<PAGE>
As filed with the Securities and Exchange Commission on May 31, 1996
Registration Statement No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------------------------
IMC Securities, Inc.
(Exact name of Registrant as specified in its governing instruments)
--------------------------------------------
DELAWARE 59-3284026
(State of Incorporation) (I.R.S. Employer Identification Number)
3450 Bushwood Park Drive
Tampa, FL 33618
(Address of principal executive offices)
(813) 932-2211
-----------------------------------------------------
H. John Steele, Esq.
Arter & Hadden
1801 K Street, N.W.
Suite 400K
Washington, DC 20006
(202) 775-7169
Fax: (202) 857-0172
(Name and address of agent for service)
-----------------------------------------------------
Please send copies of communications to:
Thomas Middleton
Industry Mortgage Company, L.P.
3450 Bushwood Park Drive
Tampa, FL 33618
(813) 915-2533
Fax: (813) 932-8257
-----------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC. From time to
time after the effective date of this Registration Statement as determined by
market conditions and pursuant to Rule 415.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
Box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(C)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------------------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Offering Amount of
Being Registered Registered Per Unit* Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Home Equity Loan Asset $1,000,000.00 100% $1,000,000.00 $344.83
Backed Certificates
==================================================================================================================================
<FN>
* Estimated solely for purposes of calculating the registration fee.
</FN>
</TABLE>
-----------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
This registration statement registers up to $1,000,000 of mortgage
asset-backed pass-through certificates collateralized by various types of
mortgage collateral described herein. The registration statement contains a form
of prospectus covering, one-to-four ("single") family residential first and
junior lien, fixed and adjustable rate home equity loans or interests therein
represented by agency or private label pass-through securities. The prospectus
is accompanied by a form of prospectus supplement describing the structure that
is expected to be employed by the Registrant. As described in the Prospectus,
each transaction may have Classes of Certificates with various characteristics,
mortgage assets with various characteristics, various forms and terms of credit
enhancement, one or more subservicers, various underwriting and servicing
standards with respect to mortgage assets, various tax consequences and various
other characteristics, each of which will be fully described in the actual form
of prospectus supplement filed pursuant to Rule 424(b)(2)(3) or (5).
2
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Items and Caption in Form S-3 Location in Prospectus
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus.............................................. Forepart of Registration
Statement and Outside Front
Cover Page **
2. Inside Front and Outside Back Cover Pages of Prospectus............ Inside Front Cover Page and
Outside Back Cover Page of
Prospectus **
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................................... Summary**; The Seller**;
Special Considerations**
4. Use of Proceeds.................................................... Use of Proceeds**
5. Determination of Offering Price.................................... *
6. Dilution........................................................... *
7. Selling Security-Holders........................................... *
8. Plan of Distribution............................................... Plan of Distribution **
9. Description of Securities to be Registered......................... Outside Front Cover; Summary;
The Trusts; The Securities;
Administration of Agreement
and Servicing of Mortgage
Loans **
10. Interests of Named Experts and Counsel............................. *
11. Material Changes................................................... *
12. Incorporation of Certain Information by Reference.................. Inside Front Cover Page**;
Incorporation of Certain
Documents by Reference**
13. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities...................................... See Page II-2
- --------------------------
<FN>
* Answer negative or item inapplicable.
** To be completed from time to time by Prospectus Supplement.
</FN>
</TABLE>
3
<PAGE>
PROSPECTUS SUPPLEMENT
- ---------------------
(To Prospectus Dated __________ __, 199__)
$----------
IMC HOME EQUITY LOAN TRUST 199_-__
INDUSTRY MORTGAGE COMPANY, L.P.
[Logo] Seller and Servicer
IMC SECURITIES, INC.
Depositor
The IMC Home Equity Loan Pass-Through Certificates, Series 199_-__ (the
"Certificates") will consist of (i) the Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the Class
A-5 Certificates, the Class A-6 Certificates and Class A-7 Certificates
(collectively, the "Fixed Rate Certificates"), (ii) the Class A-8 Certificates
(the "Adjustable Rate Certificates" and collectively with the Fixed Rate
Certificates, the "Class A Certificates"), (iii) a residual Class of
Certificates (the "Class R Certificates"), and (iv) one or more Classes of
insured "interest only" certificates. Only the Class A Certificates are offered
hereby.
For a discussion of significant matters affecting investment in the
Certificates, see "Risk Factors" beginning on page S-14 herein, "Prepayment and
Yield Considerations" beginning on page S-33 herein and "Risk Factors" beginning
on page 6 in the Prospectus.
The Certificates represent undivided ownership interests in one of two
pools (each, a "Home Equity Loan Group") of fixed and adjustable rate home
equity loans (the "Home Equity Loans") held by IMC Home Equity Loan Trust
199_-__ (the "Trust"). The Fixed Rate Certificates will represent undivided
ownership interests in the Home Equity Loans in the Fixed Rate Group, which are
secured by first and second lien mortgages or deeds of trust primarily on
one-to-four family residential properties. The Class A-8 Certificates will
represent undivided ownership interests in the Home Equity Loans in the
Adjustable Rate Group, which are secured solely by first lien mortgages or deeds
of trust primarily on one-to four family residential properties. The Class A
Certificates also represent undivided ownership interests in all interest and
principal due under the respective Home Equity Loans after __________ 1, 199__
(the "Cut-Off Date"), security interests in the properties which secure the
related Home Equity Loans (the "Properties"), the Insurance Policy, funds on
deposit in certain trust accounts, and certain other property.
Simultaneously with the issuance of the Certificates, the Seller will
obtain from ____________________ (the "Certificate Insurer") a certificate
guaranty insurance policy (the "Insurance Policy") in favor of the Trustee. The
Insurance Policy will require the Certificate Insurer to make certain Insured
Payments (as defined herein) on the Class A Certificates.
[Logo]
(continued on following page)
THE CLASS A CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE SERVICER,
EXCEPT AS DESCRIBED HEREIN, THE CERTIFICATE INSURER OR ANY OF THEIR AFFILIATES.
NEITHER THE CLASS A CERTIFICATES NOR THE HOME EQUITY LOANS
ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
[Underwriters]
The Class A Certificates are offered subject to prior sale, when, as,
and if accepted by the Underwriters and subject to the Underwriters' right to
reject orders in whole or in part. It is expected that delivery of the Class A
Certificates in book-entry form will be made through the facilities of The
Depository Trust Company ("DTC") on or about the Closing Date.
---------------------
The date of this Prospectus Supplement is __________ __, 199__
<PAGE>
(cover continued from previous page)
The Original Aggregate Loan Balance of the Home Equity Loans as of the
Cut-Off Date was $__________ (of which approximately _____% by principal balance
are first liens and the remainder are second liens). The Home Equity Loans were
originated or purchased by Industry Mortgage Company, L.P. (collectively, the
"Seller" and "Servicer"). The Trust will be created pursuant to a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") to be dated as of
__________ 1, 199__ among the Seller, the Servicer, IMC Securities, Inc. (the
"Depositor") and ____________________, as Trustee (the "Trustee").
The Pooling and Servicing Agreement provides that additional home
equity loans (the "Subsequent Home Equity Loans") may be purchased by the Trust
from the Depositor from time to time on or before __________ 1, 199__ from funds
on deposit in the Pre-Funding Account. All Subsequent Home Equity Loans so
acquired by the Trust will be assigned to the [Fixed Rate] Group. On the Closing
Date (as defined below), an aggregate cash amount of $_____________ will be
deposited with the Trustee in the Pre- Funding Account which will be used to
acquire Subsequent Home Equity Loans for the [Fixed Rate] Group.
Distributions of principal and interest will be distributed to holders
(the "Owners") of the Certificates on the ___ day of each month (or, if such day
is not a business day, the next following business day) beginning _____________,
1996 (each, a "Payment Date"). Interest will be passed through on each Payment
Date to the Owners of the Class A Certificates based on the related Class A
Certificate Principal Balance (as defined herein) at the Pass-Through Rate
applicable to such Class of Certificates. The Pass-Through Rate for each Class
of Fixed Rate Certificates is set out on the cover hereof. The Pass-Through Rate
for the Adjustable Rate Certificates adjusts monthly based upon one-month LIBOR
(as defined herein) or as otherwise described herein.
It is a condition to issuance that the Class A Certificates be rated
"Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies.
The yield to investors on the Class A Certificates sold at prices other
than par may be extremely sensitive to the rate and timing of principal payments
(including prepayments, repurchases, defaults and liquidations) on the Home
Equity Loans, which may vary over time. See "Prepayment and Yield
Considerations" herein and "Risk Factors" and "Yield, Prepayment and Maturity
Considerations" in the Prospectus.
The Trust Estate will consist primarily of two segregated asset pools,
with respect to which elections will be made to treat each as a real estate
mortgage investment conduit (a "REMIC"), for federal income tax purposes. As
described more fully herein, the Class A Certificates will constitute "regular
interests" in the Upper-Tier REMIC (as defined herein). See "Certain Federal
Income Tax Consequences" herein.
Prior to their issuance, there has been no market for the Class A
Certificates nor can there be any assurance that one will
develop, or if it does develop, that it will provide liquidity, or that it will
continue for the life of the Class A Certificates. The Underwriters intend, but
are not obligated, to make a market in the Class A Certificates.
---------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Class A 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 __________ __, 199__, of which this Prospectus
Supplement is a part and which accompanies this Prospectus Supplement. The
Prospectus contains important information regarding this offering which is not
contained herein, and prospective investors are urged to read the Prospectus and
this Prospectus Supplement in full.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY OF TERMS..........................................................S-1
RISK FACTORS.............................................................S-14
THE SELLER AND SERVICER..................................................S-17
General.............................................................S-17
Credit and Underwriting Guidelines..................................S-18
Delinquency, Loan Loss and Foreclosure Information..................S-19
THE DEPOSITOR............................................................S-20
USE OF PROCEEDS..........................................................S-21
THE HOME EQUITY LOAN POOL................................................S-21
General.............................................................S-21
Initial Home Equity Loans...........................................S-22
Conveyance of Subsequent Home Equity Loans -- Fixed Rate Group......S-25
Interest Payments on the Home Equity Loans..........................S-33
PREPAYMENT AND YIELD CONSIDERATIONS......................................S-33
General.............................................................S-33
Mandatory Prepayment................................................S-34
Projected Prepayment and Yield for Class A Certificates.............S-34
Payment Lag Feature of Class A Certificates.........................S-38
FORMATION OF THE TRUST AND TRUST PROPERTY................................S-38
ADDITIONAL INFORMATION...................................................S-39
DESCRIPTION OF THE CLASS A CERTIFICATES..................................S-39
General.............................................................S-39
Payment Dates.......................................................S-39
Distributions.......................................................S-40
Pre-Funding Account.................................................S-42
Capitalized Interest Account........................................S-43
Book Entry Registration of the Class A Certificates.................S-43
Assignment of Rights................................................S-45
THE CERTIFICATE INSURER..................................................S-45
General.............................................................S-45
Reinsurance.........................................................S-46
Ratings of Claims-Paying Ability....................................S-46
Capitalization......................................................S-46
Incorporation of Certain Documents by Reference.....................S-46
Insurance Regulation................................................S-47
CREDIT ENHANCEMENT.......................................................S-47
Insurance Policy....................................................S-47
Overcollateralization Provisions....................................S-49
THE POOLING AND SERVICING AGREEMENT......................................S-51
Covenant of the Seller to Take Certain Actions with Respect
to the Home Equity Loans in Certain Situations..................S-51
Assignment of Home Equity Loans.....................................S-52
Servicing and Sub-Servicing.........................................S-53
Removal and Resignation of Servicer.................................S-57
The Trustee.........................................................S-57
Reporting Requirements..............................................S-57
Removal of Trustee for Cause........................................S-59
Governing Law.......................................................S-59
Amendments..........................................................S-59
Termination of the Trust............................................S-60
Optional Termination................................................S-60
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................S-60
REMIC Elections.....................................................S-60
ERISA CONSIDERATIONS.....................................................S-61
RATINGS..................................................................S-63
LEGAL INVESTMENT CONSIDERATIONS..........................................S-63
UNDERWRITING.............................................................S-64
REPORT OF EXPERTS........................................................S-66
CERTAIN LEGAL MATTERS....................................................S-66
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS..............................A-1
Prospectus
SUMMARY OF PROSPECTUS....................................................
RISK FACTORS.............................................................
DESCRIPTION OF THE CERTIFICATES..........................................
General.............................................................
Classes of Certificates.............................................
Distributions of Principal and Interest.............................
Book Entry Registration.............................................
List Owners of Certificates.........................................
THE TRUSTS...............................................................
Home Equity Loans...................................................
Mortgage-Backed Securities..........................................
Other Mortgage Securities...........................................
CREDIT ENHANCEMENT.......................................................
SERVICING OF HOME EQUITY LOANS AND CONTRACTS.............................
Payments on Home Equity Loans.......................................
Advances............................................................
Collection and Other Servicing Procedures...........................
Primary Mortgage Insurance..........................................
Standard Hazard Insurance...........................................
Title Insurance Policies............................................
Claims Under Primary Mortgage Insurance Policies and Standard Hazard
Insurance Policies; Other Realization Upon Defaulted Loan.......
Servicing Compensation and Payment of Expenses......................
Master Servicer.....................................................
ADMINISTRATION...........................................................
Assignment of Mortgage Assets.......................................
Evidence as to Compliance...........................................
The Trustee.........................................................
Administration of the Certificate Account...........................
Reports.............................................................
Forward Commitments; Pre-Funding....................................
Servicer Events of Default..........................................
Rights Upon Servicer Event of Default...............................
Amendment...........................................................
Termination.........................................................
USE OF PROCEEDS..........................................................
THE DEPOSITOR............................................................
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS ............................
General.............................................................
Foreclosure.........................................................
Soldiers' and Sailors' Civil Relief Act.............................
LEGAL INVESTMENT MATTERS.................................................
ERISA CONSIDERATIONS.....................................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................
Federal Income Tax Consequences For REMIC Certificates..............
Taxation of Regular Certificates....................................
Taxation of Residual Certificates...................................
Treatment of Certain Items of REMIC Income and Expense..............
Tax-Related Restrictions on Transfer of Residual Certificate
Sale or Exchange of a Residual Certificate..........................
Taxes That May Be Imposed on the REMIC Pool.........................
Liquidation of the REMIC Pool.......................................
Administrative Matters..............................................
Limitations on Deduction of Certain Expenses........................
Taxation of Certain Foreign Investors...............................
Backup Withholding..................................................
Reporting Requirements..............................................
Federal Income Tax Consequences for Certificates as to
Which No REMIC Election Is Made.................................
Standard Certificates...............................................
Premium and Discount................................................
Stripped Certificates...............................................
Reporting Requirements and Backup Withholding.......................
Taxation of Certain Foreign Investors...............................
Debt Securities.....................................................
Taxation of Securities Classified as Partnership Interests..........
PLAN OF DISTRIBUTION.....................................................
LEGAL MATTERS............................................................
FINANCIAL INFORMATION....................................................
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS............................. A-1
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the "Index to Location of
Principal Defined Terms" for the location of the definitions of certain
capitalized terms.
Issuer: IMC Home Equity Loan Trust 199_-__ (the
"Trust").
Certificates Offered: $__________ IMC Home Equity Loan Pass-Through
Certificates, Series 199_- __, to be issued in
the following Classes (each, a "Class"):
<TABLE>
<CAPTION>
Initial Certificate Pass-Through
Principal Balance Rate Class
<S> <C> <C> <C>
$__________ ___% Class A-1 Certificates
$__________ ___% Class A-2 Certificates
$__________ ___% Class A-3 Certificates
$__________ ___% Class A-4 Certificates
$__________ ___% Class A-5 Certificates
$__________ ___% Class A-6 Certificates
$__________ ___% Class A-7 Certificates
$__________ (1) Class A-8 Certificates
</TABLE>
(i) On each Payment Date, the Class A-8
Pass-Through Rate will be equal to the lesser
of (i) the rate equal to the London interbank
offered rate for one-month United States dollar
deposits ("LIBOR")(calculated as described
under "Description of the Class A Certificates
-- Calculation of LIBOR" herein) plus ____% per
annum and (ii) the weighted average of the
Coupon Rates on the Home Equity Loans in the
Adjustable Rate Group, less ____% per annum
(the "Available Funds Cap").
The Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4
Certificates, the Class A-5 Certificates, the
Class A-6 Certificates and the Class A-7
Certificates are collectively referred to
herein as the "Fixed Rate Certificates" and the
Class A-8 Certificates are referred to as the
"Adjustable Rate Certificates." The Fixed Rate
Certificates and the Adjustable Rate
Certificates are collectively referred to as
the "Class A Certificates".
Depositor: IMC Securities, Inc. (the "Depositor"), a
Delaware corporation.
Seller and Servicer: Industry Mortgage Company, L.P. (the "Seller"
and the "Servicer"), a Delaware limited
partnership. The Seller's and Servicer's
principal executive offices are located at 3450
Buschwood Park Drive, Suite 250, Tampa, Florida
33618.
Trustee: ____________________ (the "Trustee"), a New
York banking corporation.
Cut-Off Date: As of the close of business on ___________,
199__ (the "Cut-Off Date").
Closing Date: On or about __________, 199__.
S-1
<PAGE>
Description of the
Certificates Offered: The Class A Certificates represent fractional
undivided interests in the Trust and have the
rights described in the Pooling and Servicing
Agreement dated as of __________, 199__ among
the Depositor, the Seller, the Servicer and the
Trustee (the "Agreement"). The Trust assets
(not all of which will be included in a REMIC
election) will include the two Groups of home
equity loans (the "Home Equity Loans"), all
interest and principal due under the respective
Home Equity Loans after the Cut-Off Date,
security interests in the properties securing
such Home Equity Loans (the "Properties"),
funds on deposit in the Pre- Funding Account,
the Capitalized Interest Account and certain
other property. In addition to the foregoing,
the Depositor shall cause the Certificate
Insurer to deliver the Insurance Policy to the
Trustee for the benefit of the Owners of the
Class A Certificates and Class S Certificates.
See "Formation of the Trust and Trust Property"
herein.
On the Closing Date, an aggregate cash amount
of $__________ will be deposited in a trust
account in the name of the Trustee (the
"Pre-Funding Account"). It is intended that
additional Home Equity Loans satisfying the
criteria specified in the Pooling and Servicing
Agreement (the "Subsequent Home Equity Loans")
will be purchased by the Trust from the
Depositor from time to time on or before
__________, 199__ from funds on deposit in the
Pre- Funding Account. Each Subsequent Home
Equity Loan so acquired by the Trust will be
assigned to the [Fixed Rate] Group. As a
result, the aggregate principal balance of the
Home Equity Loans in the [Fixed Rate] Group
will increase by an amount equal to the
aggregate principal balance of the Subsequent
Home Equity Loans so purchased and the amount
in the Pre-Funding Account will decrease
proportionately.
As described below, on the Closing Date, cash
will be deposited in the name of the Trustee in
the Capitalized Interest Account (as defined
herein). Funds in the Capitalized Interest
Account will be applied by the Trustee to cover
shortfalls in interest during the Funding
Period (as described under "Pre-Funding
Account") on the Class A Certificates
attributable to the provisions allowing for
purchase of Subsequent Home Equity Loans after
the Cut-Off Date.
Other Certificates: In addition to the Class A Certificates, the
Trust will issue, pursuant to the Pooling and
Servicing Agreement, (i) [one or more]
interest-only Classes of Certificates
(collectively, the "Class S Certificates"),
which will represent a fractional undivided
interest in the Trust, having the rights
described in the Pooling and Servicing
Agreement, and (ii) a residual Class of
Certificates (the "Class R Certificates") which
will represent an undivided ownership interest
in all of the Home Equity Loans. The Class A
Certificates, the Class S Certificates and the
Class R Certificates are herein referred to as
the "Certificates." Only the Class A
Certificates are offered hereby.
Denominations: The Class A Certificates are issuable in
minimum denominations of an original principal
amount of $1,000 and integral multiples
thereof, with the exception of one Class A
Certificate of each Class, which may be issued
in another principal amount.
S-2
<PAGE>
The Home Equity Loans: The Home Equity Loans to be conveyed to the
Trust by the Depositor on the Closing Date (the
"Initial Home Equity Loans") consist of ______
fixed rate conventional home equity loans and
the Notes relating thereto. The Initial Home
Equity Loans are secured by first and second
lien mortgages or deeds of trust primarily on
one- to four- family residential properties
located in ___ states and the District of
Columbia. No Loan-to-Value Ratio (based upon
appraisals made at the time of origination of
the related Initial Home Equity Loan) relating
to any Initial Home Equity Loan exceeded ___%
as of the Cut-Off Date except for ___ loans
with an aggregate Loan Balance of
$________________ (or _____% of the aggregate
Loan Balance of the Initial Home Equity Loans),
which had a Loan-to-Value Ratio not greater
than ___%. None of the Initial Home Equity
Loans are insured by pool mortgage insurance
policies and no significant portion of the
Initial Home Equity Loans are insured by
primary mortgage insurance policies; however,
certain distributions due to the Owners of the
Class A Certificates (the "Owners") are insured
by the Certificate Insurer pursuant to the
Insurance Policy. See "The Insurance Policy".
The Home Equity Loans are not guaranteed by the
Depositor, the Seller or any of their
affiliates. The Home Equity Loans will be
serviced by the Servicer generally in
accordance with the standards and procedures
required by FNMA for FNMA mortgage-backed
securities and in accordance with the terms of
the Pooling and Servicing Agreement.
