Agreement shall not be con-
strued as a duty.
The Trustee, upon receipt of all resolutions, certi-
ficates, statements, opinions, reports, documents, orders or
other instruments furnished to the Trustee which are specifically
required to be furnished pursuant to any provision of this
Agreement, shall examine them to determine whether they conform
to the requirements of this Agreement. If any such instrument is
found not to conform to the requirements of this Agreement in a
material manner, the Trustee shall take action as it deems
appropriate to have the instrument corrected.
The Trustee shall sign on behalf of the Trust Fund any
tax return that the Trustee is required to sign pursuant to
applicable federal, state or local tax laws.
The Trustee covenants and agrees that it shall perform
its obligations hereunder in a manner so as to maintain the
status of the Trust Fund as a REMIC under the REMIC Provisions
and to prevent the imposition of any federal, state or local
income, prohibited transaction, contribution or other tax on the
Trust Fund to the extent that maintaining such status and
avoiding such taxes are reasonably within the control of the
Trustee and are reasonably within the scope of its duties under
this Agreement.
The Trustee shall cooperate to the extent practicable,
with the Depositor in the preparation of any information, for the
Holder of any Certificate, which the Depositor in its sole
discretion deems necessary and appropriate for purposes of
satisfying applicable information reporting requirements under
Rule 144A or otherwise.
No provision of this 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:
(i) Prior to the occurrence of an Event of
Default, and after the curing of all such Events of
Default which may have occurred, the duties and obliga-
tions of the Trustee shall be determined solely by the
express provisions of this Agreement, the Trustee shall
not be liable except for the performance of such duties
and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be
read into this 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 and conforming to the require-
ments of this Agreement;
(ii) The Trustee shall not be personally liable
for an error of judgment made in good faith by a
Responsible Officer or Responsible Officers of the
Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(iii) 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 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 this
Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(a) The Trustee may request and rely upon and
shall be protected in acting or refraining from acting
upon any resolution, Officers' Certificate, certificate
of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document
reasonably believed by it to be genuine and to have
been signed or presented by the proper party or
parties;
(b) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete author-
ization and protection in respect of any action taken
or suffered or omitted by it hereunder in good faith
and in accordance therewith;
(c) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by
this Agreement or to make any investigation of matters
arising hereunder or to institute, conduct or defend
any litigation hereunder or in relation hereto at the
request, order or direction of any of the Certificate-
holders, pursuant to the provisions of this 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; nothing contained herein
shall, however, relieve the Trustee of the obligation,
upon the occurrence of an Event of Default (which has
not been cured), to exercise such of the rights and
powers vested in it by this Agreement, and to use the
same degree of care and skill in their exercise as a
prudent man would exercise or use under the circum-
stances in the conduct of his own affairs;
(d) 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
this Agreement;
(e) Prior to the occurrence of an Event of
Default hereunder and after the curing of all Events of
Default which may have occurred, the Trustee shall not
be bound to make any investigation into the facts or
matters stated in any resolution, certificate, state-
ment, instrument, opinion, report, notice, request,
consent, order, approval, bond or other paper or
document, unless requested in writing to do so by
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 reasonably assured to the Trustee by
the security afforded to it by the terms of this
Agreement, the Trustee may require reasonable indemnity
against such expense or liability as a condition to
taking any such action. The reasonable expense of
every such reasonable examination shall be paid by the
Master Servicer or, if paid by the Trustee, shall be
repaid by the Master Servicer upon demand; and
(f) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys.
SECTION 8.03. Trustee Not Liable for Certificates or
Mortgage Loans.
The recitals contained herein and in the Certificates,
other than the signature of the Trustee on the Certificates and
the certificate of authentication, shall be taken as the state-
ments of the Depositor or the Master Servicer, as the case may
be, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations or warranties
as to the validity or sufficiency of this Agreement or of the
Certificates or of any Mortgage Loan or related document, other
than the signature of the Trustee on the Certificates and the
Certificate of Authentication. The Trustee shall not be account-
able for the use or application by the Depositor or the Master
Servicer of any of the Certificates or of the proceeds of such
Certificates or deposited in or withdrawn from the Custodial
Account, the Excess Proceeds Account or the Certificate Account
or any other account by or on behalf of the Depositor or the
Master Servicer, other than any funds held by or on behalf of the
Trustee in accordance with Section 3.10.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Certificates with the same rights
it would have if it were not Trustee.
SECTION 8.05. Master Servicer to Pay Trustee's Fees.
The Master Servicer covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to,
reasonable compensation (which shall not be limited by any pro-
vision of law in regard to the compensation of a trustee of an
express trust) for all services rendered by it in the execution
of the trusts hereby created and in the exercise and performance
of any of the powers and duties hereunder or of the Trustee.
Except as otherwise provided in this Agreement, the Trustee and
any director, officer, employee or agent of the Trustee shall be
indemnified by the Trust Fund and held harmless against any
claim, loss, liability or expense incurred in connection with any
Event of Default, any breach of this Agreement, any claim or
legal action, including any pending or threatened claim or legal
action relating to the acceptance or administration of its trusts
hereunder or the Certificates, other than any claim, loss,
liability or expense incurred in connection with a breach
constituting willful misfeasance, bad faith or negligence of the
Trustee in the performance of its duties hereunder or by reason
of reckless disregard of its obligations and duties hereunder.
The provisions of this Section 8.05 shall survive the termination
of this Agreement.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corpora-
tion or a national banking association organized and doing
business under the laws of any state or the United States of
America or the District of Columbia, authorized under such laws
to exercise corporate trust powers, having a combined capital and
surplus of at least $[50,000,000] and subject to supervision or
examination by federal or state authority. In addition, the
Trustee shall at all times be acceptable to the Rating Agency
rating the Certificates. If such corporation publishes reports
of 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 the combined capital and
surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and
with the effect specified in Section 8.07. The corporation or
national banking association serving as Trustee may have normal
banking and trust relationships with the Depositor and its
affiliates or the Master Servicer and its affiliates; provided,
however, that such corporation cannot be an affiliate of the
Master Servicer other than the Trustee in its role as successor
to the Master Servicer.
SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged
from the trusts hereby created by giving notice thereof to the
Depositor, the Master Servicer and to all Certificateholders;
provided, that such resignation shall not be effective until a
successor trustee is appointed and accepts appointment in
accordance with the following provisions. Upon receiving such
notice of resignation, the Master Servicer shall promptly appoint
a successor trustee who meets the eligibility requirements of
Section 8.06 by written instrument, in duplicate, which instru-
ment shall be delivered to the resigning Trustee and to the
successor trustee. A copy of such instrument shall be delivered
to the Certificateholders and the Master Servicer by the
Depositor. If no successor trustee shall have been so appointed
and have accepted appointment within 60 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; provided, however, that the resigning Trustee
shall not resign and be discharged from the trusts hereby created
until such time as the Rating Agency rating the Certificates
approves the successor trustee.
If at any time the Trustee shall cease to be eligible
in accordance with the provisions of Section 8.06 and shall fail
to resign after written request therefor by the Master Servicer,
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, or if the rating of the long-term
debt obligations of the Trustee is not acceptable to the Rating
Agency in respect of mortgage pass-through certificates or asset-
backed certificates having a rating equal to the then current
rating on the Certificates, then the Master Servicer may remove
the Trustee and appoint a successor trustee who meets the
eligibility requirements of Section 8.06 by written instrument,
in duplicate, which instrument shall be delivered to the Trustee
so removed and to the successor trustee. A copy of such
instrument shall be delivered to the Certificateholders and the
Master Servicer by the Depositor.
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 the Master Servicer, one complete set to the Trustee
so removed and one complete set to the successor so appointed. A
copy of such instrument shall be delivered to the Certificate-
holders and the Master Servicer by the Depositor.
Any resignation or removal of the Trustee and appoint-
ment of a successor trustee pursuant to any of the provisions of
this Section shall not become effective until acceptance of
appointment by the successor trustee as provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section
8.07 shall execute, acknowledge and deliver to the Master
Servicer and to its predecessor trustee an instrument accepting
such appointment hereunder, 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 hereunder, with
the like effect as if originally named as trustee herein. The
predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements held by it
hereunder, and 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 pro-
vided in this Section unless at the time of such acceptance such
successor trustee shall be eligible under the provisions of
Section 8.06.
Upon acceptance of appointment by a successor trustee
as provided in this Section, the Master Servicer shall mail
notice of the succession of such trustee hereunder to all Holders
of Certificates at their addresses as shown in the Certificate
Register. If the Master Servicer fails to mail such notice
within ten days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be
mailed at the expense of the Master Servicer.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated or any corporation
resulting from any merger, conversion or consolidation to which
the Trustee shall be a party, or any corporation succeeding to
the business of the Trustee, shall be the successor of the
Trustee hereunder, provided such corporation shall be eligible
under the provisions of Section 8.06, 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 Co-Trustee or Separate
Trustee.
Notwithstanding any other provisions hereof, at any
time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property
securing the same may at the time be located, the Depositor and
the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust Fund, and to vest in
such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions
of this Section 8.10, such powers, duties, obligations, rights
and trusts as the Depositor and the Trustee may consider
necessary or desirable. If the Depositor shall not have joined
in such appointment within 15 days after the receipt by it of a
request so to do, or in case an Event of Default shall have
occurred and be continuing, the Trustee alone shall have the
power to make such appointment. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligi-
bility as a successor trustee under Section 8.06 hereunder and no
notice to Holders of Certificates 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 jurisdic-
tion in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Master
Servicer hereunder), 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 Fund 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 this 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 this Agreement,
specifically including every provision of this Agreement relating
to the conduct of, 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 this Agreement on its
behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted
by law, without the appointment of a new or successor trustee.
ARTICLE IX
TERMINATION
SECTION 9.01. Termination Upon Repurchase or
Liquidation of All Mortgage Loans.
Subject to Section 9.02, the respective obligations and
responsibilities of the Depositor, the Master Servicer and the
Trustee created hereby (other than the obligations of the Master
Servicer to the Trustee pursuant to Section 8.05 and of the
Master Servicer to provide for and the Trustee to make payments
to Certificateholders as hereafter set forth) shall terminate
upon payment to the Certificateholders of all amounts held by or
on behalf of the Trustee and required to be paid to them here-
under following the earlier to occur of (i) the repurchase by the
Master Servicer of all Mortgage Loans and each REO Property in
respect thereof remaining in the Trust Fund at a price equal to
(a) 100% of the unpaid principal balance of each Mortgage Loan
(other than one as to which a REO Property was acquired) on the
day of repurchase together with accrued interest on such unpaid
principal balance at the Net Mortgage Rate to the first day of
the month in which the proceeds of such repurchase are to be
distributed, plus (b) the appraised value of any REO Property
(but not more than the unpaid principal balance of the related
Mortgage Loan, together with accrued interest on that balance at
the Net Mortgage Rate to the first day of the month of
repurchase), less the good faith estimate of the Master Servicer
of liquidation expenses to be incurred in connection with its
disposal thereof, such appraisal to be conducted by an appraiser
mutually agreed upon by the Master Servicer and the Trustee; and
(ii) the final payment or other liquidation (or any Advance with
respect thereto) of the last Mortgage Loan remaining in the Trust
Fund (or the disposition of all REO Property in respect thereof);
provided, however, that in no event shall the trust created
hereby continue beyond the expiration of 21 years from the death
of the last survivor of the descendants of Joseph P. Kennedy, the
late ambassador of the United States to the Court of St. James,
living on the date hereof. In the case of any repurchase by the
Master Servicer pursuant to clause (i), the Master Servicer shall
include in such repurchase price the amount of any Advances that
will be reimbursed to the Master Servicer pursuant to Section
3.11(iii) and the Master Servicer shall exercise reasonable
efforts to cooperate fully with the Trustee in effecting such
repurchase and the transfer of the Mortgage Loans and related
Mortgage Files and related records to the Master Servicer.
The right of the Master Servicer to repurchase all
Mortgage Loans pursuant to (i) above shall be conditioned upon
the aggregate Stated Principal Balance of such Mortgage Loans at
the time of any such repurchase aggregating an amount equal to or
less than 5% of the aggregate Stated Principal Balance of the
Mortgage Loans at the Cut-off Date. If such right is exercised,
the Master Servicer upon such repurchase shall provide to the
Trustee, the certification required by Section 3.16.
Notice of any termination, specifying the Distribution
Date upon which the Certificateholders may surrender their
Certificates to the Trustee for payment of the final distribution
and cancellation, shall be given promptly by the Master Servicer
by letter to the Trustee and the Certificateholders mailed (a) in
the event such notice is given in connection with the Master
Servicer's election to repurchase, not earlier than the 15th day
and not later than the 25th day of the month next preceding the
month of such final distribution or (b) otherwise during the
month of such final distribution on or before the Determination
Date in such month, in each case specifying (i) the Distribution
Date upon which final payment of the Certificates will be made
upon presentation and surrender of Certificates at the office of
the Certificate Registrar therein designated, (ii) the amount of
any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments
being made only upon presentation and surrender of the
Certificates at the office of the Certificate Registrar therein
specified. In the event such notice is given in connection with
the Master Servicer's election to repurchase, the Master Servicer
shall deliver to the Trustee for deposit in the Certificate
Account on the Business Day immediately preceding the
Distribution Date specified in such notice an amount equal to the
above-described repurchase price payable out of its own funds.
Upon presentation and surrender of the Certificates by the
Certificateholders, the Trustee shall distribute to the
Certificateholders (i) the amount otherwise distributable on such
Distribution Date, if not in connection with the Master
Servicer's election to repurchase, or (ii) if the Master Servicer
elected to so repurchase, an amount determined as follows: with
respect to each Class A-1, Class A-2, Class B-1, Class B-2, and
Class B-3 Certificate the outstanding Certificate Principal
Balance thereof, plus one month's interest thereon at the
applicable Certificate Rate and any previously unpaid Accrued
Certificate Interest; with respect to each Class S Certificate,
one month's interest at the applicable Certificate Rate based
upon the related Notional amount and any previously unpaid
Accrued Certificate Interest; and with respect to each Class R
Certificate, the Percentage Interest evidenced thereby multiplied
by the difference, if any, between the above described repurchase
price and the aggregate amount to be distributed to the Class S
Class A-1, Class A-2, Class B-1, Class B-2 and Class B-3 Certifi-
cateholders. Upon certification to the Trustee by a Servicing
Officer, following such final deposit, the Trustee shall promptly
release the Mortgage Files as directed by the Master Servicer for
the remaining Mortgage Loans, and the Trustee shall execute all
assignments, endorsements and other instruments required by the
Master Servicer as being necessary to effectuate such transfer.
In the event that all of the Certificateholders shall
not surrender their Certificates for cancellation within six
months after the time specified in the above-mentioned notice,
the Trustee shall give a second notice to the remaining
Certificateholders to surrender their Certificates for cancella-
tion and receive the final distribution with respect thereto. If
within six months after the second notice all of the Certificates
shall not have been surrendered for cancellation, the Trustee
shall take reasonable steps as directed by the Depositor, or
appoint an agent to take reasonable steps, to contact the
remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds
and other assets which remain subject hereto. If, within nine
months after the second notice, all of the Certificates shall not
have been surrendered for cancellation, the Class R
Certificateholders shall be entitled to all unclaimed funds and
other assets which remain subject hereto.
SECTION 9.02. Additional Termination Requirements.
(a) In the event the Master Servicer repurchases the
Mortgage Loans as provided in Section 9.01, the Trust Fund shall
be terminated in accordance with the following additional re-
quirements, unless the Master Servicer, at its own expense,
obtains for the Trustee an Opinion of Counsel to the effect that
the failure of the Trust Fund to comply with the requirements of
this Section 9.02 will not (i) result in the imposition of taxes
on the net income derived from "prohibited transactions" of the
Trust Fund as defined in Section 860F of the Code or (ii) cause
the Trust Fund to fail to qualify as a REMIC under the REMIC
Provisions at any time that any Certificates are outstanding:
(i) The Trustee shall establish a 90-day liquidation
period for the Trust Fund and specify the first day of such
period in a statement attached to the Trust Fund's final Tax
Return pursuant to Treasury Regulation Section 1.860F-1.
The Trustee shall satisfy all the requirements of a
qualified liquidation under Section 860F of the Code and any
regulations thereunder, as evidenced by an Opinion of
Counsel obtained at the expense of the Master Servicer;
(ii) During such 90-day liquidation period, and at or
prior to the time of making of the final payment on the
Certificates, the Trustee shall sell all of the assets of
the Trust Fund for cash; and
(iii) At the time of the making of the final payment on
the Certificates, the Trustee shall distribute or credit, or
cause to be distributed or credited, to the Holders of the
Class R Certificates all cash on hand in the Trust Fund
(other than cash retained to meet claims), and the Trust
Fund shall terminate at that time.
(b) By their acceptance of the Class R Certificates,
the Holders thereof hereby agree to authorize the Trustee to
specify the 90-day liquidation period for the Trust Fund, which
authorization shall be binding upon all successor Class R
Certificateholders.
ARTICLE X
REMIC PROVISIONS
SECTION 10.01. REMIC Administration.
(a) The Trustee shall make an election to treat the
Trust Fund as a REMIC under the Code and, if necessary, under
applicable state law. Such election will be made on Form 1066 or
other appropriate federal tax or information return or any
appropriate state return for the taxable year ending on the last
day of the calendar year in which the Certificates are issued.
For purposes of the REMIC election in respect of the Trust Fund,
the Class S, Class A-1, Class A-2, Class B-1, Class B-2 and Class
B-3 Certificates shall be designated as the "regular interests"
and the Class R Certificates shall be designated as the sole
Class of "residual interest" in the REMIC. The Trustee shall not
permit the creation of any "interests" in the Trust Fund (within
the meaning of Section 860G of the Code) other than the interests
represented by the Certificates.
(b) The Closing Date is hereby designated as the
"Startup Day" the REMIC within the meaning of Section 860G(a)(9)
of the Code.