Fixed Rate Group. As of the Cut-Off Date, the
average Loan Balance of the Initial Home Equity
Loans in the Fixed Rate Group was
$____________; the weighted average interest
rate (the "Coupon Rate") of the Initial Home
Equity Loans in the Fixed Rate Group was
_______; the Coupon Rates of the Initial Home
Equity Loans in the Fixed Rate Group ranged
from _______% to _______%; the weighted average
combined Loan-to-Value Ratio of the Initial
Home Equity Loans in the Fixed Rate Group was
________; the weighted average remaining term
to maturity of the Initial Home Equity Loans in
the Fixed Rate Group was _____ months; and the
remaining terms to maturity of the Initial Home
Equity Loans in the Fixed Rate Group ranged
from ____ months to ____ months. As of the
Cut-Off Date, _____% of the Initial Home Equity
Loans in the Fixed Rate Group were secured by
first mortgages and _____% of the Initial Home
Equity Loans in the Fixed Rate Group were
secured by second mortgages. The maximum and
minimum Loan Balances of the Initial Home
Equity Loans in the Fixed Rate Group as of the
Cut-Off Date were $____________ and
$____________, respectively. Home Equity Loans
in the Fixed Rate Group containing "balloon"
payments represented not more than ______% of
the Initial Home Equity Loans in the Fixed Rate
Group. No Initial Home Equity Loan in the Fixed
Rate Group will mature later than
___________________. See "The Home Equity Loan
Pool--Initial Home Equity Loans" -- Fixed Rate
Group herein.
Adjustable Rate Group. As of the Cut-Off Date,
_____% of the Home Equity Loans in the
Adjustable Rate Group bear interest at rates
that adjust semiannually based on the London
interbank offered rate for six-month United
States dollar deposits ("Six Month LIBOR");
_____% of the Home Equity Loans in the
Adjustable Rate Group adjust annually based on
the weekly average yield on United States
Treasury securities adjusted to a constant
maturity of one year ("CMT Loans"); and ______%
of the Home Equity Loans in the Adjustable Rate
Group bear interest at a fixed rate from the
date of their
S-3
<PAGE>
origination until the fifth anniversary date
from the date of origination and, for the
remaining 25 years of their term, bear interest
at a variable rate that adjusts in the same
manner as CMT Loans ("5/25 Loans"). The Coupon
Rates with respect to all of the Home Equity
Loans in the Adjustable Rate Group are subject
to periodic and lifetime interest rate
adjustment caps. See "The Home Equity Loan Pool
-- Initial Home Equity Loans in the Adjustable
Rate Group" herein.
As of the Cut-Off Date, the average Loan
Balance of the Home Equity Loans in the
Adjustable Rate Group was $__________; the
weighted average Coupon Rate of the Home Equity
Loans in the Adjustable Rate Group was
_______%; the Coupon Rates of the Home Equity
Loans in the Adjustable Rate Group ranged from
______% to ______%; the weighted average
maximum Coupon Rate of the Home Equity Loans in
the Adjustable Rate Group was _______%; the
maximum Coupon Rates of the Home Equity Loans
in the Adjustable Rate Group ranged from
______% to _____%; the weighted average minimum
Coupon Rate of the Home Equity Loans in the
Adjustable Rate Group was ______%; the minimum
Coupon Rates of the Home Equity Loans in the
Adjustable Rate Group ranged from _____% to
_____%; the weighted average Loan-to-Value
Ratio of the Home Equity Loans in the
Adjustable Rate Group was _____%; the weighted
average remaining term to maturity of the Home
Equity Loans in the Adjustable Rate Group was
_____ months; and the remaining terms to
maturity as of the Cut-Off Date of the Home
Equity Loans in the Adjustable Rate Group
ranged from ___ months to ___ months. All of
the Home Equity Loans in the Adjustable Rate
Group are secured by first mortgages. The
maximum and minimum Loan Balance of the Home
Equity Loans in the Adjustable Rate Group as of
the Cut-Off Date was $___________ and
$__________, respectively. None of the Home
Equity Loans in the Adjustable Rate Group
contain "balloon" payments. No Home Equity
Loans in the Adjustable Rate Group will mature
later than __________, ____. See "The Home
Equity Loan Pool-- Initial Home Equity
Loans--Adjustable Rate Group."
All of the Home Equity Loans in the Adjustable
Rate Group have maximum Coupon Rates. The
weighted average maximum Coupon Rate of the
Home Equity Loans in the Adjustable Rate Group
is ______%, with maximum Coupon Rates that
range from approximately _____% to _____%. The
Home Equity Loans in the Adjustable Rate Group
have a weighted average margin as of the
Cut-Off Date of _______%. The margin for the
Home Equity Loans in the Adjustable Rate Group
ranges from ______% to _____%.
With respect to the Six-Month LIBOR Loans, the
lowest margin over the index is _____%, and the
highest margin over the index is _____% and the
weighted average margin over the index is
_____%. With respect to the CMT Loans, the
lowest margin over the index is _____%, the
highest margin over the index is _____% and the
weighted average margin over the index is
_____%. With respect to the 5/25 Loans, after
their fixed rate period ends, the lowest margin
over the index is _____%, the highest margin
over the index is _____% and the weighted
average margin over the index is _____%.
Final Scheduled Payment
Date: The Final Scheduled Payment Dates for each of
the respective classes of Class A Certificates
are as set forth below, although it is
anticipated that the actual
S-4
<PAGE>
final Payment Date for each Class of Class A
Certificates will occur significantly earlier
than the related Final Scheduled Payment Date.
See "Prepayment and Yield Considerations"
herein.
Final Scheduled
Payment Date
Class A-1 Certificates
Class A-2 Certificates
Class A-3 Certificates
Class A-4 Certificates
Class A-5 Certificates
Class A-6 Certificates
Class A-7 Certificates
Class A-8 Certificates
Class A Distributions:
General: On the ___ day of each month, or if such a day
is not a Business Day, then the next succeeding
Business Day, commencing __________, 199__
(each such day being a "Payment Date"), the
Trustee will be required to distribute to the
Owners of the Fixed Rate Certificates of record
as of the last day of the calendar month
preceding the month in which such Payment Date
occurs and to the Owners of the Adjustable Rate
Certificates of record as of the day
immediately preceding such Payment Date (each,
such date, the "Record Date") the "Class A
Distribution Amount" which shall be the sum of
(x) Class A Current Interest and (y) the Class
A Principal Distribution Amount. Such amounts
shall be allocated to the Class A Certificates
in the manner described below.
A "Business Day" is any day other than a
Saturday or Sunday or a day on which banking
institutions in The City of New York and Tampa,
Florida are authorized or obligated by law or
executive order to be closed.
For each Payment Date, interest due with
respect to the Fixed Rate Certificates will be
interest which has accrued thereon at the
applicable Pass-Through Rate during the
calendar month immediately preceding the month
in which such Payment Date occurs; the interest
due with respect to the Adjustable Rate
Certificates will be the interest which has
accrued thereon at the Class A-8 Pass- Through
Rate from the preceding Payment Date (or from
the Closing Date in the case of the first
Payment Date) to and including the day prior to
the current Payment Date. Each period referred
to in the prior sentence relating to the
accrual of interest is the "Accrual Period" for
the related Class A Certificates. All
calculations of interest on the Fixed Rate
Certificates will be made on the basis of a
360-day year assumed to consist of twelve
30-day months. Calculations of interest on the
Adjustable Rate Certificates will be made on
the basis of the actual number of days elapsed
in the related Accrual Period and in a year of
360 days.
Allocations of Interest
and Principal: The Class A Distribution Amount relating to
each Group of Home Equity Loans for each
Payment Date (to the extent funds are available
therefor) shall be
S-5
<PAGE>
allocated among the Class A Certificates in the
following amounts and in the following order of
priority:
(i) First, to the Owners of the Class A
Certificates of the related Group, the related
Current Interest for such Certificates on a pro
rata basis without any priority among such
Class A Certificates.
(ii) Second, to the Owners of the Class A
Certificates, (A) the Class A Principal
Distribution Amount (as defined below under the
heading "Principal" applicable to the Fixed
Rate Group shall be distributed as follows: (I)
first, to the Owners of the Class A-1
Certificates until the Class A-1 Certificate
Principal Balance is reduced to zero; (II)
second, to the Owners of the Class A-2
Certificates until the Class A-2 Certificate
Principal Balance is reduced to zero; (III)
third, to the Owners of the Class A-3
Certificates until the Class A-3 Certificate
Principal Balance is reduced to zero; (IV)
fourth, to the Owners of the Class A-4
Certificates until the Class A-4 Certificate
Principal Balance is reduced to zero; (V)
fifth, to the Owners of the Class A-5
Certificates until the Class A-5 Certificate
Principal Balance is reduced to zero; (VI)
sixth, to the Owners of the Class A-6
Certificates until the Class A-6 Certificate
Principal Balance is reduced to zero; and (VII)
seventh, to the Owners of the Class A-7
Certificates until the Class A-7 Certificate
Principal Balance is reduced to zero and (B)
the Class A Principal Distribution Amount
applicable to the Adjustable Rate Group shall
be distributed to the Owners of the Class A-8
Certificates until the Class A-8 Certificate
Principal Balance is reduced to zero.
Principal: The Owners of the related Class A Certificates
will be entitled to receive on each Payment
Date, in the manner and priority set forth
herein, to the extent funds are available
therefor after the Class A Current Interest is
distributed to the Owners of the Class A
Certificates, a monthly distribution in
reduction of the Class A Certificate Principal
Balance in the amount described herein.
The Fixed Rate Certificates are "sequential
pay" classes such that the Owners of the Class
A-7 Certificates will receive no payments of
principal until the Class A-6 Certificate
Principal Balance has been reduced to zero, the
Owners of the Class A-6 Certificates will
receive no payments of principal until the
Class A-5 Certificate Principal Balance has
been reduced to zero, the Owners of the Class
A-5 Certificates will receive no payments of
principal until the Class A-4 Certificate
Principal Balance has been reduced to zero, the
Owners of the Class A-4 Certificates will
receive no payments of principal until the
Class A-3 Certificate Principal Balance has
been reduced to zero, the Owners of the Class
A-3 Certificates will receive no payments of
principal until the Class A-2 Certificate
Principal Balance has been reduced to zero, and
the Owners of the Class A-2 Certificates will
receive no payments of principal until the
Class A-1 Certificate Principal Balance has
been reduced to zero.
On each Payment Date, distributions in
reduction of the Certificate Principal Balance
of the related Class of Class A Certificates
will be made in the amounts described herein.
The "Class A Principal Distribution Amount" for
each Home Equity Loan Group and Payment Date
shall be the lesser of:
(a) the Total Available Funds (as defined
herein) for the related Home Equity Loan Group
plus any Insured Payment with respect to the
related Class
S-6
<PAGE>
A Certificates minus the related Class A
Current Interest for such Payment Date with
respect to the related Class A Certificates;
and
(b) the excess, if any, of
(i) the sum of:
(A) the Preference Amount with respect
to principal owed to an Owner of the
Class A Certificates for the related
Home Equity Loan Group that remains
unpaid as of such Payment Date;
(B) the principal portion of all
scheduled monthly payments on the Home
Equity Loans in the related Home Equity
Loan Group due on or prior to the
related Due Date thereof, to the extent
actually received by the Trustee during
the related Remittance Period and any
Prepayments made by the Mortgagors and
actually received by the Trustee during
the related Remittance Period;
(C) the balance of each Home Equity
Loan (the "Loan Balance") in the
related Home Equity Loan Group that was
repurchased by the Seller or purchased
by the Servicer on or prior to the
related Monthly Remittance Date, to the
extent such Loan Balance is actually
received by the Trustee during the
related Remittance Period;
(D) any Substitution Amounts (i.e. the
excess, if any, of the Loan Balance of
a Home Equity Loan being replaced over
the outstanding principal balance of a
replacement Home Equity Loan plus
accrued and unpaid interest) delivered
by the Seller on the related Monthly
Remittance Date in connection with a
substitution of a Home Equity Loan in
the related Home Equity Loan Group (to
the extent such Substitution Amounts
relate to principal), to the extent
such Substitution Amounts are actually
received by the Trustee on the related
Remittance Date;
(E) all Net Liquidation Proceeds
actually collected by the Servicer with
respect to the Home Equity Loans in the
related Home Equity Loan Group during
the related Remittance Period (to the
extent such Net Liquidation Proceeds
relate to principal), to the extent
such Net Liquidation Proceeds are
actually received by the Trustee;
(F) the amount of any Subordination
Deficit with respect to the related
Home Equity Loan Group for such Payment
Date;
(G) the portion of the proceeds
received with respect to the related
Home Equity Loan Group by the Trustee
upon termination of the Trust (to the
extent such proceeds relate to
principal);
(H) with respect to the [Fixed Rate]
Group only, on the Payment Date
immediately following the last day of
the Funding Period, all amounts
remaining on deposit in the Pre-Funding
Account to the extent not used to
purchase Subsequent Home Equity Loans
during the Funding Period; and
S-7
<PAGE>
(I) the amount of any Subordination
Increase Amount with respect to the
related Home Equity Loan Group for such
Payment Date to the extent of any Net
Monthly Excess Cashflow available for
such purpose;
over
(ii) the amount of any Subordination
Reduction Amount with respect to the
related Home Equity Loan Group for such
Payment Date;
The "Preference Amount" is any amount
previously distributed to an Owner on a Class A
Certificate that is recoverable and sought to
be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United
States Bankruptcy Code (Title 11 of the United
States Code).
The "Remittance Period" with respect to any
Monthly Remittance Date is the second day of
the month immediately preceding such Monthly
Remittance Date to the first day of the month
in which such Monthly Remittance Date occurs. A
"Monthly Remittance Date" is any date on which
funds on deposit in the Principal and Interest
Account are remitted to the Certificate
Account, which is the ____ day of each month,
or if such day is not a Business Day, the next
succeeding Business Day, commencing in
_____________, 199__.
A "Subordination Deficit" with respect to a
Payment Date is the amount, if any, by which
(x) the aggregate Class A Certificate Principal
Balance, after taking into account all
distributions to be made on such Payment Date,
exceeds (y) the sum of (i) the aggregate Loan
Balances of the Home Equity Loans as of the
close of business on the last day of the
related Remittance Period and (ii) the amount,
if any, on deposit in the Pre-Funding Account
as of the close of business on the last day of
the related Remittance Period.
Monthly Servicing Fee: The Servicer will retain a fee
(the "Servicing Fee") equal to _____% per
annum, payable monthly at one-twelfth the
annual rate of the then outstanding principal
balance of each Home Equity Loan as of the
first day of each Remittance Period.
Credit Enhancement: The credit enhancement provided
for the benefit of the Owners of the Class A
Certificates consists of (x) the
overcollateralization and
crosscollateralization mechanics which utilize
the internal cash flows of the Trust and (y)
the Insurance Policy.
Overcollateralization. The credit enhancement
provisions of the Trust result in a limited
acceleration of the Class A Certificates (in
the aggregate) relative to the amortization of
the related Home Equity Loans in the early
months of the transaction. The accelerated
amortization is achieved by the application of
certain excess interest to the payment in
reduction of the related Class A Certificate
Principal Balance. This acceleration feature
creates with respect to each Home Equity Loan
Group, overcollateralization (i.e., the excess
of the aggregate outstanding Loan Balance of
the Home Equity Loans in the related Home
Equity Loan Group over the aggregate Class A
Certificate Principal Balance). Once the
required level of overcollateralization is
reached, and subject to the provisions
described in the next paragraph, the
acceleration feature will cease.
S-8
<PAGE>
The Pooling and Servicing Agreement provides
that, subject to certain floors, caps and
triggers, the required level of
overcollateralization with respect to a Home
Equity Loan Group may increase or decrease over
time. An increase would result in a temporary
period of accelerated amortization of the
related Class of Class A Certificates to
increase the actual level of
overcollateralization to its required level; a
decrease would result in a temporary period of
decelerated amortization to reduce the actual
level of overcollateralization to its required
level.
As a result of the "sequential pay" feature of
the Fixed Rate Certificates, any such
accelerated principal will be paid to that
Class of the Fixed Rate Certificates then
entitled to receive distributions of principal.
Crosscollateralization. In addition to the
foregoing, the Pooling and Servicing Agreement
provides for crosscollateralization through the
application of excess amounts generated by one
Home Equity Loan Group to fund shortfalls in
Available Funds and the required
overcollateralization level in the other Home
Equity Loan Group, subject to certain prior
debt service and credit enhancement
requirements of such Home Equity Loan Group.
See "Prepayment and Yield Considerations",
"Credit Enhancement --Overcollateralization
Provisions" herein and "Credit Enhancement" in
the Prospectus.
Certificate Insurance Policy.
____________________ (the "Certificate
Insurer") will issue a certificate guaranty
insurance policy (the "Insurance Policy")
pursuant to which it will irrevocably and
unconditionally guarantee payment on each
Payment Date to the Trustee for the benefit of
the holders of each Class of Class A
Certificates of an amount equal to the Class A
Distribution Amount for such Payment Date. The
amount of the actual payment, if any, made by
the Certificate Insurer to the Owners of the
Class A Certificates under the Insurance Policy
on each Payment Date (the "Insured Payment") is
the sum of (i) any shortfall in the amount
required to pay the Subordination Deficit for
such Payment Date from a source other than the
Insurance Policy, (ii) any shortfall in the
amount required to pay Class A Current Interest
for such Payment Date from a source other than
the Insurance Policy and (iii) any shortfall in
the amount required to pay the Preference
Amount for such Payment Date from a source
other than the Insurance Policy. The effect of
the Insurance Policy is to guaranty the timely
payment of interest on, and the ultimate
payment of the principal amount of, each Class
of Class A Certificates.
Except upon the occurrence of a Certificate
Insurer Default, the Certificate Insurer shall
have the right to exercise certain rights of
the Owners of the related Class A Certificates,
as specified in the Pooling and Servicing
Agreement, without any consent of such Owners;
and such Owners may exercise such rights only
with the prior written consent of the
Certificate Insurer, except as provided in the
Pooling and Servicing Agreement. In addition,
to the extent of unreimbursed payments under
the Insurance Policy, the Certificate Insurer
will be subrogated to the rights of the Owners
of the related Class A Certificates on which
such Insured Payments were made. In connection
with each Insured Payment on a related Class A
Certificate, the Trustee, as attorney-in-fact
for the
S-9
<PAGE>
Owner thereof, will be required to assign to
the Certificate Insurer the rights of such
Owner with respect to the Class A Certificate
to the extent of such Insured Payment.
"Certificate Insurer Default" is defined under
the Pooling and Servicing Agreement as (x) the
failure by the Certificate Insurer to make a
required payment under the Insurance Policy or
(y) the bankruptcy or insolvency of the
Certificate Insurer.
The Certificate Insurer is an insurance company
engaged exclusively in the business of writing
financial guaranty insurance, principally in
respect of asset- backed and other
collateralized securities offered in domestic
and foreign markets. The Certificate Insurer's
claims paying ability is rated "Aaa" by Moody's
Investors Services, Inc. ("Moody's") and "AAA"
by each of Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies
("Standard & Poor's"). See "The Certificate
Insurer" herein.
Pre-Funding Account: On the Closing Date, an aggregate cash amount
(the "Pre-Funded Amount"), of $______________
will be deposited in the Pre-Funding Account
which account will be in the name of, and
maintained by, the Trustee on behalf of the
Trust and which may be used to acquire
Subsequent Home Equity Loans for addition to
the Fixed Rate Group. During the period (the
"Funding Period") from the Closing Date until
the earliest of (i) the date on which the
amount on deposit in the Pre-Funding Account is
less than $______, (ii) the date on which an
event of default under the Pooling and
Servicing Agreement occurs and (iii) _______,
199__, the Pre-Funded Amount will be maintained
in the Pre-Funding Account. The Pre-Funded
Amount will be reduced during the Funding
Period by the amount thereof used to purchase
Subsequent Home Equity Loans in accordance with
the Pooling and Servicing Agreement. Subsequent
Home Equity Loans purchased by and added to the
Fixed Rate Group on any date (each, a
"Subsequent Transfer Date") must satisfy the
criteria set forth in the Pooling and Servicing
Agreement. The aggregate principal amount of
Subsequent Home Equity Loans which may be
acquired by the Trust is $________________. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be distributed to the
Owners of the related Class of the Fixed Rate
Certificates then entitled to receive payment
of principal on the Payment Date in ________,
199__, in reduction of the related Class A
Certificate Principal Balance of such Owners'
Certificates, thus resulting in a partial
principal prepayment of such Class of Fixed
Rate Certificates as specified herein under
"Description of the Class A Certificates--
Distributions." All interest and other
investment earnings on amounts on deposit in
the Pre-Funding Account will be deposited in
the Capitalized Interest Account. The
Pre-Funding Account will not be an asset of
either REMIC.
Capitalized Interest
Account: On the Closing Date, cash in an amount
satisfactory to the Certificate Insurer will be
deposited in a trust account (the "Capitalized
Interest Account") in the name of, and
maintained by, the Trustee on behalf of the
Trust. During the Funding Period, the amount on
deposit in the Capitalized Interest Account,
including reinvestment income thereon, will be
used by the Trustee to fund the excess, if any,
of (i) the sum of the amount of interest
accruing during the related interest accrual
period at the weighted average of the
Pass-Through Rates of the Fixed Rate
Certificates on the amount by which the
aggregate Class A Certificate Principal Balance
of the Fixed Rate Certificates exceeds the
aggregate
S-10
<PAGE>
Loan Balance of the Home Equity Loans in the
Fixed Rate Group plus the Class S Distribution
Amount (as defined in the Pooling and Servicing
Agreement) plus any Trustee Reimbursable
Expenses and amounts payable to the Certificate
Insurer as premium on the Insurance Policy (the
"Premium Amount") accruing during the related
interest accrual period on such excess balance
over (ii) the amount of any reinvestment income
on monies on deposit in the Pre-Funding
Account. Such amounts on deposit will be so
applied by the Trustee on the first two Payment
Dates to fund any such excess. Any amounts
remaining in the Capitalized Interest Account
not needed for such purpose will be paid to the
depositors of such funds at the end of the
Funding Period. The Capitalized Interest
Account will not be an asset of either REMIC.
Mandatory Prepayment of
Certificates: Although no assurance can be given, it is
intended that the principal amount of
Subsequent Home Equity Loans sold to the Trust
and added to the Fixed Rate Group will require
application of substantially all of the
original Pre-Funded Amount and it is not
intended that there will be any material amount
of principal prepaid to the Owners of the Fixed
Rate Certificates from the Pre-Funding Account.
In the event that the Depositor is unable to
sell Subsequent Home Equity Loans to the Trust
in an amount equal to the original Pre-Funded
Amount, principal prepayments to Owners of the
related Class of the Fixed Rate Certificates
then entitled to receive payments of principal
will occur on the Payment Date in __________
199__ in an amount equal to the Pre-Funded
Amount remaining at the end of the Funding
Period.
Book-Entry Registration of the
Class A Certificates Each Class of Class A Certificates will
initially be issued in book-entry form. Persons
acquiring beneficial ownership interests in
such Class A Certificates ("Beneficial Owners")
may elect to hold their interests through The
Depository Trust Company ("DTC"). Transfers
within DTC will be in accordance with the usual
rules and operating procedures thereof. So long
as the Class A Certificates are Book-Entry
Certificates (as defined herein), such
Certificates will be evidenced by one or more
Certificates registered in the name of Cede &
Co. ("Cede"), as the nominee of DTC. The Class
A Certificates will initially be registered in
the name of Cede. The interests of the Owners
of such Certificates will be represented by
book-entries on the records of DTC and
participating members thereof. No Beneficial
Owner will be entitled to receive a definitive
certificate representing such person's
interest, except in the event that Definitive
Certificates (as defined herein) are issued
under the limited circumstances described
herein. All references in this Prospectus
Supplement to any Class A Certificates reflect
the rights of Beneficial Owners only as such
rights may be exercised through DTC and its
participating organizations for so long as such
Class A Certificates are held by DTC. See
"Description of the Class A Certificates--
Book-Entry Registration of the Class A
Certificates" herein, and "Description of the
Certificates--Book-Entry Registration" in the
Prospectus.
Optional Termination: The Owners of the Class R Certificates will
have the right to purchase all the Home Equity
Loans on any Monthly Remittance Date when the
aggregate Loan Balance of the Home Equity Loans
has declined to ____% or less of the sum of (x)
the Original Aggregate Loan Balance plus (y)
the original Pre-Funded
S-11
<PAGE>
Amount (such sum, the "Maximum Collateral
Amount"). See "The Pooling and Servicing
Agreement--Optional Termination" herein.
Ratings: It is a condition of issuance of the Class A
Certificates that the Class A Certificates
receive ratings of "AAA" by Standard & Poor's,
and "Aaa" by Moody's. Standard & Poor's and
Moody's are referred to herein collectively as
the "Rating Agencies". A security rating is not
a recommendation to buy, sell or hold
securities, and may be subject to revision or
withdrawal at any time by the assigning entity.
See "Ratings" herein.
Federal Tax Aspects: For federal income tax purposes, the Trust
(exclusive of the Pre-Funding Account and the
Capitalized Interest Account) created by the
Pooling and Servicing Agreement will consist of
two segregated asset pools (the "Upper Tier
REMIC" and the "Base REMIC") with respect to
which elections will be made to treat each as a
separate "real estate mortgage investment
conduit" ("REMIC"). The Class A Certificates
will be designated as a "regular interest" in
the Upper-Tier REMIC and such Certificates will
be treated as debt instruments of the
Upper-Tier REMIC for federal income tax
purposes. The Class R Certificates will be
designated as the sole "residual interest" in
the Upper-Tier REMIC.
Owners of the Class A Certificates, including
Owners that generally report income on the cash
method of accounting, will be required to
include interest on the Class A Certificates in
income in accordance with the accrual method of
accounting. In addition, the Class A
Certificates may be considered to have been
issued with original issue discount or at a
premium. Any such original issue discount will
be includible in the income of the Owner as it
accrues under a method taking into account the
compounding of interest and using the
Prepayment Assumption described herein. Premium
may be deductible by the Owner either as it
accrues or when principal is received. No
representation is made as to whether the Home
Equity Loans will prepay at the assumed rate,
or any other rate. See "Prepayment and Yield
Considerations" herein. In general, as a result
of the qualification of the Class A
Certificates as regular interests in a REMIC,
the Class A Certificates will be treated as
"qualifying real property loans" under Section
593(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), "regular . . .
interest(s) in a REMIC" under Section
7701(a)(19)(C) of the Code and "real estate
assets" under Section 856(c) of the Code in the
same proportion that the assets in the REMIC
consist of qualifying assets under such
sections. In addition, interest on the Class A
Certificates will be treated as "interest on
obligations secured by mortgages on real
property" under Section 856(c) of the Code to
the extent that such Class A Certificates are
treated as "real estate assets" under Section
856(c) of the Code. For further information
regarding the federal income tax consequences
of investing in the Class A Certificates, see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
ERISA Considerations: Subject to the considerations
discussed under "ERISA Considerations" herein,
the Class A Certificate may be purchased by
employee benefit plans that are subject to
ERISA. See "ERISA Considerations" herein and in
the Prospectus.
S-12
<PAGE>
Legal Investment
Considerations: Although the Fixed Rate Certificates are
expected to be rated "AAA" by Standard & Poor's
and "Aaa" by Moody's, the Class A Certificates
will not constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984
("SMMEA") because the Home Equity Loans include
second liens. Accordingly, many institutions
with legal authority to invest in comparably
rated securities based on first home equity
loans may not be legally authorized to invest
in the Fixed Rate Certificates.
[The Class A-8 Certificates will constitute
"mortgage related securities "for purposes of
SMMEA for so long as they are rated in one of
the two highest rating categories by one or
more nationally recognized statistical rating
organizations. As such, the Class A-8
Certificates will be legal investments for
certain entities to the extent provided in
SMMEA, subject to state laws overriding SMMEA.
In addition, institutions whose investment
activities are subject to review by federal or
state regulatory authorities may be or may
become subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of mortgage
related securities. Furthermore, certain states
have enacted legislation overriding the legal
investment provisions of SMMEA. In addition,
institutions whose activities are subject to
review by federal or state regulatory
authorities may be or may become subject to
restrictions, which may be retroactively
imposed by such regulatory authorities, on the
investment by such institutions in certain
forms of mortgage related securities.] See
"Legal Investment Considerations" herein.
S-13
<PAGE>
RISK FACTORS
Prospective investors in the Class A Certificates should consider,
among other things, the following risk factors (as well as the factors set forth
under "Risk Factors" in the Prospectus) in connection with the purchase of the
Class A Certificates.
Sensitivity to Prepayments. The majority of the Home Equity Loans may
be prepaid by the related Mortgagors in whole or in part, at any time without
payment of any prepayment fee or penalty. In addition, a substantial portion of
the Home Equity Loans contain due-on-sale provisions which, to the extent
enforced by the Servicer, will result in prepayment of such Home Equity Loans.
See "Prepayment and Yield Considerations" herein and "Certain Legal Aspects of
the Home Equity Loans--Enforceability of Certain Provisions" in the Prospectus.
The rate of prepayments on fixed rate home equity loans, such as the Home Equity
Loans, is sensitive to prevailing interest rates. Generally, if prevailing
interest rates fall significantly below the interest rates on the Home Equity
Loans, the Home Equity Loans are likely to be subject to higher prepayment rates
than if prevailing rates remain at or above the interest rates on the Home
Equity Loans. Conversely, if prevailing interest rates rise significantly above
the interest rates on the Home Equity Loans, the rate of prepayments is likely
to decrease. The average life of each Class of Class A Certificates, and, if
purchased at other than par, the yields realized by Owners of the Class A
Certificates will be sensitive to levels of payment (including prepayments
relating to the Home Equity Loans (the "Prepayments")) on the Home Equity Loans.
In general, the yield on a Class of Class A Certificates that is purchased at a
premium from the outstanding principal amount thereof will be adversely affected
by a higher than anticipated level of Prepayments of the Home Equity Loans and
enhanced by a lower than anticipated level. Conversely, the yield on a Class of
Class A Certificates that is purchased at a discount from the outstanding
principal amount thereof will be enhanced by a higher than anticipated level of
Prepayments and adversely affected by a lower than anticipated level. See
"Prepayment and Yield Considerations" herein.
Nature of Collateral. Because _____% of the aggregate Loan Balance of
the Initial Home Equity Loans are secured by second liens subordinate to the
rights of the mortgagee or beneficiary under the related first mortgage or deed
of trust, the proceeds from any liquidation, insurance or condemnation
proceedings with respect to such Home Equity Loans will be available to satisfy
the outstanding balance of a Home Equity Loan only to the extent that the claims
of such first mortgagee or beneficiary have been satisfied in full, including
any related foreclosure costs. In addition, a second mortgagee may not foreclose
on the property securing a second mortgage unless it forecloses subject to the
first mortgage, in which case it must either pay the entire amount due on the
first mortgage to the first mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on the first mortgage in the event the
mortgagor is in default thereunder. In servicing second mortgages in its
portfolio, it is generally the Servicer's practice to satisfy the first mortgage
at or prior to the foreclosure sale. The Servicer may also advance funds to keep
the first mortgage current until such time as the Servicer satisfies the first
mortgage. The Trust will have no source of funds (and may not be permitted under
the REMIC provisions of the Code) to satisfy the first mortgage or make payments
due to the first mortgagee. The Servicer generally will be required to advance
such amounts in accordance with the Pooling and Servicing Agreement. See "The
Pooling and Servicing Agreement--Servicing and Sub-Servicing" herein.
An overall decline in the residential real estate market, the general
condition of a Property, or other factors, could adversely affect the values of
the Properties such that the outstanding balances of the Home Equity Loans,
together with any senior liens on the Properties, equal or exceed the value of
the Properties. A decline in the value of a Property would affect the interest
of the Trust in the Property before having any effect on the interest of the
related first mortgagee, and could cause the Trust's interest in the Property to
be extinguished. If such a decline occurs, the actual rates of delinquencies,
foreclosures and losses on the Home Equity Loans could be higher than those
currently experienced in the mortgage lending industry in general. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by borrowers of scheduled payments of principal
and interest on the Home Equity Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the Trust.
Risk of Home Equity Loan Rates Reducing the Class A-8 Pass-Through
Rate. The calculation of the Class A-8 Pass-Through Rate is based upon (i) the
value of an index (LIBOR) which is different from the value of
S-14
<PAGE>
the index applicable to the Home Equity Loans as described under "The Home
Equity Loan Pool -- Initial Home Equity Loans -- Adjustable Rate Group" (either
as a result of the use of a different rate determination date or rate adjustment
date) and (ii) the weighted average on the Coupon Rates of the Adjustable Rate
Group Home Equity Loans, which are subject to periodic adjustment caps, maximum
rate caps and minimum rate floors. ____% of the Home Equity Loans in the
Adjustable Rate Group adjust semi-annually based upon Six-Month LIBOR and ___%
of the Home Equity Loans in the Adjustable Rate Group adjust annually based on
the weekly average yield on U.S. Treasury securities, whereas the Pass-Through
Rate on the Class A-8 Certificates adjusts monthly based upon LIBOR as described
under "Description of the Class A Certificates -- Calculation of LIBOR" herein,
subject to the Available Funds Cap. Consequently, the interest which becomes due
on the Home Equity Loans in the Adjustable Rate Group (net of the Servicing Fee,
the Premium Amount and the Trustee Fee related to the Adjustable Rate Group)
during any Remittance Period may not equal the amount of interest that would
accrue at LIBOR plus the margin on the Class A-8 Certificates during the related
Accrual Period. In particular, the Class A-8 Pass-Through Rate adjusts monthly,
while the interest rates of the Home Equity Loans in the Adjustable Rate Group
adjust less frequently with the result that the Available Funds Cap may limit
increases in the Class A-8 Pass-Through Rate for extended periods in a rising
interest rate environment. In addition, LIBOR and Six-Month LIBOR or the rate on
U.S. Treasury securities may respond to different economic and market factors,
and there is not necessarily a correlation between them. Thus, it is possible,
for example, that LIBOR may rise during periods in which Six-Month LIBOR or the
rate on U.S. Treasury Securities is stable or is falling or that, even if both
LIBOR and Six-Month LIBOR or the rate on U.S. Treasury Securities rise during
the same period, LIBOR may rise more rapidly than Six-Month LIBOR or the rate on
U.S. Treasury Securities. Furthermore, if the Available Funds Cap determines the
Class A-8 Pass-Through Rate for a Payment Date, the value of the Class A-8
Certificates may be temporarily or permanently reduced.
The Subsequent Home Equity Loans and the Pre-Funding Account. If the
principal amount of eligible Home Equity Loans available during the Funding
Period and sold to the Trust is less than 100% of the Pre-Funded Amount,
prepayments of principal will be made to Owners of the [Fixed Rate] Certificates
as described herein. See "Social, Economic and Other Factors" below. In
addition, any conveyance of Subsequent Home Equity Loans is subject to the
following conditions, among others (i) each such Subsequent Home Equity Loan
must be accepted by the Certificate Insurer and must satisfy the representations
and warranties specified in the agreement pursuant to which such Subsequent Home
Equity Loans are transferred to the Trust (each, a "Subsequent Transfer
Agreement") and in the Pooling and Servicing Agreement; (ii) the Seller will not
select such Subsequent Home Equity Loans in a manner adverse to the interest of
the Owners of the [Fixed Rate] Certificates or the Certificate Insurer; (iii)
the Seller will deliver certain opinions of counsel with respect to the validity
of the conveyance of such Subsequent Home Equity Loans; and (iv) as of each
cut-off date (each, a "Subsequent Cut-Off Date") applicable thereto, the Home
Equity Loans at that time, including the Subsequent Home Equity Loans to be
conveyed by the Seller as of such Subsequent Cut-Off Date, will satisfy the
criteria set forth in the Pooling and Servicing Agreement, as described herein
under "The Home Equity Loan Pool--Conveyance of Subsequent Home Equity Loans"
herein.
To the extent that amounts on deposit in the Pre-Funding Account have
not been fully applied to the purchase of Subsequent Home Equity Loans by the
Trust for inclusion in the [Fixed Rate] Group by the end of the Funding Period,
the Owners of the Class of [Fixed Rate] Certificates then entitled to receive
payments of principal will receive a prepayment of principal in an amount equal
to the Pre-Funded Amount remaining in the Pre-Funding Account on the Payment
Date in ______ 199__. Although no assurances can be given, the Depositor intends
that the principal amount of Subsequent Home Equity Loans sold to the Trust will
require the application of substantially all amounts on deposit in the
Pre-Funding Account and that therefore there will be no material principal
prepayment to the Owners of the [Fixed Rate] Certificates.
Each Subsequent Home Equity Loan must satisfy the eligibility criteria
referred to above at the time of its addition. However, Subsequent Home Equity
Loans may have been originated or purchased by the Seller using credit criteria
different from those which were applied to the Initial Home Equity Loans and may
be of a different credit quality. Therefore, following the transfer of
Subsequent Home Equity Loans to the [Fixed Rate] Group, the aggregate
characteristics of the Home Equity Loans then held in the [Fixed Rate] Group may
vary from those of
S-15
<PAGE>
the Initial Home Equity Loans in the [Fixed Rate] Group. See "The Home Equity
Loan Pool--Conveyance of Subsequent Home Equity Loans" herein.
Social, Economic and Other Factors. The ability of the Trust to invest
in Subsequent Home Equity Loans is largely dependent upon the ability of the
Seller to originate or purchase additional home equity loans. The ability of the
Seller to originate or purchase additional home equity loans may be affected by
a variety of social and economic factors. Economic factors include interest
rates, unemployment levels, the rate of inflation and consumer perception of
economic conditions generally. However, the Seller is unable to determine and
has no basis to predict whether or to what extent economic or social factors
will affect its origination ability or its ability to purchase additional home
equity loans.
Other Legal Considerations. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of the Seller. In addition, other state laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination,
servicing and collection of the Home Equity Loans. The Seller will be required
to repurchase any Home Equity Loans which, at the time of origination, did not
comply with applicable federal and state laws and regulations. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Trust to collect all or part of the principal of or interest on
the Home Equity Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Seller to damages and
administrative enforcement.
See "Certain Legal Aspects of Home Equity Loans" in the Prospectus.
The Home Equity Loans are also subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
borrowers regarding the terms of the Home Equity Loans;
(ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of
age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; and
(iii) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's credit
experience.
Violations of certain provisions of these federal laws may limit the ability of
the Seller to collect all or part of the principal of or interest on the Home
Equity Loans and, in addition, could subject the Seller to damages and
administrative enforcement. The Seller will be required to repurchase any Home
Equity Loans which, at the time of origination did not comply with such federal
laws or regulations. See "Certain Legal Aspects of the Home Equity Loans" in the
Prospectus.
Risk of Higher Default Rates for Home Equity Loans with Balloon
Payments. _____% of the aggregate Loan Balance of the Initial Home Equity Loans
[in the Fixed Rate Group] as of the Cut-Off Date are "balloon loans" that
provide for the payment of the unamortized Loan Balance of such Home Equity Loan
in a single payment at maturity ("Balloon Loans"). [None of the Home Equity
Loans in the Adjustable Rate Group are Balloon Loans.] Such Balloon Loans
provide for equal monthly payments, consisting of principal and interest,
generally based on a ___-year amortization schedule, and a single payment of the
remaining balance of the Balloon Loan ___ years after origination. Amortization
of a Balloon Loan based on a scheduled period that is longer than the term of
the loan results in a remaining principal balance at maturity that is
substantially larger than the regular scheduled payments. The Seller does not
have any information regarding the default history or prepayment history of
payments on Balloon Loans. Because borrowers of Balloon Loans are required to
make substantial single payments upon maturity, it is possible that the default
risk associated with the Balloon Loans is greater than that associated with
fully-amortizing Home Equity Loans.
S-16
<PAGE>
Risk of Seller Insolvency. The Seller believes that the transfer of the
Home Equity Loans to the Depositor and by the Depositor to the Trust constitutes
a sale by the Seller to the Depositor and by the Depositor to the Trust and,
accordingly, that such Home Equity Loans will not be part of the assets of the
Seller in the event of the insolvency of the Seller and will not be available to
the creditors of the Seller. However, in the event of an insolvency of the
Seller, it is possible that a bankruptcy trustee or a creditor of the Seller may
argue that the transaction between the Seller and the Depositor was a pledge of
such Home Equity Loans in connection with a borrowing by the Seller rather than
a true sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Certificates.
On the Closing Date, the Trustee, the Seller, the Depositor, the Rating
Agencies and the Certificate Insurer will have received an opinion of Arter &
Hadden, counsel to the Seller, with respect to the true sale of the Initial Home
Equity Loans from the Seller to the Depositor and from the Depositor to the
Trustee, in form and substance satisfactory to the Certificate Insurer and the
Rating Agencies.
Risk Associated with the Certificate Insurer. If the protection
afforded by overcollateralization is insufficient and if, upon the occurrence of
a Subordination Deficit, the Certificate Insurer is unable to meet its
obligations under the Certificate Insurance Policy, then the Owners of the Class
A Certificates could experience a loss on their investment.
THE SELLER AND SERVICER
General
The Seller and Servicer, Industry Mortgage Company, L.P., is a Delaware
limited partnership. The principal executive offices of the Seller are located
at 3450 Buschwood Park Drive, Suite 250, Tampa, Florida 33618 and its telephone
number is (813) 932-2211.
The Seller has been in the mortgage lending business since 1993 and the
Seller and certain subsidiaries are engaged in originating, purchasing and
servicing home equity loans secured by first and second mortgages and deeds of
trust on Properties located in at least ___ states and the District of Columbia.
The Seller will sell and assign each Home Equity Loan to the Depositor,
which will in turn sell and assign each Home Equity Loan to the Trust, in
consideration of the net proceeds from the sale of the Class A Certificates,
which are being offered hereby. The Seller will also service each Home Equity
Loan.
The Servicer may not assign its obligations under the Pooling and
Servicing Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Trustee and the Certificate Insurer, which consent is
required not to be unreasonably withheld; provided, however, that any assignee
must meet the eligibility requirements for a successor servicer set forth in the
Pooling and Servicing Agreement.
With the consent of the Certificate Insurer and the Trustee, the
Servicer may enter into sub-servicing agreements (the "Sub-Servicing
Agreements") with qualified sub-servicers (the "Sub-Servicers") with respect to
the servicing of the Home Equity Loans. None of the Sub-Servicing arrangements
discharge the Servicer from its servicing obligations. See "The Pooling and
Servicing Agreement--Servicing and Sub-Servicing" herein.
The Trustee and the Certificate Insurer may remove the Servicer, and
the Servicer may resign, only in accordance with the terms of the Pooling and
Servicing Agreement. No removal or resignation shall become effective until the
Trustee or a successor servicer shall have assumed the Servicer's
responsibilities and obligations in accordance therewith. Any collections
received by the Servicer after removal or resignation shall be endorsed by it to
the Trustee and remitted directly to the Trustee.
Upon removal or resignation of the Servicer, the Trustee (x) may
solicit bids for a successor servicer as described in the Pooling and Servicing
Agreement or (y) shall serve in the capacity of Backup Servicer (the "Backup
Servicer") subject to the right of the Trustee to assign such duties to a party
acceptable to the Certificate Insurer
S-17
<PAGE>
and the Owners of a majority of the Class R Certificates. If the Trustee is
unable to obtain a qualifying bid and is prevented by law from acting as
servicer and from appointing the Backup Servicer as servicer, the Trustee will
be required to appoint, or petition a court of competent jurisdiction to
appoint, an eligible successor. Any successor (including the Backup Servicer) is
required to be a housing and home finance institution, bank or mortgage
servicing institution which has been designated as an approved seller-servicer
by FNMA or FHLMC for first and second home equity loans having equity of not
less than $5,000,000 as determined in accordance with generally accepted
accounting principles, and which is acceptable to the Certificate Insurer and
shall assume all or any part of the responsibilities, duties or liabilities of
the Servicer.