(c) The Trustee shall pay out of its own funds,
without any right of reimbursement, any and all expenses relating
to any tax audit of the Trust Fund (including, but not limited
to, any professional fees or any administrative or judicial
proceedings with respect thereto that involved the Internal
Revenue Service or state tax authorities), other than the expense
of obtaining any tax related Opinion of Counsel not obtained in
connection with such an audit and other than taxes, in either
case except as specified herein; provided, however, that if such
audit resulted from the negligence of the Master Servicer or the
Depositor, then the Master Servicer or the Depositor, as the case
may be, shall pay such expenses. The Trustee shall hold a Class
R Certificate representing a 0.01% Percentage Interest of all
Class R Certificates and shall be designated as the tax matters
person of the Trust Fund in the manner provided under Treasury
Regulations Section 1.860F-4(d) and Temporary Treasury
Regulations Section 301.6231(a)(7)-1T. The Trustee, as tax
matters person, shall (i) act on behalf of the Trust Fund in
relation to any tax matter or controversy involving the Trust
Fund and (ii) represent the Trust Fund in any administrative or
judicial proceeding relating to an examination or audit by any
governmental taxing authority with respect thereto. To the
extent authorized under the Code and the regulations promulgated
thereunder, each Holder of a Class R Certificate, hereby
irrevocably appoints and authorizes the Trustee to be its
attorney-in-fact for purposes of signing any Tax Returns required
to be filed on behalf of the Trust Fund.
(d) The Trustee shall prepare or cause to be prepared,
sign and file all of the Tax Returns in respect of the Trust Fund
created hereunder, other than Tax Returns required to be filed by
the Master Servicer pursuant to Section 4.05. The expenses of
preparing and filing such returns shall be borne by the Trustee
without any right of reimbursement therefor.
(e) The Trustee shall perform on behalf of the Trust
Fund all reporting and other tax compliance duties that are the
responsibility of the Trust Fund under the Code, REMIC Provisions
or other compliance guidance issued by the Internal Revenue
Service or any state or local taxing authority. Among its other
duties, as required by the Code, the REMIC Provisions or other
such compliance guidance, the Trustee shall provide (i) to any
Transferor of a Class R Certificate such information as is
necessary for the application of any tax relating to the transfer
of a Class R Certificate to any Person who is not a Disqualified
Organization, (ii) to Certificateholders such information or
reports as are required by the Code or the REMIC Provisions
including reports relating to interest, original issue discount
and market discount or premium (using the Prepayment Assumption)
and (iii) to the Internal Revenue Service the name, title,
address and telephone number of the person who will serve as the
representative of the Trust Fund. In addition, the Depositor
shall provide or cause to be provided to the Trustee, within ten
(10) days after the Closing Date, all information or data that
the Trustee reasonably determines to be relevant for tax purposes
as to the valuations and issue prices of the Certificates,
including, without limitation, the price, yield, prepayment
assumption and projected cash flow of the Certificates.
(f) The Trustee shall take such action and shall cause
the Trust Fund created hereunder to take such action as shall be
necessary to create or maintain the status thereof as a REMIC
under the REMIC Provisions (and the Master Servicer shall assist
it, to the extent reasonably requested by it). The Trustee shall
not take any action, cause the Trust Fund to take any action or
fail to take (or fail to cause to be taken) any action that,
under the REMIC Provisions, if taken or not taken, as the case
may be, could (i) endanger the status of the Trust Fund as a
REMIC or (ii) result in the imposition of a tax upon the Trust
Fund (including but not limited to the tax on prohibited
transactions as defined in Section 860F(a)(2) of the Code and the
tax on contributions to a REMIC set forth in Section 860G(d) of
the Code) (either such event, an "Adverse REMIC Event") unless
the Trustee shall have received an Opinion of Counsel (at the
expense of the party seeking to take such action but in no event
shall such Opinion of Counsel be an expense of the Trustee) to
the effect that the contemplated action will not, with respect to
the Trust Fund created hereunder, endanger such status or result
in the imposition of such a tax. The Master Servicer shall not
take or fail to take any action (whether or not authorized
hereunder) as to which the Trustee has advised it in writing that
it has received an Opinion of Counsel (which such Opinion of
Counsel shall not be an expense of the Trustee) to the effect
that an Adverse REMIC Event could occur with respect to such
action. In addition, prior to taking any action which is not
expressly permitted under the terms of this Agreement, the Master
Servicer will consult with the Trustee or its designee, in
writing, with respect to whether such action could cause an
Adverse REMIC Event to occur with respect to the Trust Fund, and
the Master Servicer shall not take any such action or cause the
Trust Fund to take any such action as to which the Trustee has
advised it in writing that an Adverse REMIC Event could occur.
The Trustee may consult with counsel to make such written advice,
and the cost of same shall be borne by the party seeking to take
the action not permitted by this Agreement (but in no event shall
such cost be an expense of the Trustee). At all times as may be
required by the Code, the Trustee will ensure that substantially
all of the assets of the Trust Fund will consist of "qualified
mortgages" as defined in Section 860G(a)(3) of the Code and
"permitted investments" as defined in Section 860G(a)(5) of the
Code.
(g) In the event that any tax is imposed on
"prohibited transactions" of the Trust Fund created hereunder as
defined in Section 860F(a)(2) of the Code, on "net income from
foreclosure property" of the Trust Fund as defined in Section
860G(c) of the Code, on any contributions to the Trust Fund after
the Startup Day therefor pursuant to Section 860G(d) of the Code,
or any other tax is imposed by the Code or any applicable
provisions of state or local tax laws, such tax shall be charged
(i) to the Trustee pursuant to Section 10.03 hereof, if such tax
arises out of or results from a breach by the Trustee of any of
its obligations under this Article X, (ii) to the Master Servicer
pursuant to Section 10.03 hereof, if such tax arises out of or
results from a breach by the Master Servicer of any of its
obligations under Article III or this Article X, or otherwise
(iii) against amounts on deposit in the Certificate Account and
shall be paid by withdrawal therefrom.
(h) On or before April 15 of each calendar year,
commencing April 15, 1996, the Trustee shall deliver to the
Master Servicer and each Rating Agency a Certificate from a
Responsible Officer of the Trustee stating the Trustee's
compliance with this Article X.
(i) The Master Servicer and the Trustee shall, for
federal income tax purposes, maintain books and records with
respect to the Trust Fund on a calendar year and on an accrual
basis.
(j) Following the Startup Day therefor, the Trustee
shall not accept any contributions of assets to the Trust Fund
unless it shall have received an Opinion of Counsel (which such
Opinion of Counsel shall not be an expense of the Trustee) to the
effect that the inclusion of such assets in the Trust Fund will
not cause the Trust Fund to fail to qualify as a REMIC at any
time that any Certificates are outstanding or subject the Trust
Fund to any tax under the REMIC Provisions or other applicable
provisions of federal, state and local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall
enter into any arrangement by which the Trust Fund will receive a
fee or other compensation for services nor permit either such
REMIC to receive any income from assets other than "qualified
mortgages" as defined in Section 860G(a)(3) of the Code or
"permitted investments" as defined in Section 860G(a)(5) of the
Code.
(l) Solely for purposes of satisfying Section 1.860G-
1(a)(4)(iii) of the Treasury Regulations, the "latest possible
maturity date" by which the Certificate Principal Balances of
each Class of Certificates representing a regular interest in the
Trust Fund would be reduced to zero is ___________, 20__ which is
the Distribution Date immediately following the latest scheduled
maturity of any Mortgage Loan.
SECTION 10.02. Prohibited Transactions and Activities.
Neither the Depositor, the Master Servicer nor the
Trustee shall sell, dispose of or substitute for any of the
Mortgage Loans, except in connection with (i) the foreclosure of
a Mortgage Loan, including but not limited to, the acquisition or
sale of a Mortgaged Property acquired by deed in lieu of
foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the
termination of the Trust Fund pursuant to Article IX of this
Agreement or (iv) a purchase of Mortgage Loans pursuant to
Article II or III of this Agreement, nor acquire any assets for
the Trust Fund, nor sell or dispose of any investments in the
Custodial Account or the Certificate Account for gain, nor accept
any contributions to the Trust Fund after the Closing Date unless
it has received an Opinion of Counsel (at the expense of the
party seeking to cause such sale, disposition, substitution or
acquisition but in no event shall such Opinion of Counsel be an
expense of the Trustee) that such sale, disposition, substitution
or acquisition will not (a) affect adversely the status of the
Trust Fund as a REMIC or (b) cause the Trust Fund to be subject
to a tax on "prohibited transactions" or "contributions" pursuant
to the REMIC Provisions.
SECTION 10.03. Master Servicer and Trustee
Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund,
the Depositor and the Master Servicer for any taxes and costs
including, without limitation, any reasonable attorneys' fees
imposed on or incurred by the Trust Fund, the Depositor or the
Master Servicer, as a result of a breach of the Trustee's
covenants set forth in this Article X.
(b) The Master Servicer agrees to indemnify the Trust
Fund, the Depositor and the Trustee for any taxes and costs
(including, without limitation, any reasonable attorneys' fees)
imposed on or incurred by the Trust Fund, the Depositor or the
Trustee, as a result of a breach of the Master Servicer's
covenants set forth in this Article X or in Article III with
respect to compliance with the REMIC Provisions, including
without limitation, any penalties arising from the Trustee's
execution of Tax Returns prepared by the Master Servicer that
contain errors or omissions.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. Amendment.
This Agreement may be amended from time to time by the
Depositor, the Master Servicer and the Trustee without the
consent of any of the Certificateholders, (i) to cure any ambigu-
ity, (ii) to correct or supplement any provisions herein which
may be defective or inconsistent with any other provisions
herein, (iii) to amend this Agreement in any respect subject to
the provisions below, or (iv) if such amendment, as evidenced by
an Opinion of Counsel (provided by the Person requesting such
amendment) delivered to the Trustee, is reasonably necessary to
comply with any requirements imposed by the Code or any successor
or amendatory statute or any temporary or final regulation,
revenue ruling, revenue procedure or other written official
announcement or interpretation relating to federal income tax
laws or any proposed such action which, if made effective, would
apply retroactively to the Trust Fund at least from the effective
date of such amendment; provided that such action (except any
amendment described in (iv) above) shall not, as evidenced by an
Opinion of Counsel (provided by the Person requesting such
amendment) delivered to the Trustee, adversely affect in any
material respect the interests of any Certificateholder (other
than Certificateholders who shall consent to such amendment).
This Agreement may also be amended from time to time by
the Depositor, the Master Servicer and the Trustee with the
consent of the Holders of Certificates entitled to at least 66-
2/3% of the Voting Rights for the purpose of adding any provi-
sions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the
rights of the Holders of Certificates; 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 66-2/3% 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 Certificates then
outstanding. Notwithstanding any other provision of this
Agreement, for purposes of the giving or withholding of consents
pursuant to this Section 11.01, Certificates registered in the
name of the Depositor or the Master Servicer or any affiliate
thereof shall be entitled to Voting Rights with respect to
matters described in (i), (ii) and (iii) of this paragraph.
Notwithstanding any contrary provision of this
Agreement, the Trustee shall not consent to any amendment to this
Agreement unless it shall have first received an Opinion of
Counsel (provided by the Person requesting such amendment) to the
effect that such amendment will not result in the imposition of
any tax on the Trust Fund pursuant to the REMIC Provisions or
cause the Trust Fund to fail to qualify as a REMIC at any time
that any of the Certificates are outstanding.
Promptly after the execution of any such amendment the
Trustee shall furnish a statement describing the amendment to
each Certificateholder.
It shall not be necessary for the consent of Certifi-
cateholders 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.
Prior to executing any amendment pursuant to this
Section, the Trustee shall be entitled to receive an Opinion of
Counsel (provided by the Person requesting such amendment) to the
effect that such amendment is authorized or permitted by this
Agreement. The cost of an Opinion of Counsel delivered pursuant
to this Section 11.01 shall be an expense of the party requesting
such amendment, but in any case shall not be an expense of the
Trustee.
The Trustee may, but shall not be obligated to enter
into any amendment pursuant to this Section that affects its
rights, duties and immunities under this Agreement or otherwise.
SECTION 11.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agree-
ment is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to
the Mortgages are situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by
the Master Servicer and at the expense of the Depositor on
direction by the Trustee, but only upon direction accompanied by
an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the
Certificateholders.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agree-
ment may be executed simultaneously in any number of counter-
parts, 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 on Rights of Certificate-
holders.
The death or incapacity of any Certificateholder shall
not operate to terminate this Agreement or the Trust Fund, 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 Fund, 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 Fund,
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 party by
reason of any action taken by the parties to this Agreement
pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of
any provision of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to
this Agreement, unless such Holder previously shall have given to
the Trustee a notice of an Event of Default, or of a default by
the Depositor or the Trustee in the performance of any obligation
hereunder, and of the continuance thereof, as hereinbefore
provided, and unless also 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 hereunder 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 60 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 Holders of Certificates shall have
any right in any manner whatever by virtue of any provision of
this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder,
or to enforce any right under this Agreement, except in the
manner herein provided and for the equal, ratable and common
benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section, 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.
This Agreement and the Certificates shall be construed
in accordance with the laws of the State of [New York] and the
obligations, rights and remedies of the parties hereunder shall
be determined in accordance with such laws.
SECTION 11.05. Notices.
All demands, notices and direction hereunder shall be
in writing and shall be deemed effective upon receipt when deli-
vered to (a) in the case of the Depositor, 16800 Aston Street,
Irvine, California 92714, Attention: ______________, or such
other address as may hereafter be furnished to the Trustee and
the Master Servicer in writing by the Depositor, (b) in the case
of the Trustee, ___________________, __________________
Attention: Quality Series 1996-__ or such other address as may
hereafter be furnished to the Master Servicer and the Depositor
in writing by the Trustee and (c) in the case of the Master
Servicer, ________________________, ____________________,
Attention: ___________, or such other address as may hereafter be
furnished to the Depositor and the Trustee in writing. Any
notice required or permitted to be mailed to a Certificateholder
shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether
or not the Certificateholder receives such notice.
SECTION 11.06. Severability of Provisions.
If any one or more of the covenants, agreements,
provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provi-
sions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the
other provisions of this Agreement or of the Certificates or the
rights of the Holders thereof.
SECTION 11.07. Successors and Assigns; Third Party
Beneficiary.
The provisions of this Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns
of the parties hereto, and all such provisions shall inure to the
benefit of the Trustee and the Certificateholders.
SECTION 11.08. Article and Section Headings.
The article and section headings herein are for conve-
nience of reference only, and shall not limit or otherwise affect
the meaning hereof.
SECTION 11.09. Notice to Rating Agencies and
Certificateholder.
The Trustee shall use its best efforts to promptly
provide notice to each Rating Agency referred to below with
respect to each of the following of which it has actual
knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Event of Default that has not
been cured;
3. The resignation or termination of the Master
Servicer or the Trustee;
4. The repurchase of Mortgage Loans pursuant to
Section 2.03;
5. The final payment to Certificateholders; and
6. Any change in the location of the Custodial
Account, the Excess Proceeds Account or the Certificate Account.
In addition, the Trustee shall promptly furnish to each
Rating Agency copies of the following:
1. Each report to Certificateholders described in
Section 4.02; and
2. Each annual independent public accountants'
servicing report described in Section 3.20.
Any such notice pursuant to this Section 11.09 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 (i) in the case of
[Moody's Investors Service, Inc., 99 Church Street, New York, New
York 10007, Attention: Residential Pass-Through Monitoring], (ii)
in the case of [Duff & Phelps Credit Rating Co., 55 East Monroe
Street, 35th Floor, Chicago, Illinois 60603, Attention: MBS
Monitoring], (iii) in the case of [Standard & Poor's Rating
Services, _______________________, Attention: _____________] and
(iv) in the case of [Fitch Investors Service, L.P.,
_______________________________, Attention:
_____________________] or, in each case, such other address as
such Rating Agency may designate in writing to the parties
thereto.
SECTION 11.10. Streit Act.
Any provisions required to be contained in this
Agreement by Section 126 of Article 4-A of the New York Real
Property Law are hereby incorporated herein, and such provisions
shall be in addition to those conferred or imposed by this
Agreement; provided, however, that to the extent that such
Section 126 shall not have any effect, and if said Section 126
should at any time be repealed or cease to apply to this
Agreement or be construed by judicial decision to be
inapplicable, said Section 126 shall cease to have any further
effect upon the provisions of this Agreement. In case of a
conflict between the provisions of this Agreement and any
mandatory provisions of Article 4-A of the New York Real Property
Law, such mandatory provision of said Article 4-A shall prevail,
provided that if said Article 4-A shall not apply to this
Agreement, should at any time be repealed, or cease to apply to
this Agreement or be construed by judicial decision to be
inapplicable, such mandatory provisions of such Article 4-A shall
cease to have any further effect upon the provisions of this
Agreement.
IN WITNESS WHEREOF, the Depositor, the Master Servicer
and the Trustee have caused their names to be signed hereto by
their respective officers thereunto duly authorized all as of the
day and year first above written.
QUALITY MORTGAGE ACCEPTANCE CORP.,
Depositor
By:_______________________________
____________________________,
Master Servicer
By:_______________________________
_____________________________,
Trustee
By:_______________________________
STATE OF __________ )
) ss.:
COUNTY OF ___________ )
On the __th day of __________, 199_ before me, a notary
public in and for said State, personally appeared
_________________, known to me to be the ______________ of
Quality Mortgage Acceptance Corp., the corporation that executed
the within instrument, and also known to me to be the persons who
executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal the day and year in this certificate
first above written.
______________________________
Notary Public
[Notarial Seal]
STATE OF _______ )
) ss.:
COUNTY OF ________ )
On the __th day of ____________, 199_ before me, a
notary public in and for said State, personally appeared
_____________________, known to me to be the __________ of
_________________________, and also known to me to be the person
who executed the within instrument as a duly authorized officer
of said corporation on behalf of said corporation, and
acknowledged to me that such corporation executed the within
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal the day and year in this certificate
first above written.