The Certificates will not represent an interest in or obligation of,
nor are the Home Equity Loans guaranteed by, the Depositor, the Seller, the
Servicer, or any of their affiliates.
Credit and Underwriting Guidelines
The following is a description of the underwriting guidelines
customarily and currently employed by the Seller with respect to home equity
loans which it originates or purchases from others. Each Home Equity Loan was
underwritten according to those guidelines. The Seller revises such guidelines
from time to time in connection with changing economic and market conditions.
In certain cases loans may be acquired or originated outside of the
criteria included in the guidelines as then in effect with the prior approval of
a pre-designated senior official of the Seller and in light of compensating
factors or other business considerations. No information is available with
respect to the portion of the Home Equity Loans as to which exceptions to the
criteria specified in the guidelines described herein were made. Substantially
all of the Home Equity Loans were acquired or originated in accordance with the
underwriting guidelines described herein or with such permitted exceptions as
are described herein.
The Seller's business consists primarily of acquiring home equity
loans. The Seller specializes in home equity loans that do not conform to the
underwriting standards of the Federal National Mortgage Association ("FNMA") or
the Federal Home Loan Mortgage Corporation ("FHLMC") and those standards
typically applied by banks and other primary lending institutions, particularly
with regard to a prospective borrower's credit history.
The Seller acquires and originates home equity loans through its
principal office in Tampa, Florida and branches in Cincinnati, Ohio, Ft.
Washington, Pennsylvania and Cherry Hill, New Jersey. The Seller acquires home
equity loans from a referral network of mortgage lenders and brokers, banks and
other referral sources, which may include one or more affiliates of the Seller.
Home equity loans acquired from mortgage brokers and other lenders are
pre-approved by the Seller prior to funding, or purchased in bulk after funding,
only after each loan has been re-underwritten by the Seller in accordance with
its established underwriting guidelines. These guidelines are designed to assess
the adequacy of the real property which serves as collateral for the loan and
the borrower's ability to repay the loan. The Seller analyzes, among other
factors, the equity in the collateral, the credit history and debt-to-income
ratio of the borrower, the property type, and the characteristics of the
underlying senior mortgage, if any.
The Seller purchases and originates home equity loans with different
credit characteristics depending on the credit profiles of individual borrowers.
The Seller primarily purchases and originates fixed rate loans which fully
amortize (subject to adjustments by reason of being simple interest loans) over
a period not to exceed 30 years. The Seller also acquires and originates Balloon
Loans, which generally provide for scheduled amortization over 30 years, with a
due date and a balloon payment at the end of the fifteenth year. The principal
amount of the loans purchased or originated by the Seller generally ranges up to
a maximum of $________. Under current policy the Seller generally does not
acquire or originate any home equity loan where the combined Loan-to-Value Ratio
exceeds ___%. The collateral securing loans acquired or originated by the Seller
is generally one- to four-family residences, including condominiums and
townhomes. The Seller accepts mobile homes or unimproved land as collateral only
in limited circumstances. The Seller does not purchase loans where any senior
mortgage contains open-end advance, negative amortization or shared appreciation
provisions.
S-18
<PAGE>
The Seller's home equity loan program includes: (i) a full
documentation program for salaried borrowers and (ii) a non-income qualification
program for self-employed, and in limited instances, salaried borrowers. The
borrower's total monthly debt obligations (which include principal and interest
on all other mortgages, loans, charge accounts and all other scheduled
indebtedness) generally cannot exceed 50% of the borrower's monthly gross
income. Loans to substantially all borrowers who are salaried employees must be
supported by current employment information in addition to employment history.
This information for salaried borrowers is verified based on written
confirmation from employers or one or more pay-stubs, recent W-2 tax forms,
recent tax returns or telephone confirmation from the employers. For the
Seller's non-income qualification program, proof of a two year history of
self-employment in the same business plus proof of current self-employed status
is required. The Seller typically requires lower combined Loan-to-Value Ratios
with respect to loans made to self-employed borrowers.
The Seller requires that a full appraisal of the property used as
collateral for any loan that is acquired or originated be performed in
connection with the origination of the loan. These appraisals are performed by
third party, fee-based appraisers. Appraisals of substantially all of the
Properties were completed on standard FNMA/FHLMC forms and conform to current
FNMA/FHLMC secondary market requirements for residential property appraisals.
Each such appraisal includes, among other things, an inspection of the exterior
of the subject property, photographs of two or more different views of the
property and data from sales within the preceding 12 months of similar
properties within the same general location as the subject property.
A credit report by an independent, nationally recognized credit
repository agency reflecting the applicant's credit history is required. The
credit report typically contains information reflecting delinquencies,
repossessions, judgments, foreclosures, garnishments, bankruptcies and similar
instances of adverse credit that can be discovered by a search of public
records.
Certain laws protect loan applicants by offering them a period of time
after loan documents are signed, termed the rescission period, during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to the funding of the loan and may not be waived by the applicant
except as permitted by law.
The Seller requires title insurance coverage issued by an approved ALTA
or CLTA title insurance company on all property securing home equity loans it
originates or purchases. The loan originator and its assignees are generally
named as the insured. Title insurance policies indicate the lien position of the
home equity loan and protect the Seller against loss if the title or lien
position is not indicated. The applicant is also required to secure hazard and,
in certain instances, flood insurance in an amount sufficient to cover the new
loan and any senior mortgage.
Delinquency, Loan Loss and Foreclosure Information
The Seller began originating or purchasing home equity loans in October 1993. In
addition, from October 1993 to July 1994 the Seller sold all the home equity
loans it originated to third parties on a servicing released basis.
The Servicer began servicing home equity loans in April 1994 and thus
has limited servicing, delinquency, loan loss and liquidation experience with
respect to home equity loans. The delinquency and loss experience percentages
indicated below are calculated on the basis of the total home equity loans
serviced as of the end of the periods indicated. However, because the total
amount of loans originated or purchased by the Servicer has increased over these
periods as a result of new originations, the total amount of loans serviced as
of the end of any indicated period will include many loans which will not have
been outstanding long enough to give rise to some or all of the indicated
periods of delinquencies. Accordingly, the historical delinquency experience and
loan loss information set forth below may not be indicative of the future
performance of the home equity loans.
S-19
<PAGE>
Delinquency and Default Experience of the Servicer's Servicing
Portfolio of Home Equity Loans
As of As of
Number of Dollar Amount Number of Dollar Amount
Loans Loans
Portfolio At
Delinquency
Percentage (1)
_______ days
_______ days
_______ days
Total Delinquency
Default
Percentage (2)
Foreclosure
Bankruptcy
Real Estate Owned
Total Default
- -----------------
(1) The delinquency percentage represents the number and dollar value of
account balances contractually past due, including home equity loans in
foreclosure or bankruptcy but exclusive of real estate owned.
(2) The default percentage represents the number and dollar value of
delinquent payments on home equity loans in foreclosure, bankruptcy or
real estate owned.
Loan Loss Experience on the Servicer's Servicing
Portfolio of Home Equity Loans
Year Ending Year Ending
Average Amount Outstanding(1)
Gross Losses(2)
Recoveries(3)
Net Losses(4)
Net Losses as a Percentage of Average Amount Outstanding
- -----------------------
(1) "Average Amount Outstanding" during the period is the arithmetic
average of the principal balances of the home equity loans outstanding
on the last business day of each month during the period.
(2) "Gross Losses" are actual losses incurred on liquidated properties for
each respective period. Losses include all principal, foreclosure costs
and accrued interest to date.
(3) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(4) "Net Losses" means "Gross Losses" minus "Recoveries."
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware in November
1994. The Depositor maintains its principal offices at 3450 Buschwood Park
Drive, Suite 250, Tampa, Florida 31618, None of the Depositor, the Seller or the
Servicer nor any of their affiliates will insure or guarantee distributions on
the Certificates.
S-20
<PAGE>
USE OF PROCEEDS
The Seller will sell the Initial Home Equity Loans to the Depositor and
the Depositor will sell the Initial Home Equity Loans to the Trust concurrently
with delivery of the Certificates. Net proceeds from the sale of the Class A
Certificates will be applied by the Depositor (i) to the purchase of the Initial
Home Equity Loans from the Seller, (ii) to the deposit of the Pre-Funded Amount
in the Pre-Funding Account and (iii) to the deposit of certain amounts in the
Capitalized Interest Account. Such net proceeds less the Pre-Funded Amount and
the amount deposited in the Capitalized Interest Account will (together with the
Class S and Class R Certificates retained by the Depositor and the Seller)
represent the purchase price to be paid by the Trust to the Depositor and by the
Depositor to the Seller for the Home Equity Loans.
THE HOME EQUITY LOAN POOL
General
The statistical information presented in this Prospectus Supplement
concerning the pool of Home Equity Loans is based on the pool of Initial Home
Equity Loans as of the Cut-Off Date. Subsequent Home Equity Loans are intended
to be purchased by the Trust for inclusion in the [Fixed Rate] Group from the
Depositor from time to time on or before _____________, 199__ from funds on
deposit in the Pre-Funding Account. The Initial Home Equity Loans and the
Subsequent Home Equity Loans are referred to collectively as the Home Equity
Loans. The Subsequent Home Equity Loans to be purchased by the Trust, if
available, will be sold by the Seller to the Depositor and then by the Depositor
to the Trust.
This subsection describes generally certain characteristics of the
Initial Home Equity Loans. Unless otherwise noted, all statistical percentages
in this Prospectus Supplement are measured by the aggregate principal balance of
the related Initial Home Equity Loans as of the Cut-Off Date. The columns
entitled "% of Initial Home Equity Loans" and "% of Aggregate Loan Balance" in
the following tables may not sum to 100% due to rounding.
Each Home Equity Loan in the Trust will be assigned to one of two home
equity loan groups comprised of Home Equity Loans which bear fixed interest
rates only, in the case of the Fixed Rate Group, and Home Equity Loans which
bear adjustable interest rates only, in the case of the Adjustable Rate Group.
The Fixed Rate Certificates represent undivided ownership interests in all Home
Equity Loans contained in the Fixed Rate Group, and distributions on the Fixed
Rate Certificates will be based primarily on amounts available for distribution
in respect of Home Equity Loans in the Fixed Rate Group. The Adjustable Rate
Certificates represent undivided ownership interests in all Home Equity Loans
contained in the Adjustable Rate Group, and distributions on the Adjustable Rate
Certificates will be based primarily on amounts available for distribution in
respect of Home Equity Loans in the Adjustable Rate Group.
The Initial Home Equity Loans to be transferred by the Depositor to the
Trust on the Closing Date will consist of ______ fixed rate conventional home
equity loans evidenced by promissory notes (the "Notes") secured by first and
second lien deeds of trust, security deeds or mortgages, which are located in
___ states and the District of Columbia. The Properties securing the Initial
Home Equity Loans consist primarily of one-to-four family residential
properties. The Properties may be owner-occupied and non-owner occupied
investment properties (which includes second and vacation homes). All of the
Initial Home Equity Loans were originated or purchased after ________________,
19__. Initial Home Equity Loans aggregating _____% of the aggregate Loan
Balances of the Initial Home Equity Loans as of the Cut-Off Date (the "Original
Aggregate Loan Balance") are secured by first liens on the related properties,
and the remaining Initial Home Equity Loans are secured by second liens on the
related properties.
The Loan-to-Value Ratios shown below were calculated based upon either
the appraised values of the Properties at the time of origination (the
"Appraised Values") or the sales price. In a limited number of circumstances,
and within the Seller's underwriting guidelines, the Seller has reduced the
Appraised Value of Properties where the Properties are unique, have a high value
or where the comparables are not within FNMA
S-21
<PAGE>
guidelines. The purpose for making these reductions is to value the Properties
more conservatively than would otherwise be the case if the appraisal were
accepted as written.
No assurance can be given that values of the Properties have remained
or will remain at their levels on the dates of origination of the related Home
Equity Loans. If the residential real estate market has experienced or should
experience an overall decline in property values such that the outstanding
balances of the Home Equity Loans, together with the outstanding balances of any
first mortgage, become equal to or greater than the value of the Properties, the
actual rates of delinquencies, foreclosures and losses could be higher than
those now generally experienced in the mortgage lending industry.
Initial Home Equity Loans -- Fixed Rate Group
As of the Cut-Off Date, the average Loan Balance of the Initial Home
Equity Loans in the Fixed Rate Group was $_____________; the weighted average
Coupon Rate of the Initial Home Equity Loans in the Fixed Rate Group was _____%;
the Coupon Rates of the Initial Home Equity Loans in the Fixed Rate Group ranged
from _____% to _____%; the weighted average combined Loan-to-Value Ratio of the
Initial Home Equity Loans in the Fixed Rate Group was _____%; the weighted
average remaining term to maturity of the Initial Home Equity Loans in the Fixed
Rate Group was ____ months; and the remaining terms to maturity of the Initial
Home Equity Loans in the Fixed Rate Group ranged from ____ months to ____
months. As of the Cut-Off Date, _____% of the Initial Home Equity Loans in the
Fixed Rate Group were secured by first mortgages and _____% of the Initial Home
Equity Loans in the Fixed Rate Group are secured by second mortgages. The
maximum and minimum Loan Balances of the Initial Home Equity Loans in the Fixed
Rate Group as of the Cut-Off Date were $___________ and $___________,
respectively. Home Equity Loans in the Fixed Rate Group containing "balloon"
payments represented not more than _____% of the Initial Home Equity Loans in
the Fixed Rate Group. No Initial Home Equity Loan in the Fixed Rate Group will
mature later than __________________.
S-22
<PAGE>
Geographic Distribution of Properties - Fixed Rate Group
The geographic distribution of Initial Home Equity Loans in the Fixed
Rate Group by state, as of the Cut-Off Date, was as follows:
Number of Initial Aggregate % of Aggregate
State Home Equity Loans Loan Balance Loan Balance
- ----- ----------------- ------------ ------------
Total $ %
Original Loan-to-Value Ratios - Fixed Rate Group
The original loan-to-value ratios as of the origination dates of the
Initial Home Equity Loans in the Fixed Rate Group (based upon appraisals made at
the time of origination thereof) (the "Loan-to-Value Ratios") as of the Cut-Off
Date were distributed as follows:
Range of Number of Initial Aggregate % of Aggregate
Original LTVs Home Equity Loans Loan Balance Loan Balance
- ------------- ----------------- ------------ ------------
Total $ %
Combined Loan-to-Value Ratios - Fixed Rate Group
The original combined loan-to-value ratios as of the dates of
origination of the Initial Home Equity Loans in the Fixed Rate Group (based upon
appraisals made at the time of origination hereunder) (the "Combined
Loan-to-Value Ratios") as of the Cut-Off Date were distributed as follows:
Range of Number of Initial Aggregate % of Aggregate
Original CLTV's Home Equity Loans Loan Balance Loan Balance
- --------------- ----------------- ------------ ------------
Total $
Cut-Off Date Coupon Rates - Fixed Rate Group
The Coupon Rates borne by the Notes relating to the Initial Home Equity
Loans in the Fixed Rate Group as of the Cut- Off Date were distributed as
follows as of the Cut-Off Date:
Range of Number of Initial Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ------------ ----------------- ------------ ------------
Total $
S-23
<PAGE>
Cut-Off Date Loan Balances - Fixed Rate Group
The distribution of the outstanding principal amounts of the Initial
Home Equity Loans in the Fixed Rate Group as of
the Cut-Off Date was as follows:
Range of Number of Initial Aggregate % of Aggregate
Loan Balances Home Equity Loans Loan Balance Loan Balance
- ------------- ----------------- ------------ ------------
Total $
Types of Mortgaged Properties - Fixed Rate Group
The Properties securing the Initial Home Equity Loans in the Fixed Rate Group as
of the Cut-Off Date were of the property types as follows:
Property Types Number of Initial Aggregate % of Aggregate
Home Equity Loans Loan Balance Loan Balance
----------------- ------------ ------------
Single Family Detached
Two-to-Four Family
Single Family Attached
Condominium
Planned Unit Development
Townhouse
Mixed Use
Multifamily Residential
Cooperative
Total $
Distribution of Months Since Origination - Fixed Rate Group
The distribution of the number of months since the date of origination
of the Initial Home Equity Loans in the Fixed Rate Group as of the Cut-Off Date
was as follows:
Number of Months Number of Initial Aggregate % of Aggregate
Since Origination Home Equity Loans Loan Balance Loan Balance
- ----------------- ----------------- ------------ ------------
Total $
S-24
<PAGE>
Distribution of Remaining Term to Maturity - Fixed Rate Group
The distribution of the number of months remaining to maturity of the
Initial Home Equity Loans in the Fixed Rate Group as of the Cut-Off Date was as
follows:
Months Remaining Number of Initial Aggregate % of Aggregate
to Maturity Home Equity Loans Loan Balance Loan Balance
- ----------- ----------------- ------------ ------------
Total $
Occupancy Status - Fixed Rate Group
The occupancy status of the Properties securing the Initial Home Equity
Loans in the Fixed Rate Group as of the CutOff Date was as follows:
Number of Initial Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
- ---------------- ----------------- ------------ ------------
Conveyance of Subsequent Home Equity Loans -- Fixed Rate Group
The Pooling and Servicing Agreement permits the Trust to acquire
$_____________ in aggregate principal balance of Subsequent Home Equity Loans
for addition to the Fixed Rate Group. Accordingly, the statistical
characteristics of the Home Equity Loan Pool and the Fixed Rate Group will vary
as of any Subsequent Cut-Off Date upon the acquisition of Subsequent Home Equity
Loans.
The obligation of the Trust to purchase a Subsequent Home Equity Loan
for addition to the Fixed Rate Group on a Subsequent Transfer Date is subject,
among other factors, to the following requirements (which may be waived or
modified by the Certificate Insurer): (i) such Subsequent Home Equity Loan may
not be 30 or more days contractually delinquent as of the related Subsequent
Cut-Off Date (except that Subsequent Home Equity Loans representing not more
than __% of the aggregate Loan Balance of the Subsequent Home Equity Loans may
not be more than 60 days Delinquent as of the related Subsequent CutOff Date);
(ii) such Subsequent Home Equity Loan will be a fixed rate Home Equity Loan;
(iii) the original term to maturity of such Subsequent Home Equity Loan may not
exceed 30 years; (iv) such Subsequent Home Equity Loan will have a Coupon Rate
of not less than _____%; (v) each Subsequent Home Equity Loan is not secured by
a Property that is a manufactured home; and (vi) following the purchase of such
Subsequent Home Equity Loan by the Trust, the Home Equity Loans (including the
Subsequent Home Equity Loans) (a) will have a weighted average Coupon Rate of at
least ______%; (b) will have a weighted average combined Loan-to-Value Ratio of
not more than ______%; (c) will not have Balloon Loans representing more than
_____% by aggregate principal balance and no such Subsequent Home Equity Loan
which is a Balloon Loan shall have an original term to maturity of less than 15
years; and, (d) will have no Home Equity Loan with a principal balance in excess
of
$-------.
S-25
<PAGE>
Initial Home Equity Loans - Adjustable Rate Group
As of the Cut-Off Date, the average Loan Balance of the Home Equity
Loans in the Adjustable Rate Group was $________; the weighted average Coupon
Rate of the Home Equity Loans in the Adjustable Rate Group was _____%; the
Coupon Rates of the Home Equity Loans in the Adjustable Rate Group ranged from
_____% to _____%; the weighted average maximum Coupon Rate of the Home Equity
Loans in the Adjustable Rate Group was _____%; the maximum Coupon Rate of the
Home Equity Loans in the Adjustable Rate Group ranged from _____% to _____%; the
minimum Coupon Rate of the Loans in the Adjustable Rate Group ranged from _____%
to _____%; the weighted average Loan-to-Value Ratio of the Home Equity Loans in
the Adjustable Rate Group was _____%; the weighted average remaining term to
maturity of the Home Equity Loans in the Adjustable Rate Group was ___ months;
and the remaining terms to maturity as of the Cut-Off Date of the Home Equity
Loans in the Adjustable Rate Group ranged from ___ months to ___ months. All of
the Home Equity Loans in the Adjustable Rate Group are secured by first
mortgages. The maximum and minimum Loan Balance of the Home Equity Loans in the
Adjustable Rate Group as of the Cut-Off Date was $_______ and $_______,
respectively. None of the Home Equity Loans in the Adjustable Rate Group
contains "balloon" payments. No Home Equity Loans in the Adjustable Rate Group
will mature later than __________, ____.
All of the Home Equity Loans in the Adjustable Rate Group have maximum
Coupon Rates. The weighted average maximum Coupon Rate of the Home Equity Loans
in the Adjustable Rate Group is _____%, with maximum Coupon Rates that range
from approximately _____% to _____%. The Home Equity Loans in the Adjustable
Rate Group have a weighted average margin as of the Cut-Off Date of _____%. The
margin for the Home Equity Loans in the Adjustable Rate Group ranges from _____%
to _____%.
Six-Month LIBOR Loans. The Six-Month LIBOR Loans consist of ___ loans
aggregating $____________ which have semi-annual interest rate and semi-annual
payment adjustment frequencies. The Six-Month LIBOR Loans have a weighted
average margin of _____%. The margin for the Six-Month LIBOR Loans ranges from
_____% to _____ The Six-Month LIBOR Loans have a weighted average periodic
semi-annual rate adjustment cap of _____%. The weighted average initial Coupon
Rate is _____%, with initial Coupon Rates that range from _____% to _____%. The
Six-Month LIBOR Loans have a weighted average maximum Coupon Rate of _____% with
maximum Coupon Rates that range from _____% to _____%. The weighted average
number of months to the next rate adjustment date on the Six-Month Libor Loans
is __ months.