______________________________
Notary Public
[Notarial Seal]
STATE OF ___________ )
) ss.:
COUNTY OF ____________ )
On the __th day of ___________, 199_, before me, a
notary public in and for said State, personally appeared
______________, known to me to be a ________________ of
_______________________, the association that executed the within
instrument, and also known to me to be the person who executed it
on behalf of said association, and acknowledged to me that such
association executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed my official seal the day and year in this certificate
first above written.
______________________________
Notary Public
[Notarial Seal]
EXHIBIT A
FORM OF SENIOR CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE
"CODE").
[THIS CLASS [S] [A-1] [A-2] CERTIFICATE HAS NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE
"1933 ACT") OR THE SECURITIES LAWS OF ANY STATE. ANY RESALE,
TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH
REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION
WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND
WHICH IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE
POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.]
[THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE
CLASS S AND CLASS A-1 CERTIFICATES AS DESCRIBED IN THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.]
[NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT
SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE
CIRCUMSTANCES DESCRIBED IN THE AGREEMENT, AS DEFINED HEREIN),
SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE CODE UNLESS THE
TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF
FACTS (UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE
CERTIFICATE REGISTRAR THAT SUCH DISPOSITION WILL NOT VIOLATE THE
PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND
SECTION 4975 OF THE CODE.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE
PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE
DISCOUNT ("OID") RULES TO THIS CERTIFICATE. ASSUMING THAT THE
MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT USED
SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A CONSTANT PREPAYMENT RATE OF __% PER ANNUM
(THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN ISSUED
WITH NO MORE THAN $_______ OF OID PER [$100,000] [$1,000] OF
INITIAL NOTIONAL AMOUNT, THE YIELD TO MATURITY IS __% AND THE
AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS NO
MORE THAN $______ PER [$100,000] [$1,000] OF INITIAL NOTIONAL
AMOUNT COMPUTED USING THE EXACT METHOD. NO REPRESENTATION IS
MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A RATE BASED ON THE
PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
Series 1996- [Aggregate Initial Class [A-1]
[A-2] Certificate Balance:]
$___________________]
[Adjustable] [Variable] [Initial Notional Amount of the
Class [S] Certificate Ra Certificates:
$___________________]
Date of Pooling and Servicing [Initial Certificate Principal
Agreement and Cut-off Date: [Notional Amount] [Balance] of
____________, 1996 this Certificate:
$___________________]
First Distribution Date: [Percentage Interest evidenced by
__________, 1996 this Certificate _______%]
CUSIP: Initial [Adjustable] [Variable]
Certificate Rate: ______%
Issue Date: Master Servicer: ________________
No. ________________ Trustee: ___________________
CLASS [S] [A-1] [A-2] MORTGAGE LOAN ASSET-BACKED
CERTIFICATE, SERIES 1996-
evidencing a beneficial ownership interest in the Trust
Fund consisting primarily of a pool of adjustable rate
residential mortgage loans sold by
QUALITY MORTGAGE ACCEPTANCE CORP.
This certifies that ________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in the
Trust Fund established under a Pooling and Servicing Agreement,
dated as specified above (the "Agreement"), among Quality
Mortgage Acceptance Corp. (hereinafter called the "Depositor",
which term includes any successor entity under the Agreement),
______________________ (the "Master Servicer") and
___________________ (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth hereafter. The
Certificates of the Series specified above (collectively, the
"Certificates") evidence in the aggregate the entire beneficial
ownership interest in a segregated pool of assets created
pursuant to the Agreement comprised of conventional [one- to
four-family residential] [multifamily (five or more units)] first
mortgage loans (the "Mortgage Loans"), or interests therein, and
certain other assets as described herein. To the extent not
defined herein, the capitalized terms used herein have the
meanings assigned in the Agreement. This Certificate is issued
under and is subject to the terms, provisions and conditions of
the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such
Holder is bound.
The Trustee shall distribute or cause to be distributed on
the 25th day of each month or, if such 25th day is not a Business
Day, the Business Day immediately following (each, a
"Distribution Date"), commencing on the First Distribution Date
specified above, to the Person in whose name this Certificate is
registered at the close of business on the last Business Day of
the month immediately preceding the month of such distribution
(the "Record Date"), from the Available Distribution Amount an
amount equal to the product of the Percentage Interest evidenced
by this Certificate and the amount required to be distributed to
the Holders of Class [S] [A-1] [A-2] Certificates on such
Distribution Date pursuant to the Agreement. [The Notional Amount
of the Class S Certificates as of any date of determination will
be determined pursuant to the Agreement. The Class S
Certificates have no Certificate Principal Balance.] Reference
is hereby made to the further provisions of this Certificate set
forth in the Agreement, which further provisions shall for all
purposes have the same effect as though fully set forth herein.
All distributions will be made or caused to be made by the
Trustee either in immediately available funds (i) by check mailed
to the address of the Person entitled thereto, as such name and
address shall appear on the Certificate Register, (ii) by wire
transfer to the account of such Person at the request of the
Person entitled thereto if such Person shall have so notified the
Trustee in writing by five Business Days prior to the applicable
Record Date and such Certificateholder is the registered holder
of Certificates the aggregate Initial Certificate Principal
Balance of which is not less than $_________, (or, with respect
to the Class S Certificates is the registered holder of an
initial Certificate Notional Amount of not less than $___________
of such Class), or (iii) in such other manner as shall be agreed
by the Trustee and such Person entitled thereto. Notwithstanding
the above, the final distribution on this Certificate will be
made after due notice by the Master Servicer of the pendency of
such distribution and only upon presentation and surrender of
this Certificate at the office of the Trustee. The Certificate
Principal Balance hereof will be reduced to the extent of
distributions allocable to principal and any Realized Losses
allocable hereto.
The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of
payments of principal and interest due on or before the Cut-off
Date) as from time to time are subject to the Agreement and all
payments under and proceeds of the Mortgage Loans, together with
all documents included in the related Mortgage File; (ii) such
funds or assets as from time to time are deposited in the
Certificate Account or the Custodial Account; (iii) any REO
Property; and (iv) all insurance policies with respect to the
Mortgage Loans required to be maintained pursuant to the
Agreement; (all of the foregoing being hereinafter collectively
called the "Trust Fund").
The Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, the Trustee, any
Sub-Servicer or any of their respective affiliates and are not
insured or guaranteed by any governmental agency or
instrumentality or by any other person or entity. The
Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as
more specifically set forth herein and in the Agreement. As
provided in the Agreement, withdrawals from the Custodial Account
or Certificate Account may be made by the Master Servicer from
time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement to the
Master Servicer of advances made, or certain expenses incurred,
by it, by the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the
rights and obligations of the Depositor and the Master Servicer
and the rights of the Certificateholders under the 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 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on
such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent
is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the 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 Corporate Trust
Office, duly endorsed by, or accompanied by an assignment in the
form below or other written instrument of transfer in form
satisfactory to the Trustee 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 initial
Certificate Principal Balance will be issued to the designated
transferee or transferees.
[No transfer of any [S] [A-1] [A-2] Certificate shall be
made unless that transfer is made pursuant to an effective
registration statement under the 1933 Act and effective
registration or qualification under applicable state securities
laws, or is made in a transaction which does not require such
registration or qualification. In the event that a transfer is
to be made without such registration or qualification, (a) the
Trustee and the Depositor shall require the transferee to execute
an investment letter in substantially the form attached as
Exhibit G-1 to the Agreement, which investment letter shall not
be an expense of the Depositor, the Master Servicer or the
Trustee and (b) the Depositor may direct the Trustee to require
an Opinion of Counsel satisfactory to the Trustee and the
Depositor that such transfer may be made without such
registration or qualification, which Opinion of Counsel shall not
be an expense of the Depositor, the Trustee or the Master
Servicer. Neither the Depositor nor the Trustee is obligated to
register or qualify any of the Class [S] [A-1] [A-2] Certificates
under the 1933 Act or any other securities law or to take any
action not otherwise required under the Agreement to permit the
transfer of such Certificates without registration or
qualification. Any such Certificateholder desiring to effect
such transfer shall, and does hereby agree to, indemnify the
Trustee, the Depositor and the Master Servicer against any
liability that may result if the transfer is not so exempt or is
not made in accordance with such federal and state laws.]
[No transfer of any Class A-2 Certificate shall be made to
any employee benefit plan or other retirement arrangement
including individual retirement accounts and Keogh plans, that is
subject to Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (any of foregoing, a "Plan"),
to any Person acting on behalf of a Plan, or to any other person
who is using "plan assets" to effect such acquisition (including
any insurance company using funds in its general or separate
accounts that may constitute "plan assets"), unless the
prospective transferee of a Certificateholder desiring to
transfer its Certificates provides to the Trustee or the
Certificate Registrar an Opinion of Counsel (or, in the limited
circumstances described in the Agreement, a certification of
facts) which establishes to the satisfaction of the Depositor and
the Trustee or the Certificate Registrar that such disposition
will not violate the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Code. In the case of any
transfer of the foregoing Certificates to an insurance company,
in lieu of such Opinion of Counsel, the Trustee shall require a
certification in the form of Exhibit G-5 to the Agreement.]
The Certificates are issuable in fully registered form only
and in the denominations specified in the Agreement. As provided
in the Agreement and subject to certain limitations therein set
forth, the Certificates are exchangeable for new Certificates of
the same Class in authorized denominations evidencing the same
aggregate initial Certificate Principal Balance, as requested by
the Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any transfer or exchange of
Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and neither the Depositor, the
Master Servicer, the Trustee nor any such agent shall be affected
by notice to the contrary.
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the
Certificateholders of all amounts held by or on behalf of the
Trustee and required to be paid to them pursuant to the Agreement
following the earlier of (i) the repurchase by the Master
Servicer of all Mortgage Loans and each REO Property in respect
thereof, or (ii) the final payment on, or other liquidation (or
any advance with respect thereto) of, the last Mortgage Loan
remaining in the Trust Fund (or the disposition of all REO
Property in respect thereof). The Agreement permits, but does
not require, the Master Servicer to repurchase from the Trust
Fund all Mortgage Loans and all property acquired in respect of
any Mortgage Loan at a price determined as provided in the
Agreement. The exercise of the Master Servicer's right will
effect early retirement of the Certificates; however, such right
to repurchase is subject to the aggregate Stated Principal
Balance of the Mortgage Loans at the time of repurchase being
less than or equal to 5% of the aggregate Stated Principal
Balance of the Mortgage Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be
valid for any purpose.
The recitals contained herein shall be taken as statements
of the Depositor or the Master Servicer as the case may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly
executed.
Dated: _______________________,
as Trustee
By:___________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class [S] [A-1] [A-2] Certificates
referred to in the withinmentioned Agreement.
________________________,
as Trustee
By:___________________________
Authorized Officer
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s)
and transfer(s) unto
______________________________________________________________
_________________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip
code of assignee)
the beneficial interest evidenced by the within Mortgage Loan
Asset-Backed Certificate and hereby authorizes the registration
of transfer of such interest to the above-named assignee on the
Certificate Register.
I (we) further direct the Trustee to issue a new Certificate
of a like denomination and class to the above named assignee and
deliver such Certificate(s) to the following address:
_________________________________________________________________
_________________________________________________________________
Dated:
___________________________________
Signature by or on behalf of assignor
___________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the within instrument in
every particular, without alteration or enlargement or any change
whatever, and must be guaranteed by a commercial bank or trust
company on the continental United States or by a firm or
corporation having membership in any national securities exchange
or in the National Association of Securities Dealers, Inc.
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the
information of ____________ ____________ and the Master Servicer:
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 statements
should be mailed to ________________. This information is
provided by ________________, the assignee named above, or
________________, as its agent.
EXHIBIT B-1
FORM OF CLASS B-1 CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTIONS 86OG AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE
"CODE").
THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE
SENIOR CERTIFICATES AS DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
[THIS CLASS B-1 CERTIFICATE HAS NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR
THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER
DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.]
[NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT
SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE
CIRCUMSTANCES DESCRIBED IN THE AGREEMENT, AS DEFINED HEREIN),
SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED OR SECTION 4975 OF THE CODE, UNLESS THE
TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF
FACTS (UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE
CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WILL NOT VIOLATE THE
PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND
SECTION 4975 OF THE CODE.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE
PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE
DISCOUNT ("OID") RULES TO THIS CERTIFICATE. ASSUMING THAT THE
MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT USED
SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A CONSTANT PREPAYMENT RATE OF _____% PER
ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN
ISSUED WITH NO MORE THAN $________ OF OID PER [$100,000] [$1,000]
OF INITIAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY IS _____% AND
THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS
NO MORE THAN $________ PER [$100,000] [$1,000] OF INITIAL
PRINCIPAL AMOUNT COMPUTED USING THE EXACT METHOD. NO
REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A
RATE BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
Series 1996- Aggregate Certificate Principal
Balance of the Class B-1
Certificates $____________.
Class B-1
Subordinate
Adjustable Certificate Rate
Initial Class B-1 Adjustable Initial Certificate Principal
Certificate Rate: ____% Balance of this Certificate:
$___________________
Date of Pooling and Servicing
Agreement:
___________, 1996
First Distribution Date: Issue Date: _______________
___________, 1996
Master Servicer: ___________ Trustee: _________________
No. ______________ CUSIP:
CLASS B-1 MORTGAGE LOAN ASSET-BACKED CERTIFICATE
evidencing a beneficial ownership interest in the Trust
Fund consisting primarily of a pool of adjustable rate
residential mortgage loans sold by
QUALITY MORTGAGE ACCEPTANCE CORP.
This certifies that ________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in the
Trust Fund established under a Pooling and Servicing Agreement,
dated as specified above (the "Agreement"), between Quality
Mortgage Acceptance Corp. (hereinafter called the "Depositor",
which term includes any successor entity under the Agreement),
________________________ (the "Master Servicer"), and
____________________ (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth hereafter. The
Percentage Interest evidenced hereby is equal to the initial
Certificate Principal Balance of this Certificate divided by the
aggregate initial Certificate Principal Balance of all of the
Class B-1 Certificates as specified above. The Certificates of
the Series specified above (collectively, the "Certificates")
evidence in the aggregate the entire beneficial ownership
interest in a segregated pool of assets created pursuant to the
Agreement comprised of conventional [one- to four-family
residential] [multifamily (five or more units)] first mortgage
loans (the "Mortgage Loans") or interests therein, and certain
other assets as described herein. To the extent not defined
herein, the capitalized terms used herein have the meanings
assigned in the Agreement. This Certificate is issued under and
is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder
is bound.
The Trustee shall distribute or cause to be distributed on
the 25th day of each month or, if such 25th day is not a Business
Day, the Business Day immediately following (a "Distribution
Date"), commencing on the First Distribution Date specified
above, to the Person in whose name this Certificate is registered
at the close of business on the last Business Day of the month
immediately preceding the month of such distribution (the "Record
Date"), from the Available Distribution Amount an amount equal to
the product of the Percentage Interest evidenced by this
Certificate and the amount required to be distributed to the
holders of Class B-1 Certificates on such Distribution Date
pursuant to the Agreement. Reference is hereby made to the
further provisions of this Certificate set forth in the Agreement
which further provisions shall for all purposes have the same
effect as though fully set forth herein.
All distributions will be made or caused to be made by the
Trustee either in immediately available funds (i) by check mailed
to the address of the Person entitled thereto, as such name and
address shall appear on the Certificate Register, (ii) at the
request of the Person entitled thereto if such Person shall have
so notified the Trustee in writing by five Business Days prior to
the applicable Record Date and such Certificateholder is the
registered holder of Certificates the aggregate Initial
Certificate Principal Balance of which is not less than
$___________, by wire transfer to the account of such Person, or
(iii) in such other manner as shall be agreed by the Trustee and
such Person entitled thereto. Notwithstanding the above, the
final distribution on this Certificate will be made after due
notice by the Master Servicer of the pendency of such
distribution and only upon presentation and surrender of this
Certificate at the office of the Trustee. The Certificate
Principal Balance hereof will be redeemed to the extent of
distributions allocable to principal and any realized losses
allowable hereto.
The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of
payments of principal and interest due on or before the Cut-off
Date) as from time to time are subject to the Agreement and all
payments under and proceeds of the Mortgage Loans, together with
all documents included in the related Mortgage File; (ii) such
funds or assets as from time to time are deposited in the
Custodial Account or Certificate Account; (iii) any REO Property;
and (iv) all insurance policies with respect to the Mortgage
Loans required to be maintained pursuant to the Agreement (all of
the foregoing being hereinafter collectively called the "Trust
Fund").
The Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, the Trustee, any
Sub-Servicer or any of their respective affiliates and are not
insured or guaranteed by any governmental agency or
instrumentality or by any other person or entity. The
Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as
more specifically set forth herein and in the Agreement. As
provided in the Agreement, withdrawals from the Custodial Account
or Certificate Account may be made by the Master Servicer from
time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement to the
Master Servicer of advances made, or certain expenses incurred,
by it, the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the
rights and obligations of the Depositor and the Master Servicer
and the rights of the Certificateholders under the 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 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on
such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent
is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the 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 Corporate Trust
Office, duly endorsed by, or accompanied by an assignment in the
form below or other written instrument of transfer in form
satisfactory to the Trustee 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 initial
Certificate Principal Balance will be issued to the designated
transferee or transferees.
[No transfer of any B-1 Certificate shall be made unless
that transfer is made pursuant to an effective registration
statement under the 1933 Act and effective registration or
qualification under applicable state securities laws, or is made
in a transaction which does not require such registration or
qualification. In the event that a transfer is to be made
without such registration or qualification, (a) the Trustee and
the Depositor shall require the transferee to execute an
investment letter in substantially the form attached as Exhibit
G-1 to the Agreement, which shall not be an expense of the
Depositor, the Master Servicer or the Trustee and (b) the
Depositor may direct the Trustee to require an Opinion of Counsel
satisfactory to the Trustee and the Depositor that such transfer
may be made without such registration or qualification, which
Opinion of Counsel shall not be an expense of the Depositor, the
Trustee or the Master Servicer. Neither the Depositor nor the
Trustee is obligated to register or qualify any of the Class B-1
Certificates under the 1933 Act or any other securities law or to
take any action not otherwise required under the Agreement to
permit the transfer of such Certificates without registration or
qualification. Any such Certificateholder desiring to effect
such transfer shall, and does hereby agree to, indemnify the
Trustee, the Depositor and the Master Servicer against any
liability that may result if the transfer is not so exempt or is
not made in accordance with such federal and state laws.]
[No transfer of any Class B-1 Certificate shall be made to
any employee benefit plan or other retirement arrangement
including individual retirement accounts and Keogh plans, that is
subject to Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (any of foregoing, a "Plan"),
to any Person acting on behalf of a Plan, or to any other person
who is using "plan assets" to effect such acquisition (including
any insurance company using funds in its general or separate
accounts that may constitute "plan assets"), unless the
prospective transferee of a Certificateholder desiring to
transfer its Certificates provides to the Trustee or the
Certificate Registrar an Opinion of Counsel (or, in the limited
circumstances described in the Agreement, a certification of
facts) which establishes to the satisfaction of the Depositor and
the Trustee or the Certificate Registrar that such disposition
will not violate the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Code. In the case of any
transfer of the foregoing Certificates to an insurance company,
in lieu of such Opinion of Counsel, the Trustee shall require a
certification in the form of Exhibit G-5 to the Agreement.]
The Class B-1 Certificates are issuable in registered form
only and in the denominations representing initial Certificate
Principal Balances of $________ and integral multiples of
$_______ in excess thereof, with one Class B-1 Certificate
evidencing an additional amount equal to the remainder of the
aggregate initial Certificate Principal Balance of the Class B-1
Certificates. As provided in the Agreement and subject to
certain limitations therein set forth, Class B-1 Certificates are
exchangeable for new Certificates of the same Class in authorized
denominations evidencing the same aggregate initial Certificate
Principal Balance, as requested by the Holder surrendering the
same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any transfer or exchange of
Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and neither the Depositor, the
Master Servicer, the Trustee nor any such agent shall be affected
by notice to the contrary.
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the
Certificateholders of all amounts held by or on behalf of the
Trustee and required to be paid to them pursuant to the Agreement
following the earlier of (i) the repurchase by the Master
Servicer of all Mortgage Loans and each REO Property in respect
thereof, or (ii) the final payment on, or other liquidation (or
any advance with respect thereto), of the last Mortgage Loan
remaining in the Trust Fund (or the disposition of all REO
Property in respect thereof). The Agreement permits, but does
not require, the Master Servicer to purchase from the Trust Fund
all Mortgage Loans and all property acquired in respect of any
Mortgage Loan at a price determined as provided in the Agreement.
The exercise of the Master Servicer's right will effect early
retirement of the Certificates; however, such right to repurchase
is subject to the aggregate Stated Principal Balance of the
Mortgage Loans at the time of repurchase being less than or equal
to 5% of the aggregate Stated Principal Balance of the Mortgage
Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be
valid for any purpose.
The recitals contained herein shall be taken as the
statements of the Depositor or the Master Servicer, as the case
may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly
executed.
Dated:________________ _________________________,
as Trustee
By:__________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class B-1 Certificates referred to in the
within-mentioned Agreement.
_________________________,
as Trustee
By:__________________________________
Authorized Officer
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s)
and transfer(s) unto
_________________________________________________________________
_________________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip
code of assignee)
the initial Certificate Principal Balance evidenced by the within
Mortgage Loan Asset-Backed Certificate and hereby authorizes the
registration of transfer of such interest to the above-named
assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class B-1
Certificate of a like initial Certificate Principal Balance to
the above named assignee and deliver such Certificate to the
following address:
_________________________________________________________
_________________________________________________________
Dated:
___________________________________
Signature by or on behalf of assignor
___________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the within instrument in
every particular, without alteration or enlargement or any change
whatever, and must be guaranteed by a commercial bank or trust
company on the continental United States or by a firm or
corporation having membership in any national securities exchange
or in the National Association of Securities Dealers, Inc.
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 statements
should be mailed to ________________. This information is
provided by ________________, the assignee named above, or
________________, as its agent.
EXHIBIT B-2
FORM OF CLASS B-2 CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTIONS 86OG AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE
"CODE").
THIS CERTIFICATE IS SUBORDINATE TO THE SENIOR CERTIFICATES
AND THE CLASS B-1 CERTIFICATES OF THIS SERIES TO THE EXTENT
DESCRIBED IN THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
[THIS CLASS B-2 CERTIFICATE HAS NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR
THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER
DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.]
[NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT
SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE
CIRCUMSTANCES DESCRIBED IN THE AGREEMENT, AS DEFINED HEREIN),
SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED OR SECTION 4975 OF THE CODE, UNLESS THE
TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF
FACTS (UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE
CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WELL NOT VIOLATE THE
PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND
SECTION 4975 OF THE CODE.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE
PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE
DISCOUNT ("OID") RULES TO THIS CERTIFICATE. ASSUMING THAT THE
MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT USED
SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A CONSTANT PREPAYMENT RATE OF _____% PER
ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN
ISSUED WITH NO MORE THAN $________ OF OID PER [$100,000] [$1,000]
OF INITIAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY IS _____% AND
THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS
NO MORE THAN $________ PER [$100,000] [$1,000] OF INITIAL
PRINCIPAL AMOUNT, COMPUTED UNDER THE EXACT METHOD. NO
REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A
RATE BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
Series 1996- Aggregate Certificate Principal
Balance of the Class B-2
Certificates $_____________.
Class B-2
Subordinate
Adjustable Certificate Rate
Initial Class B-2 Adjustable Initial Certificate Principal
Certificate Rate: ____% Balance of this Certificate:
$___________________
Date of Pooling and
Servicing Agreement:
___________, 1996
First Distribution Date: Issue Date: _______________
________, 1996
Master Servicer: __________ Trustee: ____________________
No. ______________ CUSIP:
CLASS B-2 MORTGAGE LOAN ASSET-BACKED CERTIFICATE
evidencing a beneficial ownership interest in the Trust
Fund consisting primarily of a pool of adjustable rate
residential mortgage loans sold by
QUALITY MORTGAGE ACCEPTANCE CORP.
This certifies that ________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in the
Trust Fund established under a Pooling and Servicing Agreement,
dated as specified above (the "Agreement"), between Quality
Mortgage Acceptance Corp. (hereinafter called the "Depositor",
which term includes any successor entity under the Agreement),
__________________ (the "Master Servicer"), and __________ ______
(the "Trustee"), a summary of certain of the pertinent provisions
of which is set forth hereafter. The Percentage Interest
evidenced hereby is equal to the initial Certificate Principal
Balance of this Certificate divided by the aggregate initial
Certificate Principal Balance of all of the Class B-2
Certificates as specified above. The Certificates of the Series
specified above (collectively, the "Certificates") evidence in
the aggregate the entire beneficial ownership interest in a
segregated pool of assets created pursuant to the Agreement
comprised of conventional [one- to four-family] [multifamily
(five or more units)] residential first mortgage loans (the
"Mortgage Loans") or interests therein, and certain other assets
sold by the Depositor. To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the
Agreement. This Certificate is issued under and is subject to
the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
The Trustee shall distribute or cause to be distributed on
the 25th day of each month or, if such 25th day is not a Business
Day, the Business Day immediately following (a "Distribution
Date"), commencing on the First Distribution Date specified
above, to the Person in whose name this Certificate is registered
at the close of business on the last Business Day of the month
immediately preceding the month of such distribution (the "Record
Date"), from the Available Distribution Amount an amount equal to
the product of the Percentage Interest evidenced by this
Certificate and the amount required to be distributed to the
holders of Class B-2 Certificates on such Distribution Date
pursuant to the Agreement. Reference is hereby made to the
further provisions of this Certificate set forth in the Agreement
which further provisions shall for all purposes have the same
effect as though fully set forth herein.
All distributions will be made or caused to be made by the
Trustee either in immediately available funds (i) by check mailed
to the address of the Person entitled thereto, as such name and
address shall appear on the Certificate Register, (ii) at the
request of the Person entitled thereto if such Person shall have
so notified the Trustee in writing by five Business Days prior to
the applicable Record Date and such Certificateholder is the
registered holder of Certificates the aggregate Initial
Certificate Principal Balance of which is not less than
$___________, by wire transfer to the account of such Person, or
(iii) in such other manner as shall be agreed by the Trustee and
such Person entitled thereto. Notwithstanding the above, the
final distribution on this Certificate will be made after due
notice by the Master Servicer of the pendency of such
distribution and only upon presentation and surrender of this
Certificate at the office of the Trustee.
The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of
payments of principal and interest due on or before the Cut-off
Date) as from time to time are subject to the Agreement and all
payments under and proceeds of the Mortgage Loans, together with
all documents included in the related Mortgage File; (ii) such
funds or assets as from time to time are deposited in the
Custodial Account or Certificate Account; (iii) any REO Property;
and (iv) all insurance policies with respect to the Mortgage
Loans required to be maintained pursuant to the Agreement (all of
the foregoing being hereinafter collectively called the "Trust
Fund").
The Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, the Trustee, any
Sub-Servicer or any of their respective affiliates and are not
insured or guaranteed by any governmental agency or
instrumentality or by any other person or entity. The
Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as
more specifically set forth herein and in the Agreement. As
provided in the Agreement, withdrawals from the Custodial Account
or Certificate Account may be made by the Master Servicer from
time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement to the
Master Servicer of advances made, or certain expenses incurred,
by it, the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the
rights and obligations of the Depositor and the Master Servicer
and the rights of the Certificateholders under the 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 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on
such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent
is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the 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 Corporate Trust
Office, duly endorsed by, or accompanied by an assignment in the
form below or other written instrument of transfer in form
satisfactory to the Trustee 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 initial
Certificate Principal Balance will be issued to the designated
transferee or transferees.
[No transfer of any Class B-2 Certificate shall be made
unless that transfer is made pursuant to an effective
registration statement under the 1933 Act and effective
registration or qualification under applicable state securities
laws, or is made in a transaction which does not require such
registration or qualification. In the event that a transfer is
to be made without registration or qualification, (a) the Trustee
and the Depositor shall require the transferee to execute an
investment letter in substantially the form attached as Exhibit
G-1 to the Agreement, which shall not be an expense of the
Depositor, the Master Servicer or the Trustee and (b) the
Depositor may direct the Trustee to require an Opinion of Counsel
satisfactory to the Trustee and the Depositor that such transfer
may be made without such registration or qualification, which
Opinion of Counsel shall not be an expense of the Depositor, the
Trustee or the Master Servicer. Neither the Depositor nor the
Trustee is obligated to register or qualify any of the Class B-2
Certificates under the 1933 Act or any other securities law or to
take any action not otherwise required under the Agreement to
permit the transfer of such Certificates without registration or
qualification. Any such Certificateholder desiring to effect
such transfer shall, and does hereby agree to, indemnify the
Trustee, the Depositor and the Master Servicer against any
liability that may result if the transfer is not so exempt or is
not made in accordance with such federal and state laws.]
[No transfer of any Class B-2 Certificate shall be made to
any employee benefit plan or other retirement arrangement
including individual retirement accounts and Keogh plans, that is
subject to Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (any of foregoing, a "Plan"),
to any Person acting on behalf of a Plan, or to any other person
who is using "plan assets" to effect such acquisition (including
any insurance company using funds in its general or separate
accounts that may constitute "plan assets"), unless the
prospective transferee of a Certificateholder desiring to
transfer its Certificates provides to the Trustee or the
Certificate Registrar an Opinion of Counsel (or, in the limited
circumstances described in the Agreement, a certification of
facts) which establishes to the satisfaction of the Depositor and
the Trustee or the Certificate Registrar that such disposition
will not violate the prohibited transaction revisions of Section
406 of ERISA and Section 4975 of the Code. In the case of any
transfer of the foregoing Certificates to an insurance company,
in lieu of such Opinion of Counsel, the Trustee shall require a
certification in the form of Exhibit G-5 to the Agreement.]
The Class B-2 Certificates are issuable in registered form
and in the denominations representing initial Certificate
Principal Balances of $_______ and integral multiples of $_____
in excess thereof, with one Class B-2 Certificate evidencing an
additional amount equal to the remainder of the aggregate initial
Certificate Principal Balance of the Class B-2 Certificates. As
provided in the Agreement and subject to certain limitations
therein set forth, Class B-2 Certificates are exchangeable for
new Certificates of the same Class in authorized denominations
evidencing the same aggregate initial Certificate Principal
Balance, as requested by the Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any transfer or exchange of
Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and neither the Depositor, the
Master Servicer, the Trustee nor any such agent shall be affected
by notice to the contrary.
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the
Certificateholders of all amounts held by or on behalf of the
Trustee and required to be paid to them pursuant to the Agreement
following the earlier of (i) the purchase by the Master Servicer
of all Mortgage Loans and each REO Property in respect thereof,
or (ii) the final payment on, or other liquidation (or any
advance with respect thereto) of, the last Mortgage Loan
remaining in the Trust Fund (or the disposition of all REO
Property in respect thereof). The Agreement permits, but does
not require, the Master Servicer to purchase from the Trust Fund
all Mortgage Loans and all property acquired in respect of any
Mortgage Loan at a price determined as provided in the Agreement.
The exercise of the Master Servicer's right will effect early
retirement of the Certificates; however, such right to repurchase
is subject to the aggregate Stated Principal Balance of the
Mortgage Loans at the time of repurchase being less than or equal
to 5% of the aggregate Stated Principal Balance of the Mortgage
Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be
valid for any purpose.
The recitals contained herein shall be taken as the
statements of the Depositor or the Master Servicer, as the case
may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly
executed.
Dated:____________ ________________________,
as Trustee
BY:_________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class B-2 Certificates referred to in the
within-mentioned Agreement.
________________________,
as Trustee
By:__________________________________
Authorized Officer
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s)
and transfer(s) unto
_________________________________________________________________
_________________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip
code of assignee)
the initial Certificate Principal Balance evidenced by the within
Mortgage Loan Asset-Backed Certificate and hereby authorizes the
registration of transfer of such interest to the above-named
assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class B-2
Certificate of a like initial Certificate Principal Balance to
the above named assignee and deliver such Certificate to the
following address:
_________________________________________________________________
_________________________________________________________________
Dated:
___________________________________
Signature by or on behalf of assignor
___________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the within instrument in
every particular, without alteration or enlargement or any change
whatever, and must be guaranteed by a commercial bank or trust
company on the continental United States or by a firm or
corporation having membership in any national securities exchange
or in the National Association of Securities Dealers, Inc.
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 statements
should be mailed to ________________. This information is
provided by ________________, the assignee named above, or
________________, as its agent.
EXHIBIT B-3
FORM OF CLASS B-3 CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTIONS 86OG AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE
"CODE").
THIS CERTIFICATE IS SUBORDINATE TO THE SENIOR CERTIFICATES,
THE CLASS B-1 CERTIFICATES AND THE CLASS B-2 CERTIFICATES OF THIS
SERIES TO THE EXTENT DESCRIBED IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
[THIS CLASS B-3 CERTIFICATE HAS NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR
THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER
DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND WHICH IS IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.]
[NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT
SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE
CIRCUMSTANCES DESCRIBED IN THE AGREEMENT, AS DEFINED HEREIN),
SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED OR SECTION 4975 OF THE CODE, UNLESS THE
TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF
FACTS UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE
CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WILL NOT VIOLATE THE
PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND
SECTION 4975 OF THE CODE.]
[THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR THE
PURPOSES OF APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE
DISCOUNT ("OID") RULES TO THIS CERTIFICATE. ASSUMING THAT THE
MORTGAGE LOANS PREPAY AT AN ASSUMED RATE OF PREPAYMENT USED
SOLELY FOR THE PURPOSES OF APPLYING THE OID RULES TO THE
CERTIFICATES EQUAL TO A CONSTANT PREPAYMENT RATE OF _____% PER
ANNUM (THE "PREPAYMENT ASSUMPTION"), THIS CERTIFICATE HAS BEEN
ISSUED WITH NO MORE THAN $________ OF OID PER [$100,000] [$1,000]
OF INITIAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY IS _____% AND
THE AMOUNT OF OID ATTRIBUTABLE TO THE INITIAL ACCRUAL PERIOD IS
NO MORE THAN $________ PER [$100,000] [$1,000] OF INITIAL
PRINCIPAL AMOUNT, COMPUTED UNDER THE EXACT METHOD. NO
REPRESENTATION IS MADE THAT THE MORTGAGE LOANS WILL PREPAY AT A
RATE BASED ON THE PREPAYMENT ASSUMPTION OR AT ANY OTHER RATE.]
Series 1996- Aggregate Certificate Principal
Balance of the Class B-3
Certificates $_____________.
Class B-3
Subordinate
Adjustable Certificate Rate
Initial Class B-3 Adjustable Initial Certificate Principal
Certificate Rate: ____% Balance of this Certificate:
$___________________
Date of Pooling and
Servicing Agreement:
___________, 1996
First Distribution Date: Issue Date: _______________
_________, 1996
Master Servicer: __________ Trustee: ________________
No. ______________
CLASS B-3 MORTGAGE LOAN ASSET-BACKED CERTIFICATE
evidencing a beneficial ownership interest in the Trust
Fund consisting primarily of a pool of adjustable rate
residential mortgage loans sold by
QUALITY MORTGAGE ACCEPTANCE CORP.
This certifies that ________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in the
Trust Fund established under a Pooling and Servicing Agreement,
dated as specified above (the "Agreement"), between Quality
Mortgage Acceptance Corp. (hereinafter called the "Depositor",
which term includes any successor entity under the Agreement),
______________________ (the "Master Servicer"), and
____________________ (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth hereafter. The
Percentage Interest evidenced hereby is equal to the initial
Certificate Principal Balance of this Certificate divided by the
aggregate initial Certificate Principal Balance of all of the
Class B-3 Certificates as specified above. The Certificates of
the Series specified above (collectively, the "Certificates")
evidence in the aggregate the entire beneficial ownership
interest in a segregated pool of assets created pursuant to the
Agreement comprised of conventional [one- to four-family]
[multifamily (five or more units)] residential first mortgage
loans (the "Mortgage Loans") or interests therein, and certain
other assets sold by the Depositor. To the extent not defined
herein, the capitalized terms used herein have the meanings
assigned in the Agreement. This Certificate is issued under and
is subject to the terms, provisions and conditions of the
Agreement, to which Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder
is bound.