[CMT Loans. The CMT Loans consist of __ loans aggregating $____________
which have annual interest rate and annual payment adjustment frequencies based
on the weekly average yield on United States Treasury securities adjusted to a
constant maturity of one year. The CMT Loans have a weighted average margin of
_____%. The margin for the CMT Loans ranges from _____% to _____%. The CMT Loans
have a weighted average periodic annual rate adjustment cap of _____%. The
weighted average initial Coupon Rate is _____%, with initial Coupon Rates that
range from _____% to _____%. The CMT Loans have a weighted average maximum
Coupon Rate of _____%, with maximum Coupon Rates that range from _____% to
_____%. The weighted average number of months to the next rate adjustment date
on the CMT Loans is __ months.]
[5/25 Loans. The 5/25 Loans consist of __ Mortgage Loans aggregating
$__________, which have a weighted average first interest rate adjustment of 60
months from the origination date and, generally thereafter, an annual interest
rate and annual prepayment adjustment frequencies in the same manner as CMT
Loans and subject to a _____% periodic rate adjustment cap. The 5/25 Loans have
a weighted average margin of _____% ranging from _____% to _____%. The weighted
average initial Coupon Rate is _____%, with initial Coupon Rates that range from
_____% to _____%. The 5/25 Loans have a weighted average maximum Coupon Rate of
_____%, with maximum Coupon Rates that range from _____% to _____%. The weighted
average number of months to the next rate adjustment date on the 5/25 Loans is
__ months.]
S-26
<PAGE>
Geographic Distribution of Properties - Adjustable Rate Group
The geographic distribution of Home Equity Loans in the Adjustable Rate
Group by state, as of the Cut-Off Date, was as follows:
Number of Aggregate % of Aggregate
State Home Equity Loans Loan Balance Loan Balance
- ----- ----------------- ------------ ------------
Total $
Original Loan-to-Value Ratios - Adjustable Rate Group
The original loan-to-value ratios as of the origination dates of the
Home Equity Loans in the Adjustable Rate Group (based upon appraisals made at
the time of origination thereof) (the "Loan-to-Value Ratios") as of the Cut-Off
Date were distributed as follows:
Range of Number of Aggregate % of Aggregate
Original LTVs Home Equity Loans Loan Balance Loan Balance
- ------------- ----------------- ------------ ------------
Total $
Cut-Off Date Coupon Rates - Adjustable Rate Group
The Coupon Rates borne by the Notes relating to the Home Equity Loans
in the Adjustable Rate Group as of the CutOff Date were distributed as follows
as of the Cut-Off Date:
Range of Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
- ------------ ----------------- ------------ ------------
Total $
S-27
<PAGE>
Cut-Off Date Loan Balances - Adjustable Rate Group
The distribution of the outstanding principal amounts of the Home
Equity Loans in the Adjustable Rate Group as of the Cut-Off Date was as follows:
Range of Number of Aggregate % of Aggregate
Loan Balances Home Equity Loans Loan Balance Loan Balance
- ------------- ----------------- ------------ ------------
Total $
Types of Mortgaged Properties - Adjustable Rate Group
The Properties securing the Home Equity Loans in the Adjustable Rate
Group as of the Cut-Off Date were of the property types as follows:
Number of Aggregate % of Aggregate
Property Types Home Equity Loans Loan Balance Loan Balance
- -------------- ----------------- ------------ ------------
Single Family Detached $ %
Condominium
Planned Unit Development
Two-to-Four Family
Townhouse
Total $
Distribution of Months Since Origination - Adjustable Rate Group
The distribution of the number of months since the date of origination
of the Home Equity Loans in the Adjustable Rate Group as of the Cut-Off Date was
as follows:
Number of Months Number of Aggregate % of Aggregate
Since Origination Home Equity Loans Loan Balance Loan Balance
- ----------------- ----------------- ------------ ------------
Total
S-28
<PAGE>
Distribution of Remaining Term to Maturity - Adjustable Rate Group
The distribution of the number of months remaining to maturity of the
Home Equity Loans in the Adjustable Rate Group as of the Cut-Off Date was as
follows:
Months Remaining Number of Aggregate % of Aggregate
to Maturity Home Equity Loans Loan Balance Loan Balance
- ----------- ----------------- ------------ ------------
Total $
Occupancy Status - Adjustable Rate Group
The occupancy status of the Properties securing the Home Equity Loans
in the Adjustable Rate Group as of the Cut-Off Date was as follows:
Number of Aggregate % of Aggregate
Occupancy Status Home Equity Loans Loan Balance Loan Balance
- ---------------- ----------------- ------------ ------------
Owner Occupied $ %
Investor Owned
Vacation/Second Home
Total $
S-29
<PAGE>
Distribution of Margins -- Adjustable Rate Group
The margins borne by the Notes relating to the Home Equity Loans in the
Adjustable Rate Group as of the Cut-Off Date was as follows:
SIX MONTH LIBOR
Number of Aggregate % of Aggregate
Margins Home Equity Loans Loan Balance Loan Balance
------- ----------------- ------------ ------------
Total $
[ONE YEAR CMT ARM]
Number of Aggregate % of Aggregate
Margins Home Equity Loans Loan Balance Loan Balance
------- ----------------- ------------ ------------
Total $
[5/25 LOANS]
Number of Aggregate % of Aggregate
Margins Home Equity Loans Loan Balance Loan Balance
------- ----------------- ------------ ------------
Total $
S-30
<PAGE>
Distribution of Maximum Coupon Rates -- Adjustable Rate Group
The maximum Coupon Rates borne by the Notes relating to the Home Equity
Loans in the Adjustable Rate Group as of the Cut-Off Date was as follows:
SIX MONTH LIBOR
Maximum Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
------------ ----------------- ------------ ------------
Total $
[ONE YEAR CMT ARM]
Maximum Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
------------ ----------------- ------------ ------------
Total $
[5/25 LOANS]
Maximum Number of Aggregate % of Aggregate
Coupon Rates Home Equity Loans Loan Balance Loan Balance
------------ ----------------- ------------ ------------
Total $
S-31
<PAGE>
Distribution of Next Coupon Rate Change -- Adjustable Rate Group
The number of months until the next Coupon Rate change for each of the
Notes relating to the Home Equity Loans in the Adjustable Rate Group as of the
Cut-Off Date was as follows:
SIX MONTH LIBOR
Number of Months to Number of Aggregate % of Aggregate
Next Coupon Rate Change Home Equity Loans Loan Balance Loan Balance
1 $ %
2
3
4
5
6
Total $
ONE YEAR CMT ARM
Numbers of Months to Number of Aggregate % of Aggregate
Next Coupon Rate Change Home Equity Loans Loan Balance Loan Balance
----------------------- ----------------- ------------ ------------
1 $ %
3
4
5
6
7
8
9
10
11
Total $
5/25 LOANS
Number of Months to Number of Aggregate % of Aggregate
Next Coupon Rate Change Home Equity Loans Loan Balance Loan Balance
----------------------- ----------------- ------------ ------------
43 $ %
49
50
51
52
53
Total $
S-32
<PAGE>
Interest Payments on the Home Equity Loans
All of the Home Equity Loans provide that interest is charged to the
obligor (the "Mortgagor") thereunder, and payments are due from such Mortgagors,
as of a scheduled day of each month which is fixed at the time of origination.
Scheduled monthly payments made by the Mortgagors on the Home Equity Loans
either earlier or later than the scheduled due dates thereof will not affect the
amortization schedule or the relative application of such payments to principal
and interest.
PREPAYMENT AND YIELD CONSIDERATIONS
General
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A Certificate will relate to the rate of payment
of principal of the Home Equity Loans in the related Home Equity Loan Group,
including for this purpose Prepayments, liquidations due to defaults, casualties
and condemnations, and repurchases of Home Equity Loans by the Seller. A
significant number of the Home Equity Loans may be prepaid by the related
Mortgagors, in whole or in part, at any time without payment of any prepayment
fee or penalty. The actual rate of principal prepayments on pools of home equity
loans is influenced by a variety of economic, tax, geographic, demographic,
social, legal and other factors and has fluctuated considerably in recent years.
In addition, the rate of principal prepayments may differ among pools of home
equity loans at any time because of specific factors relating to the home equity
loans in the particular pool, including, among other things, the age of the home
equity loans, the geographic locations of the properties securing the loans and
the extent of the mortgagors' equity in such properties, and changes in the
mortgagors' housing needs, job transfers and unemployment.
As with fixed rate obligations generally, the rate of prepayment on a
pool of home equity loans with fixed rates (such as the Home Equity Loans in the
Fixed Rate Group) is affected by prevailing market rates for home equity loans
of a comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
home equity loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, some mortgagors may sell or
refinance mortgaged properties in order to realize their equity in the mortgaged
properties, to meet cash flow needs or to make other investments.
As is the case with conventional fixed-rate home equity loans,
adjustable-rate home equity loans may also be subject to a greater rate of
principal prepayments in a declining interest rate environment. For example, if
prevailing interest rates fall significantly, adjustable-rate home equity loans
could be subject to higher prepayment rates than if prevailing interest rates
remain constant because the availability of fixed-rate home equity loans at
competitive interest rates may encourage mortgagors to refinance their
adjustable-rate home equity loan to "lock in" a lower fixed interest rate.
However, no assurance can be given as to the level of prepayments that the Home
Equity Loans will experience.
In addition to the foregoing factors affecting the weighted average
life of the Class A Certificates, the overcollateralization provisions of the
Trust result in a limited acceleration of each Class of Class A Certificates
relative to the amortization of the Home Equity Loans in early months of the
transaction. The accelerated amortization is achieved by the application of
certain excess interest to the payment of the Class A Certificate Principal
Balance. This acceleration feature creates overcollateralization which results
from the excess of the aggregate Loan Balance of the Home Equity Loans over the
Class A Certificate Principal Balance. Once the required level of
overcollateralization is reached, the acceleration feature will cease, unless
necessary to maintain the required level of overcollateralization.
S-33
<PAGE>
Mandatory Prepayment
In the event that at the end of the Funding Period not all of the
original Pre-Funded Amount has been used to acquire Subsequent Home Equity Loans
for inclusion in the [Fixed Rate] Group, then the [Fixed Rate] Class A
Certificates then entitled to receive payments of principal will receive a
partial prepayment pro rata on the Payment Date in _______ 199__.
Although no assurances can be given, the Seller intends to use
substantially all of the amount on deposit in the Pre-Funding Account to
purchase Subsequent Home Equity Loans such that no material amount of principal
is expected to be prepaid to the Owners of the [Fixed Rate] Certificates on or
before the Payment Date in _______ 199__.
Projected Prepayment and Yield for Class A Certificates
As indicated above, if purchased at other than par (disregarding, for
purposes of this discussion, the effects on an investor's yield resulting from
the timing of the settlement date and those considerations discussed below under
"Payment Lag Feature of Certificates"), the yield to maturity on a Class of
Class A Certificates will be affected by the rate of the payment of principal of
the Home Equity Loans. If the actual rate of payments on the Home Equity Loans
is slower than the rate anticipated by an investor who purchases a Class of
Class A Certificates at a discount, the actual yield to such investor will be
lower than such investor's anticipated yield. If the actual rate of payments on
the Home Equity Loans is faster than the rate anticipated by an investor who
purchases a Class of Class A Certificates at a premium, the actual yield to such
investor will be lower than such investor's anticipated yield.
The Final Scheduled Payment Date for each Class of Class A Certificates
is as set forth in the "Summary of Terms" hereof. These dates are dates on which
the "Initial Certificate Principal Balance" set forth in the "Summary of Terms"
hereof for the related Class of Class A Certificates as of the Closing Date less
all amounts previously distributed to the Owners (other than the Certificate
Insurer) on account of principal (such amount as to any Class of Class A
Certificates and as of any time, the related "Class A Certificate Principal
Balance" and as to the Class A Certificates collectively, the "Certificate
Principal Balance" or the "Class A Certificate Principal Balance") would be
reduced to zero, assuming that no Prepayments are received on the Home Equity
Loans, that scheduled monthly payments of principal and interest on the Home
Equity Loans are timely received and that Net Monthly Excess Cashflow will be
used to make accelerated payments of principal (i.e., Subordination Increase
Amounts) to the Owners of the related Class A Certificates. The Final Scheduled
Payment Date for the Class A-7 Certificates is the month following the
Remittance Period in which the Loan Balances of all Home Equity Loans in the
Fixed Rate Group (including Subsequent Home Equity Loans) have been reduced to
zero assuming that such Home Equity Loans pay in accordance with their terms.
The Final Scheduled Payment Date for the Class A-8 Certificates is the
thirteenth Payment Date following the calendar month in which the Loan Balances
of all Home Equity Loans in the Adjustable Rate Group have been reduced to zero
assuming that the Home Equity Loans in such Group pay in accordance with their
terms. The weighted average life of the Class A Certificates is likely to be
shorter than would be the case if payments actually made on the Home Equity
Loans conformed to the foregoing assumptions, and the final Payment Date with
respect to the Class A Certificates could occur significantly earlier than the
Final Scheduled Payment Date because (i) Prepayments are likely to occur and
(ii) the Owners of the Class R Certificates may cause a termination of the Trust
when the aggregate outstanding Loan Balance of the Home Equity Loans is less
than __% of the Maximum Collateral Amount thereof.
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of the
related Class A Certificates will be influenced by the rate at which principal
of the Home Equity Loans in the related Home Equity Loan Group is paid, which
may be in the form of scheduled amortization or prepayments (for this purpose,
the term "prepayment" includes Prepayments and liquidations due to default).
Prepayments on home equity loans are commonly measured relative to a prepayment
standard or model.
It is very unlikely that the Home Equity Loans will prepay at rates
consistent with the Prepayment Assumption until maturity or that all of the Home
Equity Loans in the related Home Equity Loan Group will prepay
S-34
<PAGE>
at the same rate. There will be discrepancies between the actual characteristics
of the Home Equity Loans included in the Trust and the assumed characteristics
used in preparing the following tables. Any discrepancy may have an effect upon
the percentages of Initial Certificate Principal Balance outstanding set forth
in the table and weighted average lives of the Class A Certificates.
The model used in this Prospectus Supplement is the prepayment
assumption (the "Prepayment Assumption") which represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of home equity loans for the life of such home equity loans. With respect
to the Class A Certificates, a ___% Prepayment Assumption assumes constant
prepayment rates ("CPR") of ___% per annum of the then outstanding principal
balance of the Home Equity Loans in the first month of the life of the Home
Equity Loans and an additional ___% per annum in each month thereafter until the
twelfth month. Beginning in the thirteenth month and in each month thereafter
during the life of the Home Equity Loans, ___% Prepayment Assumption assumes a
constant prepayment rate of ___% per annum each month. As used in the table
below, ___% Prepayment Assumption assumes prepayment rates equal to ___% of the
Prepayment Assumption; i.e., no prepayments. Correspondingly, ___% Prepayment
Assumption assumes prepayment rates equal to ___% of the Prepayment Assumption,
and so forth. The Prepayment Assumption does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of home equity loans, including the Home Equity Loans.
The Seller believes that no existing statistics of which it is aware provide a
reliable basis for Owners of Class A Certificates to predict the amount or the
timing of receipt of prepayments on the Home Equity Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between the characteristics of the
actual Home Equity Loans and the characteristics of the Home Equity Loans
assumed in preparing the tables. Any such discrepancy may have an effect upon
the percentages of the Certificate Principal Balances outstanding and weighted
average lives of the Class A Certificates set forth in the tables. In addition,
since the actual Home Equity Loans in the Trust have characteristics which
differ from those assumed in preparing the tables set forth below, the
distributions of principal on the Class A Certificates may be made earlier or
later than as indicated in the tables.
For the purpose of the tables below, it is assumed that: (i) the Home
Equity Loans of each Home Equity Loan Group which consist of pools of loans with
level-pay and balloon amortization methodologies, Cut-Off Date Loan Balances,
coupon rates, net coupon rates, original and remaining terms to maturity, and
original amortization terms as applicable, are as set forth below, (ii) the
Closing Date for the Certificates occurs on __________, 199__, (iii)
distributions on the Certificates are made on the __th day of each month
regardless of the day on which the Payment Date actually occurs, commencing in
_______ 199__ in accordance with the priorities described herein, (iv) the
difference between the Gross Coupon Rate and the Net Coupon Rate is equal to the
Servicing Fee and the Net Coupon Rate is further reduced by the Premium Amount
and the Trustee Fee, (v) the Home Equity Loans' prepayment rates are a multiple
of the applicable Prepayment Assumption, (vi) prepayments include 30 day's
interest thereon, (vii) no optional termination or mandatory termination is
exercised, (viii) the "Specified Subordinated Amount" (as defined under "Credit
Enhancement -- Overcollateralization Provisions") for each Home Equity Loan
Group is set initially as specified in the Pooling and Servicing Agreement, (ix)
all of the Pre-Funded Amount is used to acquire Subsequent Home Equity Loans for
inclusion in the Fixed Rate Group as of the close of business on ______________
and prior to such date, the Pre-Funded Amount accrued interest at a rate of
_____% per annum for one month, (x) the Coupon Rate for each Home Equity Loan in
the Adjustable Rate Group is adjusted on its next rate adjustment date (and no
subsequent rate adjustment dates, if necessary) to equal the sum of (a) an
assumed level of the applicable index of _____% for Six-Month LIBOR Loans,
_____% for CMT Loans and _____% for the 5/25 Loans, and (b) the respective gross
margin (such sum being subject to the applicable periodic adjustment cap and
maximum interest rate) and (xi) the scheduled monthly payments of principal and
interest on the Home Equity Loans will be timely delivered on the first day of
the Remittance Period (with no defaults).
S-35
<PAGE>
<TABLE>
<CAPTION>
HOME EQUITY LOANS FIXED RATE GROUP
<S> <C> <C> <C> <C> <C> <C> <C>
Original Remaining Original
Term to Term to Amortization
Pool Principal Gross Coupon Net Coupon Maturity Maturity Term Amortization
Number Balance Rate Rate (in months) (in months) (in months) Method
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE GROUP
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original Remaining
Term to Term to Original
Pool Principal Gross Net Coupon Months Maximum Maturity Maturity Amortization
Number Balance Coupon Rate to Rate Margin Interest (in months) (in months) Term Amortization
Rate Change Rate (in months) Method
- -----------------------------------------------------------------------------------------------------------------------------------
$ Level
Level
</TABLE>
S-36
<PAGE>
The following tables set forth the percentages of the initial principal
amount of the Class A Certificates that would be outstanding after each of the
dates shown, based on a rate equal to __%, __%, __%, __%, __% and __% of the
Prepayment Assumption (as defined above).
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE
Class A-1 Class A-2 Class A-3
Payment Date
S-37
<PAGE>
Payment Lag Feature of Class A Certificates
Pursuant to the Pooling and Servicing Agreement, an amount equal to
Mortgagor payments with respect to each Home Equity Loan (net of the Servicing
Fee) received by the Servicer during each Remittance Period is to be remitted to
the Trustee on or prior to the related Monthly Remittance Date; the Trustee will
not be required to distribute any such amounts to the Owners until the next
succeeding Payment Date. As a result, the monthly distributions to the Owners
generally reflect Mortgagor payments during the prior Remittance Period, and the
first Payment Date will not occur until ___________, 199__. Thus, the effective
yield to the Owners will be below that otherwise produced by the related
Pass-Through Rate because the distribution of the Class A Distribution Amount in
respect of any given month will not be made until on or about the ____ day of
the following month. This 25 day period between the last day of the Remittance
Period and the Payment Date is identical to the 25 day delay period for FNMA
securities.
FORMATION OF THE TRUST AND TRUST PROPERTY
The Trust will be created and established pursuant to the Pooling and
Servicing Agreement. The Seller will convey without recourse the Home Equity
Loans to the Depositor, the Depositor will convey without recourse the Home
Equity Loans to the Trust and the Trust will issue the Class A Certificates, the
Class S Certificates and the Class R Certificates to the Owners thereof.
The property of the Trust shall include all (a) the Home Equity Loans
together with the related Home Equity Loan documents and the Seller's interest
in any Property which secures a Home Equity Loan and all payments thereon and
proceeds of the conversion, voluntary or involuntary, of the foregoing, (b) such
amounts as may be held by the Trustee in the Certificate Account, the
Pre-Funding Account, the Capitalized Interest Account and any other accounts
held by the Trustee for the Trust together with investment earnings on such
amounts and such amounts may be held by the Servicer in the Principal and
Interest Account, if any, exclusive of investment earnings thereon (except as
otherwise provided) whether in the form of cash, instruments, securities or
other properties and (c) proceeds of all the foregoing (including, but not by
way of limitation, all proceeds of any mortgage insurance, hazard insurance and
title insurance policy relating to the Home Equity Loans, cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, rights to payment of any and every kind, and other
forms of obligations and receivables which at any time constitute all or part of
or are included in the proceeds of any of the foregoing) to pay the Certificates
as specified in the Pooling and Servicing Agreement (collectively, the "Trust
Estate"). In addition to the foregoing, the Seller shall cause the Certificate
Insurer to deliver the Insurance Policy to the Trustee for the benefit of the
Owners of the Class A Certificates.
The Class A Certificates will not represent an interest in or an
obligation of, nor will the Home Equity Loans be guaranteed by, the Depositor,
the Seller, the Servicer or any of their affiliates; however, certain
distributions due to the Owners of the Class A Certificates are insured by the
Certificate Insurer.
For Federal income tax purposes, the Trust Estate created by the
Pooling and Servicing Agreement will include two segregated asset pools, each of
which will be treated as a separate REMIC. The assets of the Base REMIC will
generally consist of the Home Equity Loans. The assets of the Upper-Tier REMIC
will generally consist of uncertificated regular interests issued by the Base
REMIC, which in the aggregate will correspond to the Class A Certificates. In
addition to the Class A Certificates, the Trust will also issue: the Class S
Certificates, entitled "IMC Home Equity Loan Trust 199_-__, Class S
Certificates," which are not themselves an interest in a REMIC, but represent
the sum of specified portions of certain uncertificated interests issued by the
Upper-Tier REMIC; a noncertificated residual interest in the Base REMIC; and, a
residual Class entitled "IMC Home Equity Loan Trust 199_-__, Class R
Certificates" which will be designated as the "residual interest" in the
Upper-Tier REMIC for purposes of the Code. The Class S Certificates and the
Class R Certificates are not being offered hereby.
Prior to its formation the Trust will have had no assets or
obligations. Upon formation, the Trust will not engage in any business activity
other than acquiring, holding and collecting payments on the Home Equity Loans,
issuing the Certificates and distributing payments thereon. The Trust will not
acquire any receivables or assets other than the Home Equity Loans and the
rights appurtenant thereto, and will not have any need for additional capital
resources. To the extent that borrowers make scheduled payments under the Home
Equity Loans, the Trust will have sufficient liquidity to make distributions on
the Certificates. As the Trust does not have any operating history
S-38
<PAGE>
and will not engage in any business activity other than issuing the Certificates
and making distributions thereon, there has not been included any historical or
pro forma ratio of earnings to fixed charges with respect to the Trust.
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Initial Home
Equity Loans and the Properties is based upon the pool as constituted at the
close of business on the Cut-Off Date. Prior to the issuance of the Class A
Certificates, Initial Home Equity Loans may be removed from the pool as a result
of incomplete documentation or non-compliance with representations and
warranties set forth in the Pooling and Servicing Agreement, if the Seller deems
such removal necessary or appropriate. A limited number of other Initial Home
Equity Loans may be included in the pool prior to the issuance of the
Certificates and the Subsequent Home Equity Loans will be added to the pool
after the issuance of the Certificates.
A current report on Form 8-K will be available to purchasers of the
Class A Certificates and will be filed, and incorporated by reference to the
Registration Statement together with the Pooling and Servicing Agreement, with
the Securities and Exchange Commission within fifteen days after the initial
issuance of the Class A Certificates and within fifteen days of the addition of
any Subsequent Home Equity Loans. In the event Initial Home Equity Loans are
removed from or added to, or Subsequent Home Equity Loans are added to, the pool
as set forth in the preceding paragraph, such removal or addition will be noted
in a current report on Form 8-K.
DESCRIPTION OF THE CLASS A CERTIFICATES
General
Each Class A Certificate will represent certain undivided, fractional
ownership interests in the Trust Estate created and held pursuant to the Pooling
and Servicing Agreement, subject to the limits and the priority of distribution
described therein.
The Home Equity Loan Pool is divided into two Groups, the Fixed Rate
Group, which contains only fixed rate Home Equity Loans and the Adjustable Rate
Group, which contains only adjustable rate Home Equity Loans. For each Home
Equity Loan Group, the related Class of Class A Certificates will evidence the
right to receive on each Payment Date the Class A Distribution Amount for such
Class of Class A Certificates, in each case until the related Class A
Certificate Principal Balance has been reduced to zero.
Payment Dates
On each Payment Date, the Owners of each Class of Class A Certificates
will be entitled to receive, from amounts then on deposit in the certificate
account established and maintained by the Trustee in accordance with the Pooling
and Servicing Agreement (the "Certificate Account") and until the Certificate
Principal Balance of such Class of Class A Certificates is reduced to zero, the
aggregate Class A Distribution Amount as of such Payment Date allocated among
each Class of Class A Certificates as described below. Distributions will be
made in immediately available funds to Owners of Class A Certificates by wire
transfer or otherwise, to the account of such Owner at a domestic bank or other
entity having appropriate facilities therefor, if such Owner has so notified the
Trustee at least five Business Days prior to the Record Date, or by check mailed
to the address of the person entitled thereto as it appears on the register (the
"Register") maintained by the Trustee as registrar (the "Registrar"). Beneficial
Owners may experience some delay in the receipt of their payments due to the
operations of DTC. See "Risk Factors--Book Entry Registration" in the Prospectus
and "Description of the Class A Certificates--Book Entry Registration of the
Class A Certificates" herein and "Description of the Certificates--Book Entry
Registration" in the Prospectus.
The Pooling and Servicing Agreement will provide that an Owner, upon
receiving the final distribution on such Owner's Certificate, will be required
to send such Certificate to the Trustee. The Pooling and Servicing Agreement
additionally will provide that, in any event, any Certificate as to which the
final distribution thereon has been made shall be deemed canceled for all
purposes of the Pooling and Servicing Agreement and the Insurance Policy.
Each Owner of record of the related Class of Class A Certificates will
be entitled to receive such Owner's Percentage Interest in the amounts due such
Class on such Payment Date. The "Percentage Interest" of a Class A Certificate
as of any date of determination will be equal to the percentage obtained by
dividing the principal
S-39
<PAGE>
balance of such Class A Certificate as of the Cut-Off Date by the Certificate
Principal Balance for the related Class of the Class A Certificates as of the
Cut-Off Date.
Distributions
Upon receipt, the Trustee will be required to deposit into the
Certificate Account, (i) any Insured Payments, (ii) the proceeds of any
liquidation of the assets of the Trust, (iii) all remittances made to the
Trustee by the Servicer and (iv) on the first three Payment Dates, the
Capitalized Interest Requirement (as defined in the Pooling and Servicing
Agreement) and any portion of the Pre-Funded Amount, if any, to be transferred
on such Payment Dates.
The Pooling and Servicing Agreement establishes a pass-through rate on
each Class of Class A Certificates (each, a "Pass-Through Rate") as set forth in
the Summary herein under "Certificates Offered; provided, that the Pass-Through
Rate with respect to the Class A-8 Certificates will equal the lesser of (i) the
London interbank offered rate for one-month United States dollar deposits
(calculated as described under "-- Calculation of LIBOR" below) as of the second
to last business day prior to the immediately preceding Payment Date (or as of
the second to last business day prior to the Closing Date with respect to the
__________ 199__ Payment Date) (the "LIBOR Determination Date") plus ____% per
annum, and (ii) the weighted average of the Coupon Rates of the Home Equity
Loans in the Adjustable Rate Group less ____% per annum, calculated as of the
first day of the related Remittance Period.
On each Payment Date, the Trustee is required to make the following
disbursements and transfers from monies then on deposit in the Certificate
Account as specified below in the following order of priority of each such
transfer and disbursement:
(i) first, on each Payment Date from amounts then on deposit in
the Certificate Account, (A) to the Trustee, the Trustee Fee
and the Trustee Reimbursable Expenses and (B) provided that no
Certificate Insurer Default has occurred and is continuing,
the Premium Amount for such Payment Date to the Certificate
Insurer;
(ii) second, on each Payment Date, the Trustee shall allocate an
amount equal to the sum of (x) the Total Monthly Excess Spread
with respect to such Home Equity Loan Group and Payment Date
plus (y) any Subordination Reduction Amount with respect to
such Home Equity Loan Group and Payment Date (such sum being
the "Total Monthly Excess Cashflow" with respect to such Home
Equity Loan Group and Payment Date) in the following order of
priority:
(A) first, such Total Monthly Excess Cashflow shall be
allocated to the payment of the Class A Principal
Distribution Amount (excluding any Subordination
Increase Amount) pursuant to clause (iv)(C) below in
an amount equal to the amount, if any, by which (x)
the Class A Principal Distribution Amount (excluding
any Subordination Increase Amount) exceeds (y) the
Available Funds with respect to such Home Equity Loan
Group for such Payment Date (net of Trustee Fees, the
Premium Amount, the Servicing Fee, any Trustee
Reimbursable Expense and Current Interest); (the
amount of such difference with respect to a Home
Equity Loan Group being an "Available Index Funds
Shortfall" for such Home Equity Loan Group);
(B) second, any portion of the Total Monthly Excess
Cashflow with respect to such Home Equity Loan Group
remaining after the application described in clauses
(A), (B) and (C) above shall be allocated against any
Available Funds Shortfall with respect to the other
Home Equity Loan Group;
(C) third, any portion of the Total Monthly Excess
Cashflow with respect to such Home Equity Loan Group
remaining after the allocations described in clauses
(A) and (B) above shall be paid to the Certificate
Insurer in respect of amounts owed on account of any
Reimbursement Amount (as defined in the Pooling and
Servicing Agreement) owed to the Certificate Insurer
with respect to the related Home Equity Loan Group;
and
(D) fourth, any portion of the Total Monthly Excess
Cashflow with respect to such Home Equity Loan Group
remaining after the allocations described in clauses
(A), (B) and (C) above shall be paid to the
Certificate Insurer in respect of amounts owed on
account of
S-40
any Reimbursement Amount owed to the Certificate
Insurer with respect to the other Home Equity Loan
Group;
(iii) third, the amount, if any, of the Total Monthly Excess
Cashflow with respect to such Home Equity Loan Group on a
Payment Date remaining after the allocations and payments
described in clause (ii) above is the "Net Monthly Excess
Cashflow" with respect to such Home Equity Loan Group Payment
Date and is required to be applied in the following order or
priority:
(A) first, such Net Monthly Excess Cashflow shall be used
to reduce to zero, through the payment of a
Subordination Increase Amount to the Owners of the
Class A Certificates pursuant to clause (iv)(C)
below, any Subordination Deficiency Amount with
respect to such Home Equity Loan Group as of such
Payment Date; and
(B) second, any Net Monthly Excess Cashflow remaining
after the application described in clause (A) above
shall be used to reduce to zero, through the payment
of a Subordination Increase Amount, the Subordination
Deficiency Amount, if any, with respect to the other
Home Equity Loan Group; and
(C) third, any Net Monthly Excess Cashflow remaining
after the applications and payments described in
clauses (A) and (B) above shall be paid to the
Servicer to the extent of any unreimbursed
Delinquency Advances, unreimbursed Servicing Advances
and unreimbursed Compensating Interest;
(iv) fourth, following the making by the Trustee of all
allocations, transfers and disbursements described above from
amounts (including any related Insured Payment ) then on
deposit in the Certificate Account with respect to the related
Home Equity Loan Group, the Trustee shall distribute:
(A) to the Owners of the Class A Certificates of the
related Group, the related Class A Current Interest
for each Class (including the proceeds of any Insured
Payments made by the Certificate Insurer) on a pro
rata basis based on each such Class A Certificate's
Current Interest without any priority among the Class
A Certificates;
(B) to the Owners of the Class S Certificates, the Class
S Distribution Amount (as defined in the Pooling and
Servicing Agreement);
(C) to the Owners of Class A Certificates, (I) the Class
A Principal Distribution Amount applicable to the
Fixed Rate Group shall be distributed as follows: (i)
first, to the ----- Owners of the Class A-1
Certificates until the Class A-1 Certificate
Principal Balance is reduced to zero; (ii) second, to
the Owners of the Class A-2 Certificates until the
Class ------ A-2 Certificate Principal Balance is
reduced to zero; (iii) third, to the Owners of the
----- Class A-3 Certificates until the Class A-3
Certificate Principal Balance is reduced to zero;
(iv) fourth, to the Owners of the Class A-4
Certificates until the Class A-4 Certificate ------
Principal Balance is reduced to zero; (v) fifth, to
the Owners of the Class A-5 ----- Certificates until
the Class A-5 Certificate Principal Balance is
reduced to zero; (vi) sixth, ----- to the Owners of
the Class A-6 Certificates until the Class A-6
Certificate Principal Balance is reduced to zero; and
(vii) seventh, to the Owners of the Class A-7
Certificates ------- until the Class A-7 Certificate
Principal Balance is reduced to zero; and (II) the
Class A Principal Distribution Amount applicable to
the Adjustable Rate Group shall be distributed to the
Owners of the Class A-8 Certificates until the Class
A-8 Certificate Principal Balance has been reduced to
zero; and
(D) to the Trustee, as reimbursement for all
unreimbursable expenses incurred in connection with
duties and obligations under the Pooling and
Servicing Agreement; and
(v) fifth, following the making by the Trustee of all allocations,
transfers and disbursements described above, from amounts then
on deposit in the Certificate Account, the Trustee shall
distribute to the Owners of the Class R Certificates, the
remaining distributable amounts as specified in the Pooling
and Servicing Agreement, for such Payment Date.
S-41
<PAGE>
The Trustee Fee, the Trustee Reimbursable Expenses, and the Premium
Amount as of each Payment Date will be as set out in the Pooling and Servicing
Agreement.
"Current Interest" with respect to each Class of Class A Certificates
means, with respect to any Payment Date (i) the aggregate amount of interest
accrued during the preceding Accrual Period on the Class A Certificate Principal
Balance of the related Class A Certificates plus (ii) the Preference Amount as
it relates to interest previously paid on such Class of the Class A Certificates
prior to such Payment Date plus (iii) the Carry Forward Amount, if any, with
respect to such Class of Class A Certificates.
The "Carry-Forward Amount" with respect to any Class of Class A
Certificates is the amount as of any Payment Date, equal to the sum of (i) the
amount, if any, by which (x) the Class A Current Interest for such Class
exceeded (y) the amount of the actual distribution in respect of interest on
such Class of Class A Certificates, made to the Owners of such Class of Class A
Certificates on such immediately preceding Payment Date and (ii) 30 days
interest on such excess at the related Pass-Through Rate for such Class of Class
A Certificates.
"Available Funds" as to any Home Equity Loan Group and Payment Date is
the amount on deposit in the Certificate Account on such Payment Date (net of
Total Monthly Excess Cashflow and disregarding the amounts of any Insured
Payments with respect to a Home Equity Loan Group to be made on such Payment
Date and inclusive of any investment earnings on eligible investments therein).
"Total Available Funds" as to any Home Equity Loan Group and Payment
Date is (x) the amount on deposit in the Certificate Account (net of Total
Monthly Excess Cashflow) on such Payment Date plus, (y) any amounts of Total
Monthly Excess Cashflow to be applied on such Payment Date (disregarding the
amount of any Insured Payment with respect to a Home Equity Loan Group to be
made on such Payment Date) plus in the case of the Fixed Rate Group, (z) any
deposit to the Certificate Account from the Pre-Funding Account and Capitalized
Interest Account expected to be made in accordance with the Pooling and
Servicing Agreement.
The Trustee or Paying Agent shall (i) receive as attorney-in-fact of
each Owner of Class A Certificates any Insured Payment from the Certificate
Insurer and deposit such amounts into the Certificate Account and (ii) disburse
the same to each Owner of Class A Certificates. The Pooling and Servicing
Agreement will provide that to the extent the Certificate Insurer makes Insured
Payments, either directly or indirectly (as by paying through the Trustee or
Paying Agent), to the Owners of such Class A Certificates the Certificate
Insurer will be subrogated to the rights of such Owners of Class A Certificates
with respect to such Insured Payments, and shall receive reimbursement for such
Insured Payment as provided in the Pooling and Servicing Agreement, but only
from the sources and in the manner provided in the Pooling and Servicing
Agreement for the payment of the Class A Distribution Amount to Owners of Class
A Certificates, if any; such subrogation and reimbursement to have no effect on
the Certificate Insurer's obligations under the Insurance Policy.
The Pooling and Servicing Agreement provides that the term "Available
Funds" does not include Insured Payments and does not include any amounts that
cannot be distributed to the Owners of Class A Certificates, if any, by the
Trustee as a result of proceedings under the United States Bankruptcy Code.
Each Owner of a Class A Certificate will be required promptly to notify
the Trustee in writing upon the receipt of a court order relating to a
Preference Amount and will be required to enclose a copy of such order with such
notice to the Trustee.
Pre-Funding Account
On the Closing Date, the Pre-Funded Amount will be deposited in the
Pre-Funding Account, which account shall be in the name of and maintained by the
Trustee and shall be part of the Trust. During the Funding Period, the
Pre-Funded Amount will be maintained in the Pre-Funding Account. The Pre-Funded
Amount will be reduced during the Funding Period by the amount thereof used to
purchase Subsequent Home Equity Loans for addition to the Fixed Rate Group in
accordance with the Pooling and Servicing Agreement. Any Pre-Funded Amount
remaining at the end of the Funding Period will be distributed to the Owners of
the related Fixed Rate Certificates then entitled to receive principal payments
on the Payment Date in __________ 199__ in reduction of the Certificate
Principal Balance of such Owner's Certificates, thus resulting in a partial
principal prepayment of the related Fixed Rate Certificates.
S-42
<PAGE>
Amounts on deposit in the Pre-Funding Account will be invested in
Eligible Investments. All interest and any other investment earnings on amounts
on deposit in the Pre-Funding Account will be deposited in the Capitalized
Interest Account prior to each Payment Date during the Funding Period. The
Pre-Funding Account will not be an asset of either the Base REMIC or the
Upper-Tier REMIC.
Capitalized Interest Account
On the Closing Date cash will be deposited in the Capitalized Interest
Account, which account shall be in the name of and maintained by the Trustee and
shall be part of the Trust. The amount on deposit in the Capitalized Interest
Account, including reinvestment income thereon, will be used by the Trustee to
fund the excess, if any, of (i) the sum of the amount of interest accruing
during the related interest accrual period at the weighted average of the Class
A Pass-Through Rates of all Fixed Rate Certificates on the amount by which the
aggregate Class A Certificate Principal Balance of the Fixed Rate Certificates
exceeds the aggregate Loan Balance of the Home Equity Loans in the Fixed Rate
Group plus the Class S Distribution Amount and any Trustee Reimbursable Expenses
and Certificate Insurer fees with respect to the Fixed Rate Group accruing
during the related interest accrual period on such excess balance over (ii) the
amount of any reinvestment income on monies on deposit in the Pre-Funding
Account; such amounts on deposit will be so applied by the Trustee on the first
two Payment Dates to fund any such excess. Any amounts remaining in the
Capitalized Interest Account at the end of the Funding Period and not needed for
such purpose will be paid to the depositor of such funds and will not thereafter
be available for distribution to the Owners of the Fixed Rate Certificates.
Amounts on deposit in the Capitalized Interest Account will be invested
in Eligible Investments. The Capitalized Interest Account will not be part of
either the Base REMIC or the Upper-Tier REMIC.
Calculation of LIBOR
On each LIBOR Determination Date (as defined above), the Trustee will
determine LIBOR for the next Accrual Period for the Class A-8 Certificates.
"LIBOR" means, as of any LIBOR Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Accrual
Period (commencing on the first day of such Accrual Period) which appears in the
Telerate Page 3750 as of 11:00 a.m., London time, on such date. If such rate
does not appear on Telerate Page 3750, the rate for that day will be determined
on the basis of the rates at which deposits in United States dollars are offered
by the Reference Banks at approximately 11:00 a.m., London time, on that day to
prime banks in the London interbank market for a period equal to the relevant
Accrual Period (commencing on the first day of such Accrual Period). The Trustee
will request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are provided,
the rate for that day will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Servicer, at approximately 11:00 a.m., New York City time, on that day for
loans in United States dollars to leading European banks for a period equal to
the relevant Accrual Period (commencing on the first day of such Accrual
Period).
"Telerate Page 3750" means the display page currently so designated on
the Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices) and
"Reference Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market.
Book Entry Registration of the Class A Certificates
The Class A Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
such Book-Entry Certificates ("Beneficial Owners") may elect to hold their Book-
Entry Certificates directly through DTC participants of such system
("Participants"), or indirectly through organizations which are Participants.
The Book-Entry Certificates will be issued in one or more certificates per class
of Class A Certificates which in the aggregate equal the principal balance of
such Class A Certificates and will initially be registered in the name of Cede &
Co., the nominee of DTC. Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations representing principal amounts
of $1,000 and in integral multiples in excess thereof. Except as described
below, no Beneficial Owner will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only "Owner" of
such Book-Entry Certificates will be Cede & Co.,
S-43
<PAGE>
as nominee of DTC. Beneficial Owners will not be Owners as that term is used in
the Pooling and Servicing Agreement. Beneficial Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's Ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant).
Beneficial Owners will receive all distributions of principal of, and
interest on, the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While such Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to such Certificates and is required to receive and transmit
distributions of principal of, and interest on, such Certificates. Participants
and indirect participants with whom Beneficial Owners have accounts with respect
to Book-Entry Certificates are similarly required to make book-entry transfers
and receive and transmit such distributions on behalf of their respective
Beneficial Owners. Accordingly, although Beneficial Owners will not possess
certificates, the Rules provide a mechanism by which Beneficial Owners will
receive distributions and will be able to transfer their interest.
Beneficial Owners will not receive or be entitled to receive
certificates representing their respective interests in the Class A
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Owners who are not
Participants may transfer ownership of Class A Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Class A Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Class A
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Class A Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Owners.
Transfers between Participants will occur in accordance with DTC rules.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-Entry Certificates, whether held for its own account or as a nominee
for another person. In general, beneficial ownership of Book- Entry Certificates
will be subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for disbursing such payment to the Beneficial Owners of the
Book-Entry Certificates that it represents and to each Financial Intermediary
for which it acts as agent. Each such Financial Intermediary will be responsible
for disbursing funds to the Beneficial Owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Because DTC can only act on
behalf of Financial Intermediaries, the ability of a Beneficial Owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust provided by the Servicer to
Cede, as nominee of DTC, may be made available to Beneficial Owners upon
request, in accordance with the rules, regulations and procedures creating
S-44
<PAGE>
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such Beneficial Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. DTC may take actions, at the direction of the
related Participants, with respect to some Class A Certificates which conflict
with actions taken with respect to other Class A Certificates.
Definitive Certificates will be issued to Beneficial Owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as a nominee and
depository with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor, at its
sole option, elects to terminate a book-entry system through DTC or (c) DTC, at
the direction of the Beneficial Owners representing a majority of the
outstanding Percentage Interests of the Class A Certificates, advises the
Trustee in writing that the continuation of a book-entry system through DTC (or
a successor thereto) is no longer in the best interests of Beneficial Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book- Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of Certificates among Participants of DTC, it is under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
Assignment of Rights
An Owner may pledge, encumber, hypothecate or assign all or any part of
its right to receive distributions under any Certificate, but such pledge,
encumbrance, hypothecation or assignment shall not constitute a transfer of an
ownership interest sufficient to render the transferee an Owner of the Trust
without compliance with the provisions of the Pooling and Servicing Agreement
described above. Notwithstanding the foregoing, the Pooling and Servicing
Agreement provides that the Certificate Insurer will, in connection with the
subrogation of the Certificate Insurer to the rights of the Owners of the Class
A Certificates in an amount equal to Insured Payments for which the Certificate
Insurer has not received reimbursement, be considered to be an "Owner" to the
extent (but only to the extent) of such rights.