The Trustee shall distribute or cause to be distributed on
the 25th day of each month or, if such 25th day is not a Business
Day, the Business Day immediately following (a "Distribution
Date"), commencing on the First Distribution Date specified
above, to the Person in whose name this Certificate is registered
at the close of business on the last Business Day of the month
immediately preceding the month of such distribution (the "Record
Date"), from the Available Distribution Amount an amount equal to
the product of the Percentage Interest evidenced by this
Certificate and the amount required to be distributed to the
holders of Class B-3 Certificates on such Distribution Date
pursuant to the Agreement. Reference is hereby made to the
further provisions of this Certificate set forth in the Agreement
which further provisions shall for all purposes have the same
effect as though fully set forth herein.
All distributions will be made or caused to be made by the
Trustee either in immediately available funds (i) by check mailed
to the address of the Person entitled thereto, as such name and
address shall appear on the Certificate Register, (ii) at the
request of the Person entitled thereto if such Person shall have
so notified the Trustee in writing by five Business Days prior to
the applicable Record Date and such Certificateholder is the
registered holder of Certificates the aggregate Initial
Certificate Principal Balance of which is not less than
$___________, by wire transfer to the account of such Person, or
(iii) in such other manner as shall be agreed by the Trustee and
such Person entitled thereto. Notwithstanding the above, the
final distribution on this Certificate will be made after due
notice by the Master Servicer of the pendency of such
distribution and only upon presentation and surrender of this
Certificate at the office of the Trustee.
The Certificates in the aggregate represent the entire
beneficial interest in: (i) the Mortgage Loans (exclusive of
payments of principal and interest due on or before the Cut-off
Date) as from time to time are subject to the Agreement and all
payments under and proceeds of the Mortgage Loans, together with
all documents included in the related Mortgage File; (ii) such
funds or assets as from time to time are deposited in the
Custodial Account or Certificate Account; (iii) any REO Property;
and (iv) all insurance policies with respect to the Mortgage
Loans required to be maintained pursuant to the Agreement (all of
the foregoing being hereinafter collectively called the "Trust
Fund").
The Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, the Trustee, any
Sub-Servicer or any of their respective affiliates and are not
insured or guaranteed by any governmental agency or
instrumentality or by any other person or entity. The
Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as
more specifically set forth herein and in the Agreement. As
provided in the Agreement, withdrawals from the Custodial Account
or Certificate Account may be made by the Master Servicer from
time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement to the
Master Servicer of advances made, or certain expenses incurred,
by it, the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the
rights and obligations of the Depositor and the Master Servicer
and the rights of the Certificateholders under the 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 66-2/3% of the Voting Rights. Any such consent by the
Holder of this Certificate shall be conclusive and binding on
such Holder and upon all future Holders of this Certificate and
of any Certificate issued upon the transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent
is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
As provided in the 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 Corporate Trust
Office, duly endorsed by, or accompanied by an assignment in the
form below or other written instrument of transfer in form
satisfactory to the Trustee 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 initial
Certificate Principal Balance will be issued to the designated
transferee or transferees.
[No transfer of any Class B-3 Certificate shall be made
unless that transfer is made pursuant to an effective
registration statement under the 1933 Act and effective
registration or qualification under applicable state securities
laws, or is made in a transaction which does not require such
registration or qualification. In the event that a transfer is
to be made without registration or qualification, (a) the Trustee
and the Depositor shall require the transferee to execute an
investment letter in substantially the form attached as Exhibit
G-1 to the Agreement, which shall not be an expense of the
Depositor, the Master Servicer or the Trustee and (b) the
Depositor may direct the Trustee to require an Opinion of Counsel
satisfactory to the Trustee and the Depositor that such transfer
may be made without such registration or qualification, which
Opinion of Counsel shall not be an expense of the Depositor, the
Trustee or the Master Servicer. Neither the Depositor nor the
Trustee is obligated to register or qualify any of the Class B-3
Certificates under the 1933 Act or any other securities law or to
take any action not otherwise required under the Agreement to
permit the transfer of such Certificates without registration or
qualification. Any such Certificateholder desiring to effect
such transfer shall, and does hereby agree to, indemnify the
Trustee, the Depositor and the Master Servicer against any
liability that may result if the transfer is not so exempt or is
not made in accordance with such federal and state laws.]
[No transfer of any Class B-3 Certificate shall be made to
any employee benefit plan or other retirement arrangement
including individual retirement accounts and Keogh plans, that is
subject to Section 406 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (any of foregoing, a "Plan"),
to any Person acting on behalf of a Plan, or to any other person
who is using "plan assets" to effect such acquisition (including
any insurance company using funds in its general or separate
accounts that may constitute "plan assets"), unless the
prospective transferee of a Certificateholder desiring to
transfer its Certificates provides to the Trustee or the
Certificate Registrar an Opinion of Counsel (or, in the limited
circumstances described in the Agreement, a certification of
facts) which establishes to the satisfaction of the Depositor and
the Trustee or the Certificate Registrar that such disposition
will not violate the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Code. In the case of any
transfer of the foregoing Certificates to an insurance company,
in lieu of such Opinion of Counsel, the Trustee shall require a
certification in the form of Exhibit G-5 to the Agreement.]
The Class B-3 Certificates are issuable in registered form
only without coupons and in the denominations representing
initial Certificate Principal Balances of $_________ and integral
multiples of $______ in excess thereof, with one Class B-3
Certificate evidencing an additional amount equal to the
remainder of the aggregate initial Certificate Principal Balance
of the Class B-3 Certificates. As provided in the Agreement and
subject to certain limitations therein set forth, Class B-3
Certificates are exchangeable for new Certificates of the same
Class in authorized denominations evidencing the same aggregate
initial Certificate Principal Balance, as requested by the Holder
surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any transfer or exchange of
Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and neither the Depositor, the
Master Servicer, the Trustee nor any such agent shall be affected
by notice to the contrary.
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the
Certificateholders of all amounts held by or on behalf of the
Trustee and required to be paid to them pursuant to the Agreement
following the earlier of (i) the purchase by the Master Servicer
of all Mortgage Loans and each REO Property in respect thereof,
or (ii) the final payment on, or other liquidation (or any
advance with respect thereto) of, the last Mortgage Loan
remaining in the Trust Fund (or the disposition of all REO
Property in respect thereof). The Agreement permits, but does
not require, the Master Servicer to purchase from the Trust Fund
all Mortgage Loans and all property acquired in respect of any
Mortgage Loan at a price determined as provided in the Agreement.
The exercise of the Master Servicer's right will effect early
retirement of the Certificates; however, such right to repurchase
is subject to the aggregate Stated Principal Balance of the
Mortgage Loans at the time of repurchase being less than or equal
to 5% of the aggregate Stated Principal Balance of the Mortgage
Loans at the Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be
valid for any purpose.
The recitals contained herein shall be taken as the
statements of the Depositor or the Master Servicer, as the case
may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly
executed.
Dated:________
_______________________,
as Trustee
By:__________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class B-3 Certificates referred to in the
within-mentioned Agreement.
_________________________,
as Trustee
By:__________________________________
Authorized Officer
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s)
and transfer(s) unto
_________________________________________________________________
_________________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip
code of assignee)
the initial Certificate Principal Balance evidenced by the within
Mortgage Loan Asset-Backed Certificate and hereby authorizes the
registration of transfer of such interest to the above-named
assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class B-3
Certificate of a like initial Certificate Principal Balance to
the above named assignee and deliver such Certificate to the
following address:
_________________________________________________________________
_________________________________________________________________
Dated:
___________________________________
Signature by or on behalf of assignor
___________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the within instrument in
every particular, without alteration or enlargement or any change
whatever, and must be guaranteed by a commercial bank or trust
company on the continental United States or by a firm or
corporation having membership in any national securities exchange
or in the National Association of Securities Dealers, Inc.
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 statements
should be mailed to ________________. This information is
provided by ________________, the assignee named above, or
________________, as its agent.
EXHIBIT B-4
FORM OF CLASS R CERTIFICATE
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS
CERTIFICATE IS A "REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE
INVESTMENT CONDUIT," AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTIONS 86OG AND 860D OF THE INTERNAL REVENUE CODE OF 1986 (THE
"CODE").
THIS CLASS R CERTIFICATE HAS NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") OR
THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER OR OTHER
DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT
REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 5.02 OF THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE TO AN EMPLOYEE
BENEFIT PLAN, OR PERSON USING "PLAN ASSETS" OF ANY PLAN TO EFFECT
SUCH ACQUISITION (INCLUDING ANY INSURANCE COMPANY UNDER THE
CIRCUMSTANCES DESCRIBED IN THE AGREEMENT, AS DEFINED HEREIN),
SUBJECT TO SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED OR SECTION 4975 OF THE CODE, UNLESS THE
TRANSFEREE PROVIDES AN OPINION OF COUNSEL OR CERTIFICATION OF
FACTS UNDER THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
AGREEMENT), SATISFACTORY TO THE DEPOSITOR AND THE TRUSTEE OR THE
CERTIFICATE REGISTRAR, THAT SUCH DISPOSITION WILL NOT VIOLATE THE
PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA AND
SECTION 4975 OF THE CODE.
THIS CERTIFICATE AND THE POOLING AND SERVICING AGREEMENT MAY
BE AMENDED WITHOUT THE CONSENT OF THE HOLDER HEREOF, AND IN A
MANNER THAT MAY ADVERSELY AFFECT THE INTERESTS OF THE HOLDER
HEREOF, IF NECESSARY TO PREVENT THE DISQUALIFICATION OF THE TRUST
FUND AS A REMIC.
ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R
CERTIFICATE MAY BE MADE ONLY IF THE PROPOSED TRANSFEREE PROVIDES
AN AFFIDAVIT TO THE MASTER SERVICER AND THE TRUSTEE THAT (1) SUCH
TRANSFEREE IS NOT EITHER (A) THE UNITED STATES, ANY STATE OR
POLITICAL SUBDIVISION THEREOF, ANY POSSESSION OF THE UNITED
STATES, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING
(OTHER THAN AN INSTRUMENTALITY WHICH IS A CORPORATION IF ALL OF
ITS ACTIVITIES ARE SUBJECT TO TAX AND, EXCEPT FOR THE FHLMC, A
MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY SUCH
GOVERNMENTAL UNIT), (B) ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL
ORGANIZATION, OR ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE
FOREGOING, (C) ANY ORGANIZATION (OTHER THAN CERTAIN FARMERS'
COOPERATIVES DESCRIBED IN SECTION 521 OF THE CODE) WHICH IS
EXEMPT FROM THE TAX IMPOSED BY CHAPTER I OF THE CODE (UNLESS SUCH
ORGANIZATION IS SUBJECT TO THE TAX IMPOSED BY SECTION 511 OF THE
CODE ON UNRELATED BUSINESS TAXABLE INCOME), (D) RURAL ELECTRIC
AND TELEPHONE COOPERATIVES DESCRIBED IN SECTION 1381(a)(2)(C) OF
THE CODE, AND (E) ANY OTHER PERSON SO DESIGNATED BY THE TRUSTEE
BASED ON AN OPINION OF COUNSEL, (ANY SUCH PERSON DESCRIBED IN THE
FOREGOING CLAUSES (A), (B), (C), (D) OR (E) BEING HEREINAFTER
REFERRED TO AS A "DISQUALIFIED ORGANIZATION") OR (F) AN AGENT OF
A DISQUALIFIED ORGANIZATION. NOTWITHSTANDING THE REGISTRATION IN
THE CERTIFICATE REGISTER OR ANY TRANSFER, SALE OR OTHER
DISPOSITION OF THIS CLASS R CERTIFICATE TO A DISQUALIFIED
ORGANIZATION OR AN AGENT OF A DISQUALIFIED ORGANIZATION, SUCH
REGISTRATION SHALL BE DEEMED TO BE OF NO LEGAL FORCE OR EFFECT
WHATSOEVER AND SUCH PERSON SHALL NOT BE DEEMED TO BE A
CERTIFICATEHOLDER FOR ANY PURPOSE HEREUNDER, INCLUDING, BUT NOT
LIMITED TO, THE RECEIPT OF DISTRIBUTIONS ON THIS CERTIFICATE.
EACH HOLDER OF A CLASS R CERTIFICATE BY ACCEPTANCE OF THIS
CERTIFICATE SHALL BE DEEMED TO HAVE CONSENTED TO THE PROVISIONS
OF THIS PARAGRAPH.
IF ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CLASS R
CERTIFICATE IS MADE TO ANY OF CERTAIN "PASS-THROUGH ENTITIES"
DESCRIBED IN SECTION 860E(e)(6) OF THE CODE, AND A DISQUALIFIED
ORGANIZATION IS THE RECORD HOLDER OF AN INTEREST IN SUCH ENTITY,
THEN A TAX MAY BE IMPOSED ON SUCH ENTITY.
NO TRANSFER OF THE CERTIFICATE MAY BE MADE TO A NON-UNITED
STATES PERSON AS DEFINED IN THE AGREEMENT.
Series 1996- Aggregate unpaid principal balance
of the Mortgage Loans after deducting
payments due on or before Cut-off Date:
$______________.
Percentage Interest: ____%
Date of Pooling and Servicing Issue Date: _______________
Agreement:
___________, 1996
First Distribution Date:
_________, 1996
Master Servicer: ______________ Trustee: ___________________
No. ____________
CLASS R MORTGAGE LOAN ASSET-BACKED CERTIFICATE
evidencing a beneficial ownership interest in the Trust
Fund consisting primarily of a pool of adjustable rate
residential mortgage loans sold by
QUALITY MORTGAGE ACCEPTANCE CORP.
This certifies that ________________ is the registered owner
of the Percentage Interest evidenced by this Certificate in the
Class R residual interests in the Trust Fund created pursuant to
a Pooling and Servicing Agreement, dated as specified above (the
"Agreement"), between Quality Mortgage Acceptance Corp.
(hereinafter called the "Depositor", which term includes any
successor entity under the Agreement), ___________________ (the
"Master Servicer"), and _____________________ (the "Trustee"), a
summary of certain of the pertinent provisions of which is set
forth hereafter. To the extent not defined herein, the
capitalized terms used herein have the meanings assigned in the
Agreement. This Certificate is issued under and is subject to
the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the
acceptance hereof assents and by which such Holder is bound.
Pursuant to the terms of the Agreement, distributions will
be made on the 25th day of each month, or if such 25th day is not
a Business Day, the Business Day immediately following (a
"Distribution Date"), commencing on the First Distribution Date
specified above, to the Person in whose name this Certificate is
registered at the close of business on the last Business Day of
the month immediately preceding the month of such distribution
(the "Record Date"), from the Available Distribution Amount in an
amount equal to the product of the Percentage Interest evidenced
by this Certificate and the amount required to be distributed to
the Holders of Class R Certificates on such Distribution Date
pursuant to the Agreement. Reference is hereby made to the
further provisions of this Certificate set forth in the
Agreement, which further provisions have the same effect as
though fully set forth herein.
All distributions under the Agreement on the Class R
Certificates will be made or caused to be made by the Trustee by
check mailed to the address of the Person entitled thereto, as
such name and address shall appear on the Certificate Register.
Notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Master Servicer
of the pendency of such distribution and only upon presentation
and surrender of this Certificate at the office of the Trustee.
This Certificate is one of a duly authorized issue of
Certificates designated as Mortgage Loan Asset-Backed
Certificates of the series specified on the face hereof (herein
called the "Certificates") and representing the Percentage
Interest specified on the face hereof in the Class R
Certificates.
The Certificates do not represent an obligation of, or an
interest in, the Depositor, the Master Servicer, the Trustee, any
Sub-Servicer or any of their respective affiliates and are not
insured or guaranteed by any governmental agency or
instrumentality or by any other person or entity. The
Certificates are limited in right of payment to certain
collections and recoveries respecting the Mortgage Loans, all as
more specifically set forth herein and in the Agreement. As
provided in the Agreement, withdrawals from the Custodial Account
or Certificate Account may be made by the Master Servicer from
time to time for purposes other than distributions to
Certificateholders, such purposes including reimbursement to the
Master Servicer of advances made, or certain expenses incurred,
by it, the Depositor, by the Trustee or by any Sub-Servicer.
The Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the
rights and obligations of the Depositor, the Master Servicer and
the Trustee and the rights of the Certificateholders under the
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 66-2/3% of the Voting Rights. Any such
consent by the Holder of this Certificate shall be conclusive and
binding on such Holder and upon all future Holders of this
Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The
Agreement also permits the amendment thereof, in certain limited
circumstances, without the consent of the Holders of any of the
Certificates.
As provided in the 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 Corporate Trust
Office, duly endorsed by, or accompanied by an assignment in the
form below or other written instrument of transfer in form
satisfactory to the Trustee 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.
No transfer of any R Certificate shall be made unless that
transfer is made pursuant to an effective registration statement
under the 1933 Act and effective registration or qualification
under applicable state securities laws, or is made in a
transaction which does not require such registration or
qualification. In the event that a transfer is to be made
without such registration or qualification, (a) the Trustee and
the Depositor shall require the transferee to execute an
investment letter in substantially the form attached as Exhibit
G-1 to the Agreement, which shall not be an expense of the
Depositor, the Master Servicer or the Trustee and (b) the
Depositor may direct the Trustee to require an Opinion of Counsel
satisfactory to the Trustee and the Depositor that such transfer
may be made without such registration or qualification, which
Opinion of Counsel shall not be an expense of the Depositor, the
Trustee or the Master Servicer. Neither the Depositor nor the
Trustee is obligated to register or qualify any of the Class R
Certificates under the 1933 Act or any other securities law or to
take any action not otherwise required under the Agreement to
permit the transfer of such Certificates without registration or
qualification. Any such Certificateholder desiring to effect
such transfer shall, and does hereby agree to, indemnify the
Trustee, the Depositor and the Master Servicer against any
liability that may result if the transfer is not so exempt or is
not made in accordance with such federal and state laws.