THE CERTIFICATE INSURER
The information set forth in this section has been provided by the
Certificate Insurer. No representation is made by the Underwriters, the Seller,
the Servicer, the Depositor or any of their affiliates as to the accuracy or
completeness of such information or any information related to the Certificate
Insurer incorporated by reference herein.
General
The Certificate Insurer is a ___________________ incorporated in ____
under the laws of the State of ________. The Certificate Insurer is licensed,
directly or through its subsidiaries, to engage in financial guaranty insurance
business in [all 50 states, the District of Columbia, Puerto Rico and the United
Kingdom.]
The Certificate Insurer and its subsidiaries are engaged exclusively in
the business of writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general, financial
guaranty insurance consists of the issuance of a guaranty of scheduled payments
of an issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer. The
S-45
<PAGE>
Certificate Insurer and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset- backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. The Certificate Insurer insures both newly issued
securities sold in the primary market and outstanding securities sold in the
secondary market that satisfy the Certificate Insurer's underwriting criteria.
The principal executive offices of the Certificate Insurer are located
at ______________________________, and its telephone number at that location is
______________.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by the Certificate
Insurer or any of its domestic operating insurance company subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, the Certificate Insurer
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with other reinsurers under various quota share treaties and
on a transaction-by-transaction basis. Such reinsurance is utilized by the
Certificate Insurer as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit the
Certificate Insurer's obligations under any financial guaranty insurance policy.
Ratings of Claims-Paying Ability
The Certificate Insurer's claims-paying ability is rated "Aaa" by
Moody's and "AAA" by each of Standard & Poor's. Such ratings reflect only the
views of the respective rating agencies, are not recommendations to buy, sell or
hold securities and are subject to revision or withdrawal at any time by such
rating agencies. See "Ratings" herein.
Capitalization
The following table sets forth the capitalization of the Certificate
Insurer and its wholly owned subsidiaries on the basis of generally accepted
accounting principles as of ____________, 199__ (in thousands):
(Unaudited)
Unearned Premium Reserve (net of
prepaid reinsurance premiums) $
Shareholder's Equity:
Common Stock
Additional Paid-In Capital
Unrealized Gain on Investments
(net of deferred income taxes)
Accumulated Earnings
Total Shareholder's Equity
Total Unearned Premium Reserve and
Shareholder's Equity $
For further information concerning the Certificate Insurer, see the
Consolidated Financial Statements of the Certificate Insurer and Subsidiaries,
and the notes thereto incorporated herein by reference. Copies of the statutory
quarterly and annual statements filed with the State of New York Insurance
Department by the Certificate Insurer are available upon request to the State of
New York Insurance Department.
Incorporation of Certain Documents by Reference
The consolidated financial statements of the Certificate Insurer
included in, or as exhibits to, the following documents, which have been filed
with the Securities and Exchange Commission are hereby incorporated by reference
in this Prospectus Supplement:
S-46
<PAGE>
(a) Annual Report on Form 10-K for the year ended _________________,
which report included as an exhibit the Certificate Insurer and Subsidiaries'
financial statements for the year ended _________________, and
(b) Quarterly Report on Form 10-Q for the period ended
__________________, which report included as an exhibit the Certificate Insurer
and Subsidiaries' unaudited financial statements for the quarter ended _________
- --------.
All financial statements of the Certificate Insurer and Subsidiaries
included in documents filed by the Certificate Insurer pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus Supplement and
prior to the termination of the offering of the Certificates shall be deemed to
be incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
Insurance Regulation
The Certificate Insurer is licensed and subject to regulation as a
financial guaranty insurance corporation under the laws of the State of New York
its state of domicile. In addition, the Certificate Insurer and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York, the
Certificate Insurer is subject to Article 69 of the New York Insurance Law
which, among other things, limits the business of each such insurer to financial
guaranty insurance and related lines requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risk") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as the Certificate Insurer, regulate, among other things,
permitted investments, payment of dividends, transactions with affiliates,
mergers, consolidations, acquisitions or sales of assets and incurrence of
liability for borrowings.
The Insurance Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of New York Insurance Law. The Insurance
Policy is governed by the laws of the State of New York.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of information regarding the Certificate Insurer set forth under the
heading "The Certificate Insurer."
CREDIT ENHANCEMENT
Insurance Policy
Simultaneously with the issuance of the Certificates, the Certificate
Insurer will issue the Insurance Policy to the Trustee for the benefit of the
Owners pursuant to which it will irrevocably and unconditionally guaranty
payment on each Payment Date to the Trustee for the benefit of the Owners of the
Class A Certificates of an amount equal to the Class A Distribution Amount for
such Payment Date calculated in accordance with the original terms of the Class
A Certificates when issued and without regard to any amendment or modification
of the Class A Certificates or the Pooling and Servicing Agreement except
amendments or modifications to which the Certificate Insurer has given its prior
written consent. The amount of the Insured Payment, if any, made by the
Certificate Insurer to the Owners of the Class A Certificates under the
Insurance Policy on each Payment Date is the sum of (i) any shortfall in the
amount required to pay the Subordination Deficit for such Payment Date from a
source other than the Insurance Policy, (ii) any shortfall in the amount
required to pay Class A Current Interest for such Payment Date from a source
other than the Insurance Policy and (iii) any shortfall in the amount required
to pay the Preference Amount from a source other than the Insurance Policy. The
Certificate Insurer's obligations under the Insurance Policy to make Insured
Payments shall be discharged to the extent funds are transferred to the Trustee
as provided in the Insurance Policy, whether or not such funds are properly
applied by the Trustee. The effect of the Insurance Policy is to guaranty the
timely payment of interest on, and the ultimate principal amount of, all Classes
of the Class A Certificates.
Payment of claims under the Insurance Policy will be made by the
Certificate Insurer following Receipt by the Certificate Insurer of the
appropriate notice for payment on the later to occur of (a) 12:00 noon, New York
S-47
<PAGE>
City time, on the second Business Day following Receipt of such notice for
payment, and (b) 12:00 noon, New York City time, on the relevant Payment Date.
If any payment of an amount guaranteed by the Certificate Insurer
pursuant to the Insurance Policy is avoided as a preference payment under
applicable bankruptcy, insolvency, receivership or similar law the Certificate
Insurer will pay such amount out of the funds of the Certificate Insurer on the
later of (a) the date when due to be paid pursuant to the Order referred to
below or (b) the first to occur of (i) the fourth Business Day following Receipt
by the Certificate Insurer from the Trustee of (A) a certified copy of the order
(the "Order") of the court or other governmental body which exercised
jurisdiction to the effect that an Owner of a Class A Certificate is required to
return principal or interest distributed with respect to a Class A Certificate
during the term of the Insurance Policy because such distributions were
avoidable preferences under applicable bankruptcy law, (B) a certificate of the
Owner of the Class A Certificate that the Order has been entered and is not
subject to any stay, and (C) an assignment duly executed and delivered by the
Owner of the Class A Certificate, in such form as is reasonably required by the
Certificate Insurer and provided to the Owner of the Class A Certificate by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all rights
and claims of the Owner of the Class A Certificate relating to or arising under
the Certificates against the debtor which made such preference payment or
otherwise with respect to such preference payment, or (ii) the date of Receipt
by the Certificate Insurer from the Trustee of the items referred to in clauses
(A), (B) and (C) above if, at least four Business Days prior to such date of
Receipt, the Certificate Insurer shall have Received written notice from the
Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or any Owner of a Class A Certificate directly (unless an
Owner of a Class A Certificate has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
in which case such payment shall be disbursed to the Trustee for distribution to
such Owner of the Class A Certificate upon proof of such payment reasonably
satisfactory to the Certificate Insurer).
The terms "Receipt" and "Received," with respect to the Insurance
Policy, means actual delivery to the Certificate Insurer and to its fiscal agent
appointed by the Certificate Insurer at its option, if any, prior to 12:00 p.m.,
New York City time, on a Business Day; delivery either on a day that is not a
Business Day or after 12:00 p.m., New York City time, shall be deemed to be
Receipt on the next succeeding Business Day. If any notice or certificate given
under the Insurance Policy by the Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Certificate Insurer or the fiscal agent shall promptly so
advise the Trustee and the Trustee may submit an amended notice.
Under the Insurance Policy, "Business Day" means any day other than (i)
a Saturday or Sunday or (ii) a day on which banking institutions in The City of
New York, New York are authorized or obligated by law or executive order to be
closed.
The Certificate Insurer's obligations under the Insurance Policy in
respect of Insured Payments shall be discharged to the extent funds are
transferred to the Trustee as provided in the Insurance Policy, whether or not
such funds are properly applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each Owner
of a Class A Certificate to receive payments of principal and interest, as
applicable, with respect to distributions on the Class A Certificates to the
extent of any payment by the Certificate Insurer under the Insurance Policy. To
the extent the Certificate Insurer makes Insured Payments, either directly or
indirectly (as by paying through the Trustee), to the Owners of the Class A
Certificate, the Certificate Insurer will be subrogated to the rights of the
Owners of the Class A Certificates, as applicable, with respect to such Insured
Payment, shall be deemed to the extent of the payments so made to be a
registered Owner of a Class A Certificate for purposes of payment and shall
receive all future Class A Distribution Amounts until all such Insured Payments
by the Certificate Insurer have been fully reimbursed, provided that the Owners
of the Class A Certificate have received the full amount of the Class A
Distribution Amount.
Claims under the Insurance Policy will rank equally with any other
unsecured and unsubordinated obligations of the Certificate Insurer except for
certain obligations in respect of tax and other payments to which preference is
or may become afforded by statute. The terms of the Insurance Policy cannot be
modified, altered or affected by any other agreement or instrument, or by the
merger, consolidation or dissolution of the Seller. The Insurance Policy by its
terms may not be cancelled or revoked. The Insurance Policy is governed by the
laws of the State of New York.
S-48
<PAGE>
The Insurance Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law. The
Insurance Policy is not covered by the Florida Insurance Guaranty Association
created under Part II of Chapter 631 of the Florida Insurance Code. In the event
the Certificate Insurer were to become insolvent, any claims arising under the
Insurance Policy are excluded from coverage by the California Insurance Guaranty
Association, established pursuant to Article 14.2 of Chapter 1 of part 2 of
Division 1 of the California Insurance Code.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
Certificate Insurer default exists, the Certificate Insurer shall be deemed to
be the Owner of Certificate for certain purposes (other than with respect to
payment on the Certificates), will be entitled to exercise all rights of the
Owners of the Class A Certificate thereunder, without the consent of such Owners
and the Owners of the Class A Certificate may exercise such rights only with the
prior written consent of the Certificate Insurer. In addition, the Certificate
Insurer will have certain additional rights as a third party beneficiary to the
Pooling and Servicing Agreement.
Overcollateralization Provisions
Overcollateralization Resulting from Cash Flow Structure. The Pooling
and Servicing Agreement requires that, on each Payment Date, Net Monthly Excess
Cashflow with respect to a Home Equity Loan Group be applied on such Payment
Date as an accelerated payment of principal on the related Classes of Class A
Certificates, but only to the limited extent hereafter described. Net Monthly
Excess Cashflow equals the excess of (i) the excess, if any of (x) the interest
which is collected on the Home Equity Loans in such Home Equity Loan Group
during a Remittance Period (net of the Servicing Fee and of certain
miscellaneous administrative amounts with respect to such Home Equity Loan
Group) plus any Delinquency Advances and Compensating Interest over (y) the sum
of the Class A Current Interest plus the Class S Current Interest (as defined in
the Pooling and Servicing Agreement) (the difference between (x) and (y) is, the
"Total Monthly Excess Spread" with respect to such Home Equity Loan Group), over
(ii) the portion of the Total Monthly Excess Cashflow that is used to cover
shortfalls in Available Funds on such Payment Date in the related Home Equity
Loan Group; provided, however, that with respect to the Fixed Rate Group for any
Payment Date during the Funding Period, the sum obtained in (ii) above shall be
multiplied by a fraction the numerator of which is the weighted average of the
aggregate Loan Balances (weighted by the number of days such Loan Balances are
held by the Trust) during the preceding Remittance Period and the denominator of
which is the Maximum Collateral Amount as reduced by any actual payments of
principal received on the Home Equity Loans prior to the related Remittance
Date.
This has the effect of accelerating the amortization of the Class A
Certificates relative to the amortization of the Home Equity Loans in the
related Home Equity Loan Group. To the extent that any Net Monthly Excess
Cashflow is not so used (and is not required to satisfy requirements with
respect to the other Home Equity Loan Group), the Pooling and Servicing
Agreement provides that it will be used to reimburse the Servicer with respect
to any amounts owing to it, and, thereafter, paid to the Owners of the Class R
Certificates.
Pursuant to the Pooling and Servicing Agreement, each Home Equity Loan
Group's Net Monthly Excess Cashflow will be applied as an accelerated payment of
principal on the Class A Certificates until the Subordinated Amount has
increased to the level required. "Subordinated Amount" means, with respect to
each Home Equity Loan Group and Payment Date, the excess, if any, of (x) the sum
of (i) the aggregate Loan Balances of the Home Equity Loans in such Home Equity
Loan Group as of the close of business on the last day of the preceding
Remittance Period and (ii) with respect to the Fixed Rate Group only any amount
on deposit in the Pre-Funding Account at such time exclusive of any Pre-Funding
Account Earnings (as defined in the Agreement) over (y) the related Class A
Certificate Principal Balance as of such Payment Date (after taking into account
the payment of the Class A Principal Distribution Amount (except for any
Subordination Deficit or Subordination Increase Amount with respect to such Home
Equity Loan Group) on such Payment Date). With respect to each Home Equity Loan
Group any amount of Net Monthly Excess Cashflow actually applied as an
accelerated payment of principal is a "Subordination Increase Amount." The
required level of the Subordinated Amount for each Home Equity Loan Group with
respect to a Payment Date is the "Specified Subordinated Amount." The Pooling
and Servicing Agreement generally provides that the Specified Subordinated
Amount may, over time, decrease, or increase, subject to certain floors, caps
and triggers including triggers that allow the Specified Subordinated Amount to
decrease or "step down" based on the performance on the Home Equity Loans in the
related Home Equity Loan Group with respect to certain tests specified in the
Pooling and Servicing Agreement based on delinquency rates and cumulative
losses. In addition, Net Monthly Excess Cashflow will be applied to the payment
in reduction of principal of the
S-49
<PAGE>
Class A Certificates during the period that the Home Equity Loan Pool is unable
to meet certain tests specified in the Pooling and Servicing Agreement based on
delinquency rates and cumulative losses.
In the event that the Specified Subordinated Amount with respect to a
Home Equity Loan Group is permitted to decrease or "step down" on a Payment Date
in the future, the Pooling and Servicing Agreement provides that a portion of
the principal which would otherwise be distributed to the Owners of the related
Class A Certificates on such Payment Date shall be distributed to the Owners of
the Class R Certificates over the period specified in the Pooling and Servicing
Agreement. This has the effect of decelerating the amortization of Class A
Certificates relative to the amortization of the Home Equity Loans and of
reducing the related Subordinated Amount. With respect to any Home Equity Loan
Group and Payment Date, the excess, if any, of (x) the Subordinated Amount on
such Payment Date after taking into account all distributions to be made on such
Payment Date (except for any distributions of related Subordination Reduction
Amounts as described in this sentence) over (y) the Specified Subordinated
Amount is the "Excess Subordinated Amount" for such Home Equity Loan Group and
Payment Date. If, on any Payment Date, the Excess Subordinated Amount is, or,
after taking into account all other distributions to be made on such Payment
Date would be, greater than zero (i.e., the Subordinated Amount is or would be
greater than the related Specified Subordinated Amount), then any amounts
relating to principal which would otherwise be distributed to the Owners of the
Class A Certificates on such Payment Date shall instead be distributed to the
Owners of the Class R Certificates (to the extent available therefor) in an
amount equal to the lesser of (x) the Excess Subordinated Amount and (y) the
amount available for distribution on account of principal with respect to the
Class A Certificates on such Payment Date; such amount being the "Subordination
Reduction Amount" with respect to the related Home Equity Loan Group and Payment
Date. As a result of the cash flow structure of the Trust, Subordination
Reduction Amounts may result even prior to the occurrence of any decrease or
"step down" in the related Specified Subordinated Amount. This is because the
Owners of the Class A Certificates will generally be entitled to receive 100% of
collected principal with respect to the related Home Equity Loan Group, even
though the Class A Certificate Principal Balance will, following the accelerated
amortization resulting from the application of the Net Monthly Excess Cashflow,
represent less than 100% of the related Home Equity Loan Group's aggregate Loan
Balance. Accordingly, in the absence of the provisions relating to Subordination
Reduction Amounts, the Subordinated Amount would increase above the Specified
Subordinated Amount requirements even without the further application of any Net
Monthly Excess Cashflow.
The Pooling and Servicing Agreement provides generally that, on any
Payment Date all amounts collected on account of principal (other than any such
amount applied to the payment of a Subordination Reduction Amount) with respect
to a Home Equity Loan Group during the prior Remittance Period will be
distributed to the Owners of the related Class A Certificates on such Payment
Date. If any Home Equity Loan became a Liquidated Loan during such prior
Remittance Period, the Net Liquidation Proceeds related thereto and allocated to
principal may be less than the principal balance of the related Home Equity
Loan; the amount of any such insufficiency is a "Realized Loss." In addition,
the Pooling and Servicing Agreement provides that the principal balance of any
Home Equity Loan which becomes a Liquidated Loan shall thenceforth equal zero.
The Pooling and Servicing Agreement does not contain any requirement that the
amount of any Realized Loss be distributed to the Owners of the related Class A
Certificates on the Payment Date which immediately follows the event of loss;
i.e., the Pooling and Servicing Agreement does not require the current recovery
of losses. However, the occurrence of a Realized Loss will reduce the
Subordinated Amount with respect to the related Home Equity Loan Group, which to
the extent that such reduction causes the Subordinated Amount to be less than
the related Specified Subordinated Amount applicable to the related Payment
Date, will require the payment of a Subordination Increase Amount on such
Payment Date (or, if insufficient funds are available on such Payment Dates, on
subsequent Payment Dates, until the Subordinated Amount equals the related
Specified Subordinated Amount). The effect of the foregoing is to allocate
losses to the Owners of the Class R Certificates by reducing, or eliminating
entirely, payments of Total Monthly Excess Spread and of Subordination Reduction
Amounts which such Owners would otherwise receive.
Overcollateralization and the Insurance Policy. The Pooling and
Servicing Agreement defines a "Subordination Deficit" with respect to a Home
Equity Loan Group and Payment Date to be the amount, if any, by which (x) the
aggregate of the Class A Certificate Principal Balances with respect to a
Payment Date, after taking into account all distributions to be made on such
Payment Date (except for any Subordination Deficit and Subordination Increase
Amount), exceeds (y) the sum of (a) the aggregate Loan Balances of the Home
Equity Loans in the related Home Equity Loan Group as of the close of business
on the last day of the prior Remittance Period and (b) with respect to the Fixed
Rate Group only, the amount, if any, on deposit in the Pre-Funding Account on
such Payment Date exclusive of Pre-Funding Account Earnings. The Pooling and
Servicing Agreement requires the Trustee to make a claim for an Insured Payment
under the Insurance Policy not later than the third Business Day
S-50
<PAGE>
prior to any Payment Date as to which the Trustee has determined that a
Subordination Deficit will occur for the purpose of applying the proceeds of
such Insured Payment as a payment of principal to the Owners of the related
Class A Certificates on such Payment Date. The Insurance Policy is thus similar
to the subordination provisions described above insofar as the Insurance Policy
guarantees ultimate, rather than current, payment of the amounts of any Realized
Losses to the Owners of the Class A Certificates. Investors in the Class A
Certificates should realize that, under extreme loss or delinquency scenarios
applicable to the related Home Equity Loan Pool, they may temporarily receive no
distributions of principal when they would otherwise be entitled thereto under
the principal allocation provisions described herein. Nevertheless, the exposure
to risk of loss of principal of the Owners of the Class A Certificates depends
in part on the ability of the Certificate Insurer to satisfy its obligations
under the Insurance Policy. In that respect and to the extent that the
Certificate Insurer satisfies such obligations, the Owners of the Class A
Certificates are insulated from shortfalls in Available Funds that may arise.
Crosscollateralization Provisions. In addition to the use of Total
Monthly Excess Spread and Net Monthly Excess Cashflow with respect to a Home
Equity Loan Group to cover related Subordination Increase Amounts, Available
Funds Shortfalls and Subordination Deficits, such Total Monthly Excess Spread
and Net Monthly Excess Cashflow will be available to cover such requirements for
the other Home Equity Loan Group as described under the caption "Description of
the Class A Certificates -- Distributions" herein.
THE POOLING AND SERVICING AGREEMENT
In addition to the provisions of the Pooling and Servicing Agreement
summarized elsewhere in the Prospectus and this Prospectus Supplement there is
set forth below a summary of certain other provisions of the Pooling and
Servicing Agreement.
Covenant of the Seller to Take Certain Actions with Respect to the Home Equity
Loans in Certain Situations
Pursuant to the Pooling and Servicing Agreement, upon the discovery by
the Depositor, the Seller, the Certificate Insurer, any Sub-Servicer, any Owner,
the Custodian or the Trustee that the representations and warranties set forth
below are untrue in any material respect as of the Closing Date with the result
that the interests of the Owners or of the Certificate Insurer are materially
and adversely affected, the party discovering such breach is required to give
prompt written notice to the other parties.