No transfer of any Class R Certificate shall be made to any
employee benefit plan or other retirement arrangement including
individual retirement accounts and Keogh plans, that is subject
to Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (any of foregoing, a "Plan"), to any
Person acting on behalf of a Plan, or to any other person who is
using "plan assets" to effect such acquisition (including any
insurance company using funds in its general or separate accounts
that may constitute "plan assets"), unless the prospective
transferee of a Certificateholder desiring to transfer its
Certificates provides to the Trustee or the Certificate Registrar
an Opinion of Counsel (or, in the limited circumstances described
in the Agreement, a certification of facts) which establishes to
the satisfaction of the Depositor and the Trustee or the
Certificate Registrar that such disposition will not violate the
prohibited transaction provisions of Section 406 of ERISA and
Section 4975 of the Code. In the case of any transfer of the
foregoing Certificates to an insurance company, in lieu of such
Opinion of Counsel, the Trustee shall require a certification in
the form of Exhibit G-5 to the Agreement.
The Class R Certificates are issuable in fully registered
form without coupons, in the minimum denominations evidencing a
5% Percentage Interest (except as provided in the Agreement). As
provided in the Agreement and subject to certain limitations
therein set forth (including limitations on the total number of
Class R Certificates outstanding), Class R Certificates are
exchangeable for new Certificates of the same Class in authorized
denominations evidencing the same aggregate Percentage Interest,
as requested by the Holder surrendering the same.
No service charge will be made for any such registration of
transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any transfer or exchange of
Certificates.
The Depositor, the Master Servicer and the Trustee and any
agent of the Depositor, the Master Servicer or the Trustee may
treat the Person in whose name this Certificate is registered as
the owner hereof for all purposes, and neither the Depositor, the
Master Servicer, the Trustee nor any such agent shall be affected
by notice to the contrary.
The obligations created by the Agreement and the Trust Fund
created thereby shall terminate upon payment to the
Certificateholders of all amounts held by or on behalf of the
Trustee and required to be paid to them pursuant to the Agreement
following the earlier of (i) the repurchase by the Master
Servicer of all Mortgage Loans and each REO Property in respect
thereof or (ii) the final payment or other liquidation (or any
advance with respect thereto) of the last Mortgage Loan remaining
in the Trust Fund (or the disposition of all REO Property in
respect thereof). The Agreement permits, but does not require,
the Master Servicer to purchase from the Trust Fund all Mortgage
Loans and all property acquired in respect of any Mortgage Loan
at a price determined as provided in the Agreement. The exercise
of the Master Servicer's right will effect early retirement of
the Certificates; however, such right to purchase is subject to
the aggregate Stated Principal Balance of the Mortgage Loans at
the time of purchase being less than or equal to 5% of the
aggregate Stated Principal Balance of the Mortgage Loans at the
Cut-off Date.
Unless the certificate of authentication hereon has been
executed by the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement or be
valid for any purpose.
The recitals contained herein shall be taken as the
statements of the Depositor or the Master Servicer, as the case
may be.
IN WITNESS WHEREOF, the Trustee in its capacity as trustee
under the Agreement has caused this Certificate to be duly
executed.
Dated: _________ ________________________,
as Trustee
By:__________________________________
Authorized Officer
CERTIFICATE OF AUTHENTICATION
This is one of the Class R Certificates referred to in the
within-mentioned Agreement.
__________________________,
as Trustee
By:__________________________________
Authorized Officer
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s)
and transfer(s) unto
_________________________________________________________________
_________________________________________________________________
Social Security or other identifying number of assignee:
(Please print or typewrite name and address including postal zip
code of assignee)
the Percentage Interest evidenced by the within Class R Mortgage
Loan Asset-Backed Certificate and hereby authorizes the
registration of transfer of such interest to the above-named
assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Class R
Certificate of a like Percentage Interest to the above named
assignee and deliver such Certificate to the following address:
_________________________________________________________________
_________________________________________________________________
Dated:
___________________________________
Signature by or on behalf of assignor
___________________________________
Signature Guaranteed
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the within instrument in
every particular, without alteration or enlargement or any change
whatever, and must be guaranteed by a commercial bank or trust
company on the continental United States or by a firm or
corporation having membership in any national securities exchange
or in the National Association of Securities Dealers, Inc.
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 statements
should be mailed to ________________. This information is
provided by ________________, the assignee named above, or
________________, as its agent.
EXHIBIT C
FORM OF TRUSTEE INITIAL CERTIFICATION
[Closing Date]
[Master Servicer]
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
Re: Pooling and Servicing Agreement dated as of
__________, 1996 among Quality Mortgage
Acceptance Corp., _______________
_____________ and _____________________,
Mortgage Loan Asset-Backed Certificates,
Series 1996-
Gentlemen:
In accordance with Section 2.02 of the above-captioned
Pooling and Servicing Agreement, the undersigned, as Trustee,
hereby certifies that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full
or listed on the attachment hereto) it has reviewed the Mortgage
File and the Mortgage Loan Schedule and has determined that: (i)
all documents required to be included in the Mortgage File 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 examination by it, and only as to such
documents, the information set forth in items (i) - (vi) and (x) -
(xiii) of the definition or description of "Mortgage Loan
Schedule" is correct.
The Trustee has made no independent examination of any
documents contained in each Mortgage File beyond the review
specifically required in the above-referenced Pooling and
Servicing Agreement. The Trustee makes no representation that
any documents specified in clause (vi) of Section 2.01 should be
included in any Mortgage File. The Trustee makes no
representations as to and shall not be responsible to verify: (i)
the validity, legality, sufficiency, enforceability, due
authorization, recordability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage
Loans identified on the Mortgage Loan Schedule, (ii) the
collectability, insurability, effectiveness or suitability of any
such Mortgage Loan, or (iii) the existence of any assumption,
modification, written assurance or substitution agreement with
respect to any Mortgage File if no such documents appear in the
Mortgage File delivered to the Trustee.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned
Pooling and Servicing Agreement.
____________________________
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT D
FORM OF TRUSTEE FINAL CERTIFICATION
[date]
[Master Servicer]
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
Re: Pooling and Servicing Agreement dated as of
__________, 1996 among Quality Mortgage
Acceptance Corp., ________________
______________ and _________________,
Mortgage Loan Asset-Backed Certificates,
Series 1996-
Gentlemen:
In accordance with Section 2.02 of the above-captioned
Pooling and Servicing Agreement, the undersigned, as Trustee,
hereby certifies that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full
or listed on the attachment hereto) it has received the documents
set forth in Section 2.01.
The Trustee has made no independent examination of any
documents contained in each Mortgage File beyond the review
specifically required in the above-referenced Pooling and
Servicing Agreement. The Trustee makes no representation that
any documents specified in clause (vi) of Section 2.01 should be
included in any Mortgage File. The Trustee makes no
representations as to and shall not be responsible to verify: (i)
the validity, legality, sufficiency, enforceability, due
authorization, recordability or genuineness of any of the
documents contained in each Mortgage File of any of the Mortgage
Loans identified on the Mortgage Loan Schedule, (ii) the
collectability, insurability, effectiveness or suitability of any
such Mortgage Loan or (iii) the existence of any assumption,
modification, written assurance or substitution agreement with
respect to any Mortgage File if no such documents appear in the
Mortgage File delivered to the Trustee.
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned
Pooling and Servicing Agreement.
__________________________
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT E
[RESERVED]
EXHIBIT F-1
REQUEST FOR RELEASE
(for Trustee)
Loan Information
Name of Mortgagor: _________________________
Master Servicer
Loan No.: _________________________
Trustee
Name: __________________________
Address: _________________________
_________________________
Trustee
Mortgage File No.: _________________________
Request for Requesting Documents (check one):
1. Mortgage Loan Liquidated.
(The Master Servicer hereby certifies that all proceeds
of foreclosure, insurance or other liquidation have
been finally received and deposited into the Custodial
Account to the extent required pursuant to the Pooling
and Servicing Agreement.)
2. Mortgage Loan in Foreclosure.
3. Mortgage Loan Repurchased Pursuant to Section 9.01 of the
Pooling and Servicing Agreement.
4. Mortgage Loan Repurchased Pursuant to Article II of the
Pooling and Servicing Agreement.
(The Master Servicer hereby certifies that the
repurchase price has been deposited into the Custodial
Account pursuant to the Pooling and Servicing
Agreement.)
5. Other (explain).
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
The undersigned Master Servicer hereby acknowledges that it
has received from _________________, as Trustee for the Holders
of Mortgage Loan Asset-Backed Certificates, Series 1996- , the
documents referred to below (the "Documents"). All capitalized
terms not otherwise defined in this Request for Release shall
have the meanings given them in the Pooling and Servicing
Agreement dated as of ___________, 1996, (the "Pooling and
Servicing Agreement") between the Trustee, Quality Mortgage
Acceptance Corp. and ________________________.
() Promissory Note dated ______________, 19__, in the original
principal sum of $____________, made by ____________ payable
to, or endorsed to the order of, the Trustee.
() Mortgage recorded on ________________________ as instrument
no. ________ in the County Recorder's Office of the County
of ____________, State of ____________ in book/reel/docket
____________ of official records at page/image ____________.
() Deed of Trust recorded on ____________ as instrument no.
____________ in the County Recorder's Office of the County
of ____________, State of ____________ in book/reel/docket
____________ of official records at page/image ____________.
() Assignment of Mortgage or Deed of Trust to the Trustee,
recorded on ____________ as instrument no. ____________ in
the County Recorder's Office of the County of ____________,
State of ____________ in book/reel/docket of official
records at page/image ____________.
() Other documents, including any amendments, assignments or
other assumptions of the Mortgage Note or Mortgage.
() __________________________________________
() __________________________________________
() __________________________________________
() __________________________________________
The undersigned Master Servicer hereby acknowledges and
agrees as follows:
(1) The Master Servicer shall hold and retain possession of
the Documents in trust for the benefit of the Trustee, solely for
the purposes provided in the Agreement.
(2) The Master Servicer shall not cause or knowingly permit
the Documents to become subject to, or encumbered by, any claim,
liens, security interest, charges, writs of attachment or other
impositions nor shall the Master Servicer assert or seek to
assert any claims or rights of setoff to or against the Documents
or any proceeds thereof.
(3) The Master Servicer shall return each and every
Document previously requested from the Mortgage File to the
Trustee when the need therefor no longer exists, unless the
Mortgage Loan relating to the Documents has been liquidated and
the proceeds thereof have been remitted to the Custodial Account
and except as expressly provided in the Agreement.
(4) The Documents and any proceeds thereof, including any
proceeds of proceeds, coming into the possession or control of
the Master Servicer shall at all times be earmarked for the
account of the Trustee, and the Master Servicer shall keep the
Documents and any proceeds separate and distinct from all other
property in the Master Servicer's possession, custody or control.
___________________________
By:___________________________________
Its:__________________________________
Date: ____________, 19__
EXHIBIT F-2
REQUEST FOR RELEASE
[Mortgage Loans Paid in Full]
OFFICER'S CERTIFICATE AND TRUST RECEIPT
MORTGAGE LOAN ASSET-BACKED CERTIFICATES
SERIES 1996-
________________________ HEREBY CERTIFIES THAT HE/SHE IS AN
OFFICER OF THE MASTER SERVICER, HOLDING THE OFFICE SET FORTH
BENEATH HIS/HER SIGNATURE, AND HEREBY FURTHER CERTIFIES AS
FOLLOWS:
WITH RESPECT TO THE MORTGAGE LOANS, AS THE TERM IS DEFINED IN THE
POOLING AND SERVICING AGREEMENT DESCRIBED IN THE ATTACHED
SCHEDULE:
ALL PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY), AND INTEREST HAVE
BEEN MADE.
LOAN NUMBER: ____________ BORROWER'S NAME: _____________
COUNTY: ____________
WE HEREBY CERTIFY THAT ALL AMOUNTS RECEIVED IN CONNECTION WITH
SUCH PAYMENTS, WHICH ARE REQUIRED TO BE DEPOSITED IN THE
CUSTODIAL ACCOUNT PURSUANT TO SECTION 3.10 OF THE POOLING AND
SERVICING AGREEMENT, HAVE BEEN OR WILL BE CREDITED.
____________ __________________ DATED: ____________
// VICE PRESIDENT
// ASSISTANT VICE PRESIDENT
EXHIBIT G-1
FORM OF INVESTOR REPRESENTATION LETTER
____________, 19__
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
____________________
____________________
____________________
Attention: Corporate Trust
Re: Mortgage Loan Asset-Backed Certificates,
Series 1996- , Class
Dear Sirs:
____________ (the "Purchaser") intends to purchase from
____________ (the "Seller") $____________ Initial Certificate
Principal Balance of Mortgage Loan Asset-Backed Certificates,
Series 1996- , Class _ (the "Certificates"), issued pursuant to
the Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as of ___________, 1996 among Quality Mortgage
Acceptance Corp., as seller (the "Company"), ____________
________, as master servicer, and ___________________, as trustee
(the "Trustee"). All terms used herein and not otherwise defined
shall have the meanings set forth in the Pooling and Servicing
Agreement. The Purchaser hereby certifies, represents and
warrants to, and covenants with, the Company and the Trustee
that:
1. The Purchaser understands that (a) the
Certificates have not been and will not be registered or
qualified under the Securities Act of 1933, as amended (the
"Act") or any state securities law, (b) the Company is not
required to so register or qualify the Certificates, (c) the
Certificates may be resold only if registered and qualified
pursuant to the provisions of the Act or any state
securities law, or if an exemption from such registration
and qualification is available, (d) the Pooling and
Servicing Agreement contains restrictions regarding the
transfer of the Certificates and (e) the Certificates will
bear a legend to the foregoing effect.
2. The Purchaser is acquiring the Certificates for
its own account for investment only and not with a view to
or for sale in connection with any distribution thereof in
any manner that would violate the Act or any applicable
state securities laws.
3. The Purchaser is (a) a substantial, sophisticated
institutional investor having such knowledge and experience
in financial and business matters, in articular in such
matters related to securities similar to the Certificates,
such that it is capable of evaluating the merits and risks
of investment in the Certificates, (b) able to bear the
economic risks of such an investment and (c) an it
accredited investor" within the meaning of Rule 501(a)
promulgated pursuant to the Act.
4. The Purchaser has been furnished with, and has had
an opportunity to review [(a) a copy of the [Prospectus],
dated __________, 1996, relating to the Certificates, (b)] a
copy of the Pooling and Servicing Agreement and [(b)] [(c)]
such other information concerning the Certificates, the
Mortgage Loans and the Company as has been requested by the
Purchaser from the Company or the Seller and is relevant to
the Purchaser's decision to purchase the Certificates. The
Purchaser has had any questions arising from such review
answered by the Company or the Seller to the satisfaction of
the Purchaser. [If the Purchaser did not purchase the
Certificates from the Seller in connection with the initial
distribution of the Certificates and was provided with a
copy of the Prospectus (the "Prospectus") relating to the
original sale (the "Original Sale") of the Certificates by
the Company, the Purchaser acknowledges that such Prospectus
was provided to it by the Seller, that the Prospectus was
prepared by the Company solely for use in connection with
the Original Sale and the Company did not participate in or
facilitate in any way the purchase of the Certificates by
the Purchaser from the Seller, and the Purchaser agrees that
it will look solely to the Seller and not to the Company
with respect to any damage, liability, claim or expense
arising out of, resulting from or in connection with (a)
error or omission, or alleged error or omission, contained
in the Prospectus, or (b) any information, development or
event arising after the date of the Prospectus.]
5. The Purchaser has not and will not nor has it
authorized or will it authorize any person to (a) offer,
pledge, sell, dispose of or otherwise transfer any
Certificate, any interest in any Certificate or any other
similar security to any person in any manner, (b) solicit
any offer to buy or to accept a pledge, disposition of other
transfer of any Certificate, any interest in any Certificate
or any other similar security from any person in any manner,
(c) otherwise approach or negotiate with respect to any
Certificate, any interest in any Certificate or any other
similar security with any person in any manner, (d) make any
general solicitation by means of general advertising or in
any other manner or (e) take any other action, that (as to
any of (a) through (e) above) would constitute a
distribution of any Certificate under the Act, that would
render the disposition of any Certificate a violation of
Section 5 of the Act or any state securities law, or that
would require registration or qualification pursuant
thereto. The Purchaser will not sell or otherwise transfer
any of the Certificates, except in compliance with the
provisions of the Pooling and Servicing Agreement.
[6. The Purchaser is not any employee benefit plan
subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Internal Revenue Code of
1986, (the "Code"), nor a Person acting, directly or
indirectly, on behalf of any such plan, and understands that
registration of transfer of any Certificate to any such
employee benefit plan, or to any person acting on behalf of
such plan, will not be made unless such employee benefit
plan delivers an opinion of its counsel, addressed and
satisfactory to the Trustee, the Company and the Master
Servicer, to the effect that the purchase and holding of a
Certificate by or on behalf of such employee benefit plan
would not result in the assets of the Trust Estate being
deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA
* To be deleted in the case of Class A-1. In addition, in the
case of a transfer of the Certificates to an insurance company,
the above paragraph 6 shall be deleted and a certification in the
form of Exhibit G-5 shall be executed.
or the prohibited transaction provisions of the Code (or
comparable provisions of any subsequent enactments), would
not constitute or result in a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Company, the Master Servicer or the Trustee
to any obligation or liability (including liabilities under
ERISA or Section 4975 of the Code) in addition to those
undertaken in the Pooling and Servicing Agreement or any
other liability. The Purchaser understands that under
current law such an opinion cannot be rendered.]
Very truly yours,
______________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT G-2
Form of Transferor Representation Letter
____________, 19__
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
_____________________
_____________________
_____________________
Attention: Corporate Trust
Re: Mortgage Loan Asset-Backed Certificates,
Series 1996- , Class
Dear Sirs:
In connection with the sale by ____________ (the "Seller")
to ____________ (the "Purchaser") of $____________ Initial
Certificate Principal Balance of Mortgage Loan Asset-Backed
Certificates, Series 1996- , Class __ (the "Certificates"),
issued pursuant to the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as of ___________, 1996
among Quality Mortgage Acceptance Corp., as seller (the
"Company"), __________________, as master servicer, and
__________________, as trustee (the "Trustee"). The Seller
hereby certifies, represents and warrants to, and covenants with,
the Company and the Trustee that:
Neither the Seller nor anyone acting on its behalf has (a)
offered, pledged, sold, disposed of or otherwise transferred any
Certificate, any interest in any Certificate or any other similar
security to any person in any manner, (b) has solicited any offer
to buy or to accept a pledge, disposition or other transfer of
any Certificate, any interest in any Certificate or any other
similar security from any person in any manner, (c) has otherwise
approached or negotiated with respect to any Certificate, any
interest in any Certificate or any other similar security with
any person in any manner, (d) has made any general solicitation
by means of general advertising or in any other manner, or (e)
has taken any other action, that (as to any of (a) through (e)
above) would constitute a distribution of the Certificates under
the Securities Act of 1933 (the "Act"), that would render the
disposition of any Certificate a violation of Section 5 of the
Act or any state securities law, or that would require
registration or qualification pursuant thereto. The Seller will
not act, in any manner set forth in the foregoing sentence with
respect to any Certificate. The Seller has not and will not sell
or otherwise transfer any of the Certificates, except in
compliance with the provisions of the Pooling and Servicing
Agreement.
Very truly yours,
______________________________
(Seller)
By:___________________________
Name:_________________________
Title:________________________
EXHIBIT G-3
TRANSFER AFFIDAVIT AND AGREEMENT
STATE OF )
: ss.:
COUNTY OF )
____________ being first duly sworn, deposes, represents and
warrants:
1. That he is [Title of Officer] of [Name of Owner], a
[savings institution] [corporation] duly organized and existing
under the laws of [the State of ____________] [the United
States], (the "Owner"), (record or beneficial owner of the Class
R Certificates on behalf of which he makes this affidavit and
agreement. This Class R Certificate was issued pursuant to the
Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") dated as of ___________, 1996 among Quality Mortgage
Acceptance Corp., as depositor, __________________, as master
servicer (the "Master Servicer"), and __________________, as
trustee (the "Trustee").
2. That the Owner (i) is and will be a "Permitted
Transferee" as of ____________, 199__ and (ii) is acquiring the
Class R Certificates for its own account or for the account of
another Owner from which it has received an affidavit in
substantially the same form as this affidavit. A "Permitted
Transferee" is any person other than a "disqualified
organization" or a Non-United States Person. For this purpose, a
"disqualified organization" means any of the following: (i) the
United States, any State or political subdivision thereof, any
possession of the United States, or any agency or instrumentality
of any of the foregoing (other than an instrumentality which is a
corporation if all of its activities are subject to tax and,
except for the FHLMC, a majority of its board of directors is not
selected by such governmental unit), (ii) a foreign government,
any international organization, or any agency or instrumentality
of any of the foregoing, (iii) any organization (other than
certain farmers' cooperatives described in Section 521 of the
Internal Revenue Code of 1986) (the "Code") which is exempt from
the tax imposed by Chapter 1 of the Code (unless such
organization is subject to the tax imposed by Section 511 of the
Code on unrelated business taxable income), (iv) rural electric
and telephone cooperatives described in Section 1381(a)(2)(C) of
the Code and (v) any other Person so designated based upon an
Opinion of Counsel that the holding of an Ownership Interest in a
Class R Certificate by such Person may cause the Trust Fund or
any Person having an Ownership Interest in any Class of
Certificates, other than such Person, to incur a liability for
any federal tax imposed under the Code that would not otherwise
be imposed but for the Transfer of an Ownership Interest in a
Class R Certificate to such Person. The terms "United States",
"State" and "international organization" shall have the meanings
set forth in Section 7701 of the Code or successor provisions.
3. That the Owner is aware (i) of the tax that would be
imposed on transfers of Class R Certificates to disqualified
organizations under the Code that a lies to all transfers of the
Class R Certificates after March 31, 1988; (ii) that such tax
would be on the transferor, or, if such transfer is through an
agent (which person includes a broker, nominee or middleman) for
a disqualified organization Transferee, on the agent; (iii) that
the person otherwise liable for the tax shall be relieved of
liability for the tax if the transferee furnishes to such person
an affidavit that the transferee is not a disqualified
organization and, at the time of transfer, such person does not
have actual knowledge that the affidavit is false and; (iv) that
the Residual Certificates may be "noneconomic residual interests"
within the meaning of Treasury regulation section 1.860E-I(c)(2)
and that the transferor of a "noneconomic residual interest" will
remain liable for any taxes due with respect to the income on
such residual interest, unless no significant purpose of the
transfer is to enable the transferor to impede the assessment or
collection of tax.
4. That the Owner is aware of the tax imposed on a "pass-
through entity" holding the Class R Certificates if at any time
during the taxable year of the pass-through entity a non-
Permitted Transferee is the record holder of an interest in such
entity. For this purpose, a "pass through entity" includes a
regulated investment company, a real estate investment trust or
common trust fund, a partnership, trust or estate, and certain
cooperatives.
5. That the Owner is aware that the Trustee will not
register the transfer of any Class R Certificates unless the
transferee, or the transferee's agent, delivers to the Trustee,
among other things, an affidavit in substantially the same form
as this affidavit. The Owner expressly agrees that it will not
consummate any such transfer if it knows or believes that any of
the representations contained in such affidavit and agreement are
false.
6. That the Owner consents to any additional restrictions
or arrangements that shall be deemed necessary upon advice of
counsel to constitute a reasonable arrangement to ensure that the
Class R Certificates will only be owned, directly or indirectly,
by Owners that are Permitted Transferees.
7. That the Owner's taxpayer identification number is
____________.
8. That the Owner has reviewed the restrictions set forth
on the face of the Class R Certificates and the provisions of
Section 5.02 of the Pooling and Servicing Agreement under which
the Class R Certificates were issued (and, in particular, the
Owner is aware that such Section authorizes the Trustee to
deliver payments to a person other than the Owner and negotiate a
mandatory sale by the Trustee in the event that the Owner holds
such Certificate in violation of Section 5.02); and that the
Owner expressly agrees to be bound by and to comply with such
restrictions and provisions.
9. That the Owner is not acquiring and will not transfer
the Class R Certificates in order to impede the assessment or
collection of any tax.
10. That the Owner anticipates that it will, so long as it
holds the Class R Certificates, have sufficient assets to pay any
taxes owed by the holder of such Class R Certificates.
11. That the Owner has no present knowledge that it may
become insolvent or subject to a bankruptcy proceeding for so
long as it holds the Class R Certificates.
12. That the Owner has no present knowledge or expectation
that it will be unable to pay any United States taxes owed by it
so long as any of the Certificates remain outstanding. In this
regard, the Owner hereby represents to and for the benefit of the
Person from whom it acquired the Class R Certificates that the
Owner intends to pay taxes associated with holding the Class R
Certificates as they become due, fully understanding that it may
incur tax liabilities in excess of any cash flows generated by
the Class R Certificates.
13. That the Owner is not acquiring the Class R
Certificates with the intent to transfer the Class R Certificates
to any person or entity that will not have sufficient assets to
pay any taxes owed by the holder of such Class R Certificates, or
that may become insolvent or subject to a bankruptcy proceeding,
for so long as the Class R Certificates remain outstanding.
14. That Owner will, in connection with any transfer that
it makes of the Class R Certificates, obtain from its transferee
the representations required by Section 5.02(d) of the Pooling
and Servicing Agreement under which the Class R Certificates were
issued and will not consummate any such transfer if it knows, or
knows facts that should lead it to believe, that any such
representations are false.
15. That Owner will, in connection with any transfer that
it makes of the Class R Certificates, deliver to the Trustee an
affidavit, which represents and warrants that it is not
transferring the Class R Certificates to impede the assessment or
collection of any tax and that it has no actual knowledge that
the proposed transferee: (i) has insufficient assets to pay any
taxes owed by such transferee as holder of the Class R
Certificates; (ii) may become insolvent or subject to a
bankruptcy proceeding, for so long as the Class R Certificates
remain outstanding; and (iii) is not a "Permitted Transferee."
16. That the Owner is a citizen or resident of the United
States, a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any
political subdivision thereof, or an estate or trust whose income
from sources without the United States is includible in gross
income for United States federal income tax purposes regardless
of its connection with the conduct of a trade or business within
the United States.
IN WITNESS WHEREOF, the Owner has caused this instrument to
be executed on its behalf, by its [TITLE OF OFFICER], attested by
its [Assistant Secretary], this ____ day of __________, 199_.
By:___________________________________ [NAME OF OWNER]
Name: [NAME OF OFFICER]
Title: [TITLE OF OFFICER]
ATTEST:
______________________________
[Assistant] Secretary
Personally appeared before me the above-named [NAME OF
OFFICER], known or proved to me to be the same person who
executed the foregoing instrument and to be a [TITLE OF OFFICER]
of the Owner, and acknowledged to me that he or she executed the
same as his or her free act and deed and the free act and deed of
the Owner.
Subscribed and sworn before me this ____ day of __________,
199_.
______________________________________
NOTARY PUBLIC
COUNTY OF _________________
STATE OF _________________
My Commission expires the ____ day
of __________, 19__.
IN WITNESS WHEREOF, the Owner has caused this instrument to
be executed on its behalf, by its [TITLE OF OFFICER], attested by
its [Assistant Secretary], this ____ day of __________, 199_.
By:___________________________________ [NAME OF OWNER]
[Name of Officer]
[Title of Officer]
[Corporate Seal]
ATTEST:
______________________________
[Assistant] Secretary
Personally appeared before me the above-named [Name of
Officer], known or proved to me to be the same person who
executed the foregoing instrument and to be the [Title of
Officer] of the Owner, and acknowledged to me that he executed
the same as his free act and deed and the free act and deed of
the Owner.
Subscribed and sworn before me this _____ day of
____________, 199_.
NOTARY PUBLIC
COUNTY OF _____________
STATE OF ____________
My Commission expires the ____ day
of ____________, 19__.
EXHIBIT G-4
Form of Transferor Certificates
____________, 19__
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
______________________
______________________
______________________
Attention: Corporate Trust
Re: Mortgage Loan Asset-Backed Certificates, Series 1996-
____________, Class R
Dear Sirs:
This letter is delivered to you in connection with the sale
by ____________ (the "Seller") to ____________ (the "Purchaser")
of $____________ Initial Certificate Principal Balance of
Mortgage Loan Asset-Backed Certificates, Series 1996- , Class R
(the "Certificates"), pursuant to Section 5.02 of the Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"),
dated as of ___________, 1996 among Quality Mortgage Acceptance
Corp., as seller (the "Company"), ___________________, as master
servicer, and ______________________, as trustee (the "Trustee").
All terms used herein and not otherwise defined shall have the
meaning set forth in the Pooling and Servicing Agreement. The
Seller hereby certifies, represents and warrants to, and
covenants with, the Company and the Trustee that:
1. No purpose of the Seller relating to the sale of the
Certificates by the Seller to the Purchaser is or will be to
impede the assessment or collection of any tax.
2. The Seller understands that the Purchaser has delivered
to the Trustee and the Master Servicer a transfer affidavit and
agreement in the form attached to the Pooling and Servicing
Agreement as Exhibit G-3. The Seller does not know or believe
that any representation contained therein is false.
3. The Seller has at the time of the transfer conducted a
reasonable investigation of the financial condition of the
Purchaser as contemplated by Treasury Regulations Section 1.860E-
l(c)(4)(i) and, as a result of that investigation, the Seller has
determined that the Purchaser has historically paid its debt as
they become due and has found no significant evidence to indicate
that the Purchaser will not continue to pay its debts as they
become due in the future. The Seller understands that the
transfer of the Certificates may not be respected for United
States income tax purposes (and the Seller may continue to be
liable for United States income taxes associated therewith)
unless the Seller has conducted such an investigation.
4. The Seller has no actual knowledge that the proposed
Transferee is a Disqualified Organization, an agent of a
Disqualified Organization or a Non-United States Person.
Very truly yours,
______________________________________
(Seller)
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT G-5
FORM OF INVESTOR REPRESENTATION LETTER
FOR INSURANCE COMPANIES
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
___________________
___________________
___________________
Attention: Corporate Trust
Re: Mortgage Loan Asset-Backed Certificates, Series 1996-
__________, Class
Dear Sirs:
____________ (the "Purchaser") intends to purchase from
____________ (the "Seller") $____________ Initial Certificate
Principal Balance of Mortgage Loan Asset-Backed Certificates,
Series 1996- , Class __ (the "Certificate"), issued pursuant to
the Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as ___________, 1996 among Quality Mortgage
Acceptance Corp., as seller (the "Company"), _________________
____, as master servicer, and __________________, as trustee (the
"Trustee"). All terms used herein and not otherwise defined
shall have the meanings set forth in the Pooling and Servicing
Agreement. The Purchaser hereby certifies, represents and
warrants to, and covenants with, the Company and the Trustee
that:
1. The Certificates purchased pursuant hereto will
not be transferred to any employee benefit plan or other
retirement arrangement including individual retirement
accounts and Keogh plans that is subject to Section 406 of
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or Section 4975 of the Internal Revenue
Code of 1986 (the "Code") (any of the foregoing, a "Plan").
2. The Purchaser is an insurance company and all
funds used by the Purchaser in connection with the purchase
of such certificates are and will be, funds held by the
Purchaser in its general or separate account which the
Purchaser reasonably believes do not constitute "plan
assets" as defined under Section 406 of ERISA or Section
4975 of the Code of any Plan.
Very truly yours,
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT I
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR
(1) Representations and Warranties. Pursuant to the
Mortgage Loan Purchase Agreement, the Seller has made certain
representations and warranties to the Depositor. The following
representations are, pursuant to the Pooling and Servicing
Agreement, assigned by the Depositor to the Trustee for the
benefit of the Certificateholders, together with the related
repurchase rights specified in the Mortgage Loan Purchase
Agreement. All capitalized terms herein shall have the meanings
assigned in the Pooling and Servicing Agreement.
The Seller hereby represents and warrants to the Depositor
and the Trustee, as to each Mortgage Loan, that as of the Closing
Date or as of such other date specifically provided herein:
(i) The information set forth on the Mortgage Loan Schedule
with respect to each Mortgage Loan is true and correct in all
material respects as of the Closing Date;
(ii) As of the Closing Date, no first lien Mortgage Loan
had a Loan-to-Value Ratio at origination in excess of % and no
second lien Mortgage Loan had a combined Loan-to-Value Ratio at
origination in excess of %;
(iii) As of the Closing Date, no Mortgage Loan, is more
than ninety (90) days delinquent in payment of principal or
interest and no notice of intent to foreclosure has been issued
and is outstanding with respect to any Mortgage Loan;
(iv) Each Mortgage Note is directly secured by the
Mortgage, and each Mortgage Property consists of a single parcel
of real state. Each Mortgage secures the outstanding principal
balance of the Mortgage Note and is a valid and enforceable lien
on the Mortgaged Property subject only to, in the case of any
Second Mortgage Loan, a first lien on such Mortgage Property, and
subject in all cases to (1) the lien of nondelinquent current
real property taxes and assessments, (2) covenants, conditions
and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such
exceptions appearing of record being acceptable to mortgage
lending institutions generally or specifically reflected in the
appraisal made in connection with the origination of the related
Mortgage Loan, and (3) other matters to which like properties are
commonly subject that do not materially interfere with the
benefits of the security intended to be provided by such
Mortgage;
(v) Immediately prior to the delivery of the Mortgage Loan
to the Depositor, the Seller had good title to, and was the sole
owner of, such Mortgage Loan free and clear of any mortgage,
pledge, lien, security interest, charge or other encumbrance
(other than any junior lien on the Mortgaged Property encumbered
by the related Mortgage [and ]) and has full right
and authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the Mortgage
Loan pursuant to the related Mortgage Loan Purchase Agreement;
(vi) There was no delinquent tax or assessment lien against
any Mortgaged Property at the time of the origination of the
related Mortgage Loan;
(vii) There is no valid offset, defense or counterclaim to
any Mortgage Note or Mortgage, including the obligation of the
Mortgagor to pay the unpaid principal of or interest on such
Mortgage Note, and any applicable right of rescission has expired
as of the Closing Date, except that holdback mortgage loan
proceeds have been withheld from the mortgagor with respect to
certain of the Mortgage Loans pending completion of improvements;
(viii) There are no mechanics' liens or claims for work,
labor or material affecting any Mortgaged Property that are or
may be a lien prior to, or equal with, the lien of such Mortgage,
except those that are insured against by the title insurance
policy referred to in clause (xii) below;
(ix) Each Mortgaged Property is free of material damage and
is in at least adequate repair or an escrow of funds has been
established in an amount sufficient to repair such damage and
upon release of such funds, such Mortgage Property will be free
of material damage and will be in at least adequate repair;
(x) Each Mortgage Loan at origination complied in all
respects with applicable state and federal laws, including,
without limitation, usury, equal credit opportunity, real estate
settlement procedures, truth-in-lending and disclosure laws, and
consummation of the transactions contemplated hereby will not
involve the violation of any such laws;
(xi) At the Closing Date, neither the Seller nor any prior
holder of any Mortgage has, except as the Mortgage File may
reflect, (1) modified the Mortgage in any material respect, (2)
satisfied, canceled or subordinated such Mortgage in whole or in
part, (3) released the related Mortgaged Property in whole or in
part from the lien of such Mortgage or (4) executed any
instrument of release, cancellation, modification or satisfaction
with respect thereto;
(xii) A lender's policy of title insurance or a commitment
(binder) to issue the same was effective on the date of the
origination of each Mortgage Loan, each such policy is valid and
remains in full force and effect and each such policy was issued
by a title insurer acceptable to FNMA or FHLMC and in a form
acceptable to FNMA or FHLMC;
(xiii) Each Mortgage Loan was originated or acquired (1) by
the Seller either directly or indirectly through loan brokers or
a correspondent lender specifically approved by the Seller, such
that (a) the Mortgage Loan was originated in conformity with the
Seller's underwriting guidelines, (b) the Depositor approved the
Mortgage Loan either prior to the funding thereof or, in the case
of a Mortgage Loan originated pursuant to the Seller's delegated
underwriting guidelines, approved the Mortgage Loan after the
funding thereof, and (c) the Seller funded the Mortgage Loan on
the date of origination thereof with its own funds or with funds
obtained by it or, in the case of a Mortgage Loan originated by a
correspondent lender approved by the Seller and Depositor, the
Mortgage Loan was approved by the Seller prior to origination and
was purchased by the Seller from such correspondent lender
pursuant to a mandatory purchase commitment in effect at
origination, (2) 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 or (3) by a mortgagee approved by the Secretary of HUD
pursuant to Sections 203 and 211 of the National Housing Act, as
amended;
(xiv) the Mortgage Rate on each Mortgage Loan will be
subject to adjustment commencing approximately six month after
its date of origination or at the end of the initial fixed
interest rate period following its respective date of
origination, as applicable, and Each semi-annually thereafter,
and each Mortgage Loan has an original term to maturity from the
date on which the first monthly payment is due of not less than
approximately 15 years and more than 30 years. On each
adjustment date, the Mortgage Rate will be adjusted to equal the
Index plus the Gross Margin, rounded to the nearest 0.125%,
subject to the Periodic Rate Cap [(other than in the first
adjustment date which respect to certain Mortgage Loans)], the
Maximum Rate and the Minimum Rate. The related Mortgage Note is
payable on the first day of each month in self-amortizing monthly
installments of principal and interest, with interest payable in
arrears, and requires a Monthly Payment which is sufficient to
(a) fully amortize the outstanding principal balance of the
Mortgage Loan over its remaining term and to pay interest at the
applicable Mortgage Rate, and (b) during the period following
each adjustment date, to fully amortize the original principal
balance as of the first day of such period over the then
remaining term of such Mortgage Loan and to pay interest at the
applicable Mortgage Rate. Interest on each Mortgage Loan is
calculated on the basis of a 360-day year consisting of twelve
30-day months;
(xv) All of the improvements that were included for the
purpose of determining the appraised value of the Mortgaged
Property are insured to lie wholly within the boundaries and
building restriction lines of such property, and no improvements
on adjoining properties encroach upon the Mortgaged Property,
unless, in either case, an agreement permitting such encroachment
is recorded in the applicable real property records and such
agreement was taken into account in conducting the appraisal of
the Mortgaged Property;
(xvi) No improvement considered in determining the related
appraised value located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or
regulation. All inspections, licenses and certificates required
to be made or issued with respect to the use and occupancy of the
Mortgaged Property, including but not limited to certificates of
occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities and the Mortgaged
Property is lawfully occupied under applicable law;
(xvii) All parties that have had any interest in the
Mortgage, whether as mortgagee, assignee, pledgee or otherwise,
are, or, during the period in which they held and disposed of
such interest, were (1) in compliance with any and all applicable
licensing requirements of the laws of the state wherein the
Mortgaged Property is located, and (2)(a) organized under the
laws of such state, (b) qualified to do business in such state,
(c) federal savings associations or national banks having
principal offices in such state or (d) not doing business in such
state;
(xviii) The Mortgage Note and the related Mortgage are
genuine, and each is the legal, valid and binding obligation of
the maker thereof, enforceable in accordance with its terms. All
parties to the Mortgage Note and the Mortgage had legal capacity
to execute the Mortgage Note and the Mortgage and each Mortgage
Note and Mortgage has been duly and properly executed and
delivered by such parties;
(xix) The proceeds of the Mortgage Loan have been fully
disbursed by the Seller (other than the Mortgage Loans identified
by loan number on the Mortgage Loan Schedule, which proceeds of
such Mortgage Loans will be fully disbursed by the Seller within
90 days from the date hereof), there is no requirement for future
advances thereunder and any and all requirements as to completion
of any on-site or off-site improvements and as to disbursements
of any escrow funds therefor (including any escrow funds held to
make monthly payments pending completion of such improvements)
have been complied with. All costs, fees and expenses incurred
in making, closing or recording the Mortgage Loans were paid;
(xx) The related Mortgage contains customary and
enforceable provisions that render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged
Property of the benefits of the security, including (1) in the
case of a Mortgage designated as a deed of trust, by trustee's
sale, and (2) otherwise by judicial foreclosure. There is no
homestead or other exemption available to the Mortgagor that
would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage;
(xxi) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will
become payable by the holder of the Mortgage Loan to the trustee
under the deed of trust, except in connection with a trustee's
sale after default by the Mortgagor;
(xxii) Each Mortgaged Property is suitable for year-round
occupancy;
(xxiii) There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary
arrangements for repayment thereof have not been made, and no
escrow deposits or payments of other charges or payments due with
respect to the Mortgage Loan (other than origination points and
fees), have been capitalized under the Mortgage or the related
Mortgage Note;
(xxiv) The origination practices used by the Seller with
respect to each Mortgage Loan have been in all material respects
legal, proper, prudent and customary in the mortgage origination
business;
(xxv) There is no pledged account or other security other
than real estate securing the Mortgagor's obligations;
(xxvi) No Mortgage Loan has a shared appreciation feature
or other contingent interest feature;
(xxvii) No Mortgage Loan is subject to any temporary
buydown provisions;
(xxviii) Pursuant to the terms of the related Mortgage, all
buildings or other improvements upon the Mortgaged Property are
insured by a generally acceptable insurer against loss by fire,
hazards of extended coverage and such other hazards as are
customary in the area where the Mortgaged Property is located
pursuant to insurance policies conforming to the requirements of
Section 3.13 of each Pooling and Servicing Agreement. If the
Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having
special flood hazards (and such flood insurance has been made
available), a flood insurance policy is in effect which policy
conforms to the requirements of the Pooling and Servicing
Agreement;
(xxix) An appraisal of each Mortgaged Property is on a form
approved by FNMA or FHLMC with such riders as have been approved
by FNMA or FHLMC, as the case may be, and each appraiser meets
the minimum qualifications of FNMA or FHLMC for appraisers;
(xxx) Other than described in the Prospectus Supplement
with respect to the second lien Mortgage Loans, the Seller has
not provided financing on any Mortgaged Property that is
subordinate to the lien of the related Mortgage Loan;
(xxxi) Each Mortgage Loan contains a customary "due-on-
sale" clause;
(xxxii) With respect to each Mortgage Loan in which the
Mortgagor has a leasehold interest in the related Mortgage
Property:
(a) The leasehold was created by direct lease of the
freehold estate, the ground lease or memorandum thereof has
been recorded, and by its terms permits the leasehold estate
to be mortgaged. The ground lease grants any leasehold
mortgagee, standard protection necessary to protect the
security of a leasehold mortgagee including the right of the
leasehold mortgagee to receive notice of the lessee's
default under the ground lease; the right of the leasehold
mortgagee, with adequate time, to cure such default; and, in
the case of incurable defaults of the lessee, the right of
the leasehold mortgagee to enter into a new ground lease
with the lessor on terms financially identical and otherwise
substantially identical to the existing ground lease;
(b) The ground lease was at the origination of the
Mortgage Loan, and is, in full force and effect without any
outstanding defaults, and was and is not subject to liens
and encumbrances;
(c) The ground lease shall be automatically renewable
for at least ________ years or at least ________ years
beyond the scheduled date for the final payment on the
Mortgage Loan; and
(d) The fee estate of the lessor under the ground
lease is encumbered by the ground lease, and any lien of any
present or future fee mortgagee is and will be subject to
and subordinate to the ground lease. The foreclosure of the
fee mortgage will not terminate the leasehold estate or the
rights of the sub-tenants, and the fee mortgage is subject
to the ground lease;
(xxxiii) [Approximately __% of the Mortgaged Properties, by
principal balance as of the Cut-off Date, are condominium units;]
(xxxiv) [Approximately __% of the Mortgage Loans, by
principal balance as of the Cut-off Date, are secured by two- to-
four-family dwelling units. Approximately __% of the Mortgage
Loans by principal balance as of the Cut-off Date are secured by
detached one-family dwelling units;]
(xxxv) [The Depositor has not provided financing on any
Mortgaged Property that is subordinate to the lien of the related
Mortgage Loan and, to the best of the Seller's knowledge,
approximately __% of the Mortgaged Properties, by principal
balance of the Mortgage Loans as of the Cut-off Date, were
subject at the time of the origination of the related Mortgage
Loan to such subordinate financing as provided by lenders other
than the Seller;]
(xxxvi) The average outstanding principal balance of the
Mortgage Loans as of the Cut-off Date was approximately
$_____________ and no Mortgage Loan at origination had a
principal balance of less than $__________ or more than
$___________;
(xxxvii) All of the Mortgage Loans were originated or
acquired under the Depositor's ["regular lending program"]
["equity lending program."]
(xxxviii) With respect to approximately % of the Mortgage
Loans, by outstanding principal balance as of the Cut-off Date,
the Mortgagor represented in its loan application that the
Mortgaged Property will be owner-occupied as the Mortgagor's
primary residence. Approximately % of the Mortgage Loans, by
outstanding principal balance as of the Cut-off Date, are secured
by investor properties;
(xxxix) Each Mortgage will have been originated or acquired
on or before ___________, 1996 and will have a first Adjustment
Date on or after __________, 1996;
(xl) Except for the criteria for eligible Mortgagors set
forth in the Seller's underwriting guidelines, the Seller knows
of nothing involving any Mortgage File, Mortgaged Property or
Mortgagor's credit standing that could reasonably be expected (1)
to cause private institutional investors to regard the Mortgage
Loan as an unacceptable investment, (2) to cause the Mortgage
Loan to become delinquent or (3) to affect adversely the value or
marketability of the Mortgage Loan.
(xli) The Mortgage Loans were not selected for inclusion
under this Agreement from the Seller's portfolio of mortgage
loans originated under its ["regular lending program"] ["equity
lending program"] on any basis which would have a material
adverse affect on the Certificateholders.
(xlii) There are no condemnation proceedings pending with
respect to any Mortgaged Property, and no Mortgaged Property had
been condemned either in whole or in part;
(xliii) The collection practices used by the Seller with
respect to each Mortgage Note and Mortgage serviced by the Seller
have been in all material respects legal, proper, prudent and
customary in the mortgage origination and servicing industry; and
the Mortgage Loans have been serviced by the Seller in accordance
with the terms of the Mortgage Loan documents, any applicable
mortgage insurance contract requirements and applicable law in
all material respects;
(xliv) With respect to any Mortgage Loan indicated on the
Mortgage Loan Schedule, as to which holdback mortgage loan
proceeds have been withheld from the related mortgagor pending
completion of improvements, the release or transfer of such
holdback mortgage loan proceeds to the related Mortgagor will not
increase the original principal balance of the related Mortgage
Loan.
EXHIBIT J
Form of Notice Under Section 3.24
____________, 199_
[Trustee]
Re: Mortgage Loan Asset-Backed Certificates, Series 1996-
Pursuant to Section 3.24 of the Pooling and Servicing
Agreement, dated as of ___________, 1996, relating to the
Certificates referenced above, the undersigned does hereby notify
you that:
(a) The prepayment assumption used in pricing the
Certificates was ____% SPA.
(b) With respect to each Class of the captioned
Certificates, set forth below is (i), the first price, as a
percentage of the Certificate Principal Balance of each Class of
Certificates, at which 10% of the aggregate Certificate Principal
Balance of each such Class of Certificates was first sold at a
single price, if applicable, or (ii) if more than 10% of a Class
of Certificates have been sold but no single price is paid for at
least 10% of the aggregate Certificate Principal Balance of such
Class of Certificates, then the weighted average price at which
the Certificates of such Class were sold expressed as a
percentage of the Certificate Principal Balance of such Class of
Certificates, (iii) if less than 10% of the aggregate Certificate
Principal Balance of a Class of Certificates has been sold, the
purchase price for each such Class of Certificates paid by
________________________________ (the "Underwriter") expressed as
a percentage of the Certificate Principal Balance of such Class
of Certificates calculated by: (1) estimating the fair market
value of each such Class of Certificates as of ________ __, 1996;
(2) adding such estimated fair market value to the aggregate
purchase prices of each Class of Certificates described in clause
(i) or (ii) above; (3) dividing each of the fair market values
determined in clause (1) by the sum obtained in clause (2); (4)
multiplying the quotient obtained for each Class of Certificates
in clause (3) by the purchase price paid by the Underwriter for
all the Certificates purchased by it; and (5) for each Class of
Certificates, dividing the product obtained from such Class of
Certificates in clause (4) by the initial Principal Balance of
such Class of Certificates or (iv) the fair market value (but not
less than zero) as of the Closing Date of each Certificate of
each Class of Certificates retained by the Depositor or an
affiliate corporation, or delivered to the seller:
Class S: ________________
Class A- 1: ________________
Class A-2: ________________
Class B- 1: ________________
Class B-2: ________________
Class B-3: ________________
Class R: ________________
<PAGE>
The prices and values set forth above do not include accrued
interest with respect to periods before the closing.
[DEPOSITOR]
By:__________________________________ Name:
Title:
[Form of Opinion of Counsel]
[Executed Opinion to be filed by Pre-Effective Amendment]
_____________, 1996
Quality Mortgage Acceptance Corp.
16800 Aston Street
Irvine, California 92714
Ladies and Gentlemen:
We have acted as your counsel in connection with the
preparation of the Registration Statement on Form S-3 (the
"Registration Statement"), and the Prospectuses and forms of
Prospectus Supplements relating to single family and multifamily
mortgage loans forming a part thereof (collectively, the
"Prospectuses"), filed by you with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Act"), relating to the Certificates (as defined
below). The Registration Statement and the Prospectuses relate
to the offer and sale of up to $1,000,000 aggregate principal
amount of the Mortgage Pass-Through Certificates (Issuable in
Series) (the "Certificates") to be created and issued pursuant to
one or more Pooling and Servicing Agreements to be entered into
between you, one or more trustees and possibly another entity as
the master servicer (collectively, the "Agreement") as described
in the Registration Statement. A form of Pooling and Servicing
Agreement is included as an Exhibit to the Registration
Statement. We have examined the Registration Statement, the
Prospectuses and such other documents as we have deemed necessary
or advisable for purposes of rendering this opinion.
Additionally, our advice has formed the basis for the description
of the selected Federal income tax consequences of the purchase,
ownership and disposition of the Certificates to an original
purchaser that appears under the heading "Certain Federal Income
Tax Consequences" in the Prospectuses (the "Tax Description").
Except as otherwise indicated herein, all terms defined in the
Prospectuses are used herein as so defined.
We have assumed for the purposes of the opinions set forth
below that the Certificates will be issued in Series created as
described in the Registration Statement and that the Certificates
will be sold by you for reasonably equivalent consideration. We
have also assumed that the Agreement and the Certificates will be
duly authorized by all necessary corporate action and that the
Certificates will be duly issued, executed, authenticated and
delivered in accordance with the provisions of the Agreement. In
addition, we have assumed that the parties to each Agreement will
satisfy their respective obligations thereunder. We express no
opinion with respect to any Series of Certificates for which we
do not act as counsel to you.
The opinion set forth in paragraph 2 of this letter is based
upon the applicable provisions of the Internal Revenue Code of
1986, as amended, Treasury regulations promulgated and proposed
thereunder, current positions of the Internal Revenue Service
(the "IRS") contained in published Revenue Rulings and Revenue
Procedures, current administrative positions of the IRS and
existing judicial decisions. This opinion is subject to the
explanations and qualifications set forth under the caption
"Certain Federal Income Tax Consequences" in the Prospectuses.
No tax rulings will be sought from the IRS with respect to any of
the matters discussed herein.
On the basis of the foregoing examination and assumptions,
and upon consideration of applicable law, it is our opinion that:
1. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and
delivered by the Depositor, the Servicer and the Trustee, and the
Certificates of such Series have been duly executed,
authenticated, delivered and sold as contemplated in the
Registration Statement, such Certificates will be legally and
validly issued, fully paid and nonassessable, and the holders of
such Certificates will be entitled to the benefits of such
Pooling and Servicing Agreement.
2. The Tax Description does not purport to discuss all
possible Federal income tax ramifications of the purchase,
ownership, and disposition of the Certificates, particularly to
purchasers subject to special rules under the Internal Revenue
Code of 1986, but, with respect to those Federal income tax
consequences that are discussed, in our opinion, it constitutes,
in all material respects, a fair and accurate summary of such
Federal income tax consequences under present Federal income tax
law. There can be no assurance, however, that the tax
conclusions presented therein will not be successfully challenged
by the IRS, or significantly altered by new legislation, changes
in IRS positions or judicial decisions, any of which challenges
or alterations may be applied retroactively with respect to
completed transactions. We note, moreover, that the forms of
Prospectus Supplements filed herewith do not relate to a specific
transaction. Our opinion as to the matters set forth herein
could change with respect to a particular Series of Certificates
as a result of changes in facts and circumstances, changes in the
terms of documents reviewed by us, or changes in the law
subsequent to the date hereof. As the Prospectuses contemplate
Series of Certificates with numerous different characteristics,
you should be aware that the particular characteristics of each
Series of Certificates must be considered in determining the
applicability of this opinion to a particular Series of
Certificates. Accordingly, the above-referenced description of
the selected Federal income tax consequences may, under certain
circumstances, require modification when an actual transaction is
undertaken.
We hereby consent to the filing of this letter as an exhibit
to the Registration Statement and to the references to this firm
under the heading "Legal Matters" in forms of Prospectus
Supplements and in "Legal Matters" in the Prospectuses forming a
part of the Registration Statement, without admitting that we are
"experts" within the meaning of the Act or the rules and
regulations of the Commission issued thereunder, with respect to
any part of the Registration Statement, including this exhibit.
Very truly yours,
MAYER, BROWN & PLATT