Upon the earliest to occur of the Seller's discovery, its receipt of
notice of breach from any of the other parties or such time as a situation
resulting from an existing statement which is untrue materially and adversely
affects the interests of the Owners or the Certificate Insurer, the Seller will
be required promptly to cure such breach in all material respects or the Seller
shall on the second Monthly Remittance Date next succeeding such discovery, such
receipt of notice or such time (i) substitute in lieu of each Home Equity Loan
which has given rise to the requirement for action by the Seller a "Qualified
Replacement Mortgage" (as such is defined in the Pooling and Servicing
Agreement) and deliver an amount equal to such difference (the "Substitution
Amount") to the Trustee on behalf of the Trust as part of the Monthly Remittance
remitted by the Servicer on such Monthly Remittance Date or (ii) purchase such
Home Equity Loan from the Trust at a purchase price equal to the Loan Purchase
Price (as defined below) thereof. Notwithstanding any provision of the Pooling
and Servicing Agreement to the contrary, with respect to any Home Equity Loan
which is not in default or as to which no default is imminent, no such
repurchase or substitution will be made unless the Seller obtains for the
Trustee and the Certificate Insurer an opinion of counsel experienced in federal
income tax matters and acceptable to the Trustee and the Certificate Insurer to
the effect that such a repurchase or substitution would not constitute a
Prohibited Transaction for the Trust or otherwise subject the Trust to tax and
would not jeopardize the status of the Trust as a REMIC (a "REMIC Opinion")
addressed to the Trustee and the Certificate Insurer and acceptable to the
Trustee and the Certificate Insurer. The Seller shall also deliver an Officer's
Certificate to the Trustee and the Certificate Insurer concurrently with the
delivery of a Qualified Replacement Mortgage stating that such Home Equity Loan
meets the requirements of a Qualified Replacement Mortgage and that all other
conditions to the substitution thereof have been satisfied. Any Home Equity Loan
as to which repurchase or substitution was delayed pursuant to the Pooling and
Servicing Agreement shall be repurchased or substituted for (subject to
compliance with the provisions of the Pooling and Servicing Agreement) upon the
earlier of (a) the occurrence of a default or imminent default with respect to
such Home Equity Loan and (b) receipt by the Trustee and the Certificate Insurer
of a REMIC Opinion. In connection with any breach of a representation, warranty
or covenant or defect in documentation giving rise to such repurchase or
substitution obligation, the Seller agrees that it shall, at its expense,
furnish the Trustee and the Certificate Insurer either a REMIC Opinion or an
opinion of counsel rendered by independent counsel that the effects described in
a
S-51
<PAGE>
REMIC Opinion may occur as a result of any such repurchase or substitution. The
obligation of the Seller to so substitute or repurchase any Home Equity Loan as
to which such a statement set forth below is untrue in any material respect and
has not been remedied constitutes the sole remedy respecting a discovery of any
such statement which is untrue in any material respect available to the Owners,
the Trustee and the Certificate Insurer.
"Loan Purchase Price" means an amount equal to the Loan Balance of such
Home Equity Loan as of the date of purchase (assuming that the Monthly
Remittance Amount remitted by the Servicer on such Monthly Remittance Date has
already been remitted), plus all accrued and unpaid interest on such Home Equity
Loan at the Coupon Rate to but not including the Monthly Remittance Date in the
Remittance Period of such purchase together with (without duplication) the
aggregate amount of (i) all unreimbursed Delinquency Advances and Servicing
Advances theretofore made with respect to such Home Equity Loan, (ii) all
Delinquency Advances which the Servicer has theretofore failed to remit with
respect to such Home Equity Loan and (iii) all reimbursed Delinquency Advances
to the extent that such reimbursement is not made from the Mortgagor or from
Liquidation Proceeds from the respective Home Equity Loan.
Assignment of Home Equity Loans
Pursuant to the Pooling and Servicing Agreement, the Seller on the
Closing Date will transfer, assign, set over and otherwise convey without
recourse to the Depositor and the Depositor will transfer, assign, set over and
otherwise convey without recourse to the Trustee in trust for the benefit of the
Owners all right, title and interest of the Seller in and to each Initial Home
Equity Loan and all its right, title and interest in and to principal and
interest due on each such Initial Home Equity Loan after the Cut-Off Date;
provided, however, that the Seller will reserve and retain all its right, title
and interest in and to principal (including Prepayments) and interest due on
each Initial Home Equity Loan on or prior to the Cut-Off Date (whether or not
received on or prior to the Cut-Off Date). Purely as a protective measure and
not to be construed as contrary to the parties intent that the transfer on the
Closing Date is a sale, the Seller has also been deemed to have granted to the
Depositor and the Depositor has also been deemed to have granted to the Trustee
a security interest in the Trust Estate in the event that the transfer of the
Trust Estate is deemed to be a loan and not a sale.
In connection with the transfer and assignment of the Initial Home
Equity Loans on the Closing Date and the Subsequent Home Equity Loans on each
Subsequent Transfer Date, the Seller will be required to:
(i) deliver without recourse to ______________________ (the
"Custodian") on behalf of the Trustee on the Closing Date with respect
to each Initial Home Equity Loan or on each Subsequent Transfer Date
with respect to each Subsequent Home Equity Loan identified in the
related Schedule of Home Equity Loans (A) the original Notes, endorsed
in blank or to the order of the Trustee, (B) (I) the original title
insurance commitment or a copy thereof certified as a true copy by the
closing agent or the Seller, or if available, the original title
insurance policy or a copy certified by the issuer of the title
insurance policy or (II) the attorney's opinion of title, (C) originals
or copies of all intervening assignments certified as true copies by
the closing agent or the Seller, showing a complete chain of title from
origination to the Trustee, if any, including warehousing assignments,
if recorded, (D) originals of all assumption and modification
agreements, if any and (E) either: (1) the original Mortgage, with
evidence of recording thereon (if such original Mortgage has been
returned to Seller from the applicable recording office) or a copy (if
such original Mortgage has not been returned to Seller from the
applicable recording office) of the Mortgage certified as a true copy
by the closing agent or the Seller or (2) a copy of the Mortgage
certified by the public recording office in those instances where the
original recorded Mortgage has been lost or retained by the recording
office;
(ii) cause, within 60 days following the Closing Date with
respect to the Initial Home Equity Loans, or Subsequent Transfer Date
with respect to Subsequent Home Equity Loans, assignments of the
Mortgages to "____________________, as Trustee of IMC Home Equity Loan
Trust 199_-__ under the Pooling and Servicing Agreement dated as of
__________, 199__" to be submitted for recording in the appropriate
jurisdictions; provided, however, that the Seller shall not be required
to prepare any assignment of Mortgage for a Mortgage with respect to
which the original recording information has not yet been received from
the recording office; provided, further, that the Seller shall not be
required to record an assignment of a Mortgage if the Seller furnishes
to the Trustee, the Certificate Insurer and the Rating Agencies, on or
before the Closing Date with respect to the Initial Home Equity Loans
or on each Subsequent Transfer Date with respect to the Subsequent Home
Equity Loans, at the Seller's expense, an
S-52
<PAGE>
opinion of counsel with respect to the relevant jurisdiction that such
recording is not required to perfect the Trustee's interests in the
related Mortgages Loans (in form satisfactory to the Trustee, the
Certificate Insurer and the Rating Agencies);
(iii) deliver the title insurance policy, the original
Mortgages and such recorded assignments, together with originals or
duly certified copies of any and all prior assignments (other than
unrecorded warehouse assignments), to the Custodian on behalf of the
Trustee within 15 days of receipt thereof by the Seller (but in any
event, with respect to any Mortgage as to which original recording
information has been made available to the Seller, within one year
after the Closing Date with respect to the Initial Home Equity Loans,
or each Subsequent Transfer Date with respect to the Subsequent Home
Equity Loans); and
(iv) furnish to the Trustee, the Certificate Insurer and the
Rating Agencies, at the Seller's expense, an opinion of counsel with
respect to the sale and perfection of all Subsequent Home Equity Loans
delivered to the Trust in form and substance satisfactory to the
Trustee, the Certificate Insurer and the Rating Agencies.
The Trustee will agree, for the benefit of the Owners, to cause the
Custodian to review each File within 45 days after the Closing Date or
Subsequent Transfer Date (or the date of receipt of any documents delivered to
the Trustee after the Closing Date or Subsequent Transfer Date) to ascertain
that all required documents (or certified copies of documents) have been
executed and received.
If the Custodian on behalf of the Trustee during such 45-day period
finds any document constituting a part of a File which is not properly executed,
has not been received, is unrelated to the Home Equity Loans or that any Home
Equity Loan does not conform in a material respect to the description thereof as
set forth in the Schedule of Home Equity Loans, the Custodian on behalf of the
Trustee will be required to promptly notify the Depositor, the Seller, the
Owners and the Certificate Insurer. The Seller will agree in the Pooling and
Servicing Agreement to use reasonable efforts to remedy a material defect in a
document constituting part of a File of which it is so notified by the Custodian
on behalf of the Trustee. If, however, within 90 days after such notice to it
respecting such defect the Seller shall not have remedied the defect and the
defect materially and adversely affects the interest in the related Home Equity
Loan of the Owners or the Certificate Insurer, the Seller will be required on
the next succeeding Monthly Remittance Date to (or will cause an affiliate of
the Seller to) (i) substitute in lieu of such Home Equity Loan a Qualified
Replacement Mortgage and deliver the Substitution Amount to the Trustee on
behalf of the Trust as part of the Monthly Remittance remitted by the Servicer
on such Monthly Remittance Date or (ii) purchase such Home Equity Loan at a
purchase price equal to the Loan Purchase Price thereof, which purchase price
shall be delivered to the Trust along with the Monthly Remittance remitted by
the Servicer on such Remittance Date.
In addition to the foregoing, the Custodian on behalf of the Trustee
has agreed to make a review during the 12th month after the Closing Date
indicating the current status of the exceptions previously indicated on the Pool
Certification (the "Final Certification"). After delivery of the Final
Certification, the Custodian, on behalf of the Trustee and the Servicer shall
provide to Certificate Insurer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
Servicing and Sub-Servicing
The Servicer is required to service the Home Equity Loans in accordance
with the Pooling and Servicing Agreement, the terms of the respective Home
Equity Loans, and the servicing standards set forth in FNMA's Servicing Guide
(the "FNMA Guide"); provided, however, that to the extent such standards, such
obligations or the FNMA Guide is amended by FNMA after the date of the Pooling
and Servicing Agreement and the effect of such amendment would be to impose upon
the Servicer any material additional costs or other burdens relating to such
servicing obligations, the Servicer may, at its option, determine not to comply
with such amendment in accordance with the servicing standards set forth in the
Pooling and Servicing Agreement.
The Servicer may retain from the interest portion of each monthly
payment, the Servicing Fee. In addition, the Servicer will be entitled to retain
additional servicing compensation in the form of prepayment charges, release
fees, bad check charges, assumption fees, late payment charges, prepayment
penalties, or any other servicing-related fees, Net Liquidation Proceeds not
required to be deposited in the Principal and Interest Account pursuant to the
Pooling and Servicing Agreement, and similar items.
S-53
<PAGE>
The Servicer is required to make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans,
and, to the extent such procedures are consistent with the Pooling and Servicing
Agreement and the terms and provisions of any applicable insurance policy, to
follow collection procedures for all Home Equity Loans at least as rigorous as
those described in the FNMA Guide. Consistent with the foregoing, the Servicer
may in its discretion waive or permit to be waived any late payment charge,
prepayment charge, assumption fee or any penalty interest in connection with the
prepayment of a Home Equity Loan or any other fee or charge which the Servicer
would be entitled to retain as additional servicing compensation. In the event
the Servicer consents to the deferment of the due dates for payments due on a
Note, the Servicer will nonetheless be required to make payment of any required
Delinquency Advances with respect to the interest payments so extended to the
same extent as if the interest portion of such installment were due, owing and
delinquent and had not been deferred.
The Servicer is required to create, or cause to be created, in the name
of the Trustee, at one or more depository institutions a principal and interest
account maintained as a trust account in the trust department of such
institution (the "Principal and Interest Account"). All funds in the Principal
and Interest Account are required to be held (i) uninvested, or (ii) invested in
Eligible Investments (as defined in the Pooling and Servicing Agreement). Any
investment of funds in the Principal and Interest Account must mature or be
withdrawable at par on or prior to the immediately succeeding Monthly Remittance
Date. Any investment earnings on funds held in the Principal and Interest
Account are for the account of, and any losses therein are also for the account
of, and must be promptly replenished by, the Servicer.
The Servicer is required to deposit to the Principal and Interest
Account, within one business day following receipt, all principal and interest
due on the Home Equity Loans after the Cut-Off Date, including any Prepayments,
the proceeds of any liquidation of a Home Equity Loan net of expenses and
unreimbursed Delinquency Advances ("Net Liquidation Proceeds"), any income from
REO Properties and Delinquency Advances, but net of (i) Net Liquidation Proceeds
to the extent that such Net Liquidation Proceeds exceed the sum of (I) the Loan
Balance of the related Home Equity Loan immediately prior to liquidation, plus
(II) accrued and unpaid interest on such Home Equity Loan (net of the Servicing
Fee) to the date of such liquidation and (III) any Realized Losses during the
related Remittance Period, (ii) principal (including Prepayments) collected and
interest due on the Home Equity Loans on or prior to the Cut-Off Date, (iii)
reimbursements for Delinquency Advances, and (iv) reimbursement for amounts
deposited in the Principal and Interest Account representing payments of
principal and/or interest on a Note by a Mortgagor which are subsequently
returned by a depository institution as unpaid (all such net amounts being
referred to herein as the "Daily Collections").
The Servicer may make withdrawals for its own account from the
Principal and Interest Account with respect to each Home Equity Loan Group in
the following order and only for the following purposes:
(i) on each Monthly Remittance Date, to pay itself the
Servicing Fee;
(ii) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account;
(iii) to withdraw amounts that have been deposited to the
Principal and Interest Account in error;
(iv) to reimburse itself for unrecovered Delinquency Advances
and to retain any excess Compensating Interest; and
(v) to clear and terminate the Principal and Interest
Account following the termination of the Trust.
The Servicer will remit to the Trustee for deposit in the Certificate
Account the Daily Collections allocable to a Remittance Period not later than
the related Monthly Remittance Date, and Loan Purchase Prices and Substitution
Amounts two Business Days following the related repurchase or substitution, as
the case may be.
On each Monthly Remittance Date, the Servicer shall be required to
remit to the Trustee for deposit to the Certificate Account out of the
Servicer's own funds any Delinquent payment of interest with respect to each
Delinquent Home Equity Loan, which payment was not received on or prior to the
related Remittance Date and was not theretofore advanced by the Servicer. Such
amounts of the Servicer's own funds so deposited are "Delinquency
S-54
<PAGE>
Advances." The Servicer may reimburse itself on any Business Day for any
Delinquency Advances paid from the Servicer's own funds, from collections on any
Home Equity Loan that are not required to be distributed on the Payment Date
occurring during the month in which such reimbursement is made or from the
Certificate Account out of Net Monthly Excess Cashflow.
Notwithstanding the foregoing, in the event that the Servicer
determines in its reasonable business judgment in accordance with the servicing
standards of the Pooling and Servicing Agreement that any proposed Delinquency
Advance if made would not be recoverable, the Servicer shall not be required to
make such Delinquency Advances with respect to such Home Equity Loan. To the
extent that the Servicer previously has made Delinquency Advances with respect
to a Home Equity Loan that the Servicer subsequently determines to be
nonrecoverable, the Servicer shall be entitled to reimbursement for such
aggregate unreimbursed Delinquency Advances as provided above. The Servicer
shall give written notice of such determination as to why such amount is or
would be nonrecoverable to the Trustee and the Certificate Insurer.
The Servicer will be required to pay all "out of pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, (i) expenditures in connection with a foreclosed Home Equity
Loan prior to the liquidation thereof, including, without limitation,
expenditures for real estate property taxes, hazard insurance premiums, property
restoration or preservation ("Preservation Expenses"), (ii) the cost of any
enforcement or judicial proceedings, including foreclosures and (iii) the cost
of the management and liquidation of Property acquired in satisfaction of the
related Mortgage, except to the extent that such amounts are determined by the
Servicer in its reasonable business judgement that any proposed Servicing
Advance would not be recoverable. Such costs and expenses will constitute
"Servicing Advances". The Servicer may recover a Servicing Advance to the extent
permitted by the Home Equity Loans or, if not theretofore recovered from the
Mortgagor on whose behalf such Servicing Advance was made, from Liquidation
Proceeds realized upon the liquidation of the related Home Equity Loan or from
certain amounts on deposit in the Certificate Account as provided in the
Agreement. Except as provided above, in no case may the Servicer recover
Servicing Advances from the principal and interest payments on any other Home
Equity Loan.
A full month's interest at the Coupon Rate will be due on the
outstanding Loan Balance of each Home Equity Loan as of the beginning of each
Remittance Period. If a prepayment in full of a Home Equity Loan or a Prepayment
of at least six times a Mortgagor's Monthly Payment occurs during any calendar
month, any difference between the interest collected from the Mortgagor in
connection with such payoff and the full month's interest at the Coupon Rate
that would be due on the related due date for such Home Equity Loan (such
difference, the "Compensating Interest") (but not in excess of the aggregate
Servicing Fee for the related Remittance Period), will be required to be
deposited to the Principal and Interest Account (or if such difference is an
excess, the Servicer shall retain such excess) on the next succeeding Monthly
Remittance Date by the Servicer and shall be included in the Monthly Remittance
Amount to be made available to the Trustee on the next succeeding Monthly
Remittance Date.
The Servicer, and in the absence of the exercise thereof by the
Servicer, the Certificate Insurer will have the right and the option, but not
the obligation, to purchase for its own account any Home Equity Loan which
becomes delinquent as to three consecutive monthly installments or any Home
Equity Loan as to which enforcement proceedings have been brought by the
Servicer; provided, however, that the Servicer may not purchase any such Home
Equity Loan unless the Servicer has delivered to the Certificate Insurer and the
Trustee, at the Servicer's expense, an opinion of counsel acceptable to the
Certificate Insurer and the Trustee to the effect that such a purchase would not
constitute a Prohibited Transaction for the Trust or otherwise subject the Trust
to tax and would not jeopardize the status of the Base REMIC or the Upper-Tier
REMIC as a REMIC. The purchase price for any such Home Equity Loan is equal to
the Loan Purchase Price thereof, which purchase price shall be deposited in the
Principal and Interest Account.
The Servicer is required to cause to be liquidated any Home Equity Loan
relating to a Property as to which ownership has been effected in the name of
the Servicer on behalf of the Trust and which has not been liquidated within __
months of such effecting of ownership at such price as the Servicer deems
necessary to comply with this requirement, or within such period of time as may,
in the opinion of counsel nationally recognized in federal income tax matters,
be permitted under the Code.
S-55
<PAGE>
If so required by the terms of any Home Equity Loan, the Servicer will
be required to cause hazard insurance to be maintained with respect to the
related Property and to advance sums on account of the premiums therefor if not
paid by the Mortgagor if permitted by the terms of such Home Equity Loan.
The Servicer will have the right under the Pooling and Servicing
Agreement (upon receiving the consent of the Certificate Insurer) to accept
applications of Mortgagors for consent to (i) partial releases of Mortgages,
(ii) alterations and (iii) removal, demolition or division of Properties. No
application for approval may be considered by the Servicer unless: (i) the
provisions of the related Note and Mortgage have been complied with; (ii) the
loan-to-value ratio and debt-to-income ratio after any release does not exceed
the loan-to-value ratio and debt-to- income ratio of such Note on the Cut-Off
Date and any increase in the loan-to-value shall not exceed __% unless approved
in writing by the Certificate Insurer; and (iii) the lien priority of the
related Mortgage is not affected.
The Servicer shall not agree to any modification, waiver or amendment
of any provision of any Home Equity Loan unless, in the Servicer's good faith
judgment, such modification, waiver or amendment would minimize the loss that
might otherwise be experienced with respect to such Home Equity Loan and only in
the event of a payment default with respect to such Home Equity Loan or in the
event that a payment default with respect to such Home Equity Loan is reasonably
foreseeable by the Servicer; provided, however, that no such modification,
waiver or amendment shall extend the maturity date of such Home Equity Loan
beyond __________. Notwithstanding anything set forth in the Pooling and
Servicing Agreement to the contrary, the Servicer shall be permitted to modify,
waive or amend any provision of a Home Equity Loan if required by statute or a
court of competent jurisdiction to do so.
The Servicer shall provide written notice to the Trustee and the
Certificate Insurer prior to the execution of any modification, waiver or
amendment of any provision of any Home Equity Loan; provided that if the
Certificate Insurer does not object in writing to the modification, waiver or
amendment specified in such notice within 5 Business Days after its receipt
thereof, the Servicer may effectuate such modification, waiver or amendment and
shall deliver to the Custodian, on behalf of the Trustee for deposit in the
related File, an original counterpart of the agreement relating to such
modification, waiver or amendment, promptly following the execution thereof.
As noted under "The Seller and Servicer -- General" herein, the
Servicer, with the consent of the Certificate Insurer, will be permitted under
the Pooling and Servicing Agreement to enter into Sub-Servicing Agreements for
any servicing and administration of Home Equity Loans with any institution that
(x) is in compliance with the laws of each state necessary to enable it to
perform its obligations under such Sub-Servicing Agreement, (y) has experience
servicing home equity loans that are similar to the Home Equity Loans and (z)
has equity of not less than $5,000,000 (as determined in accordance with
generally accepted accounting principles).
With the consent of the Certificate Insurer, the Servicer may enter
into Sub-Servicing Agreements with Sub-Servicers with respect to the servicing
of the Home Equity Loans. No Sub-Servicing arrangements discharge the Servicer
from its servicing obligations. Notwithstanding any Sub-Servicing Agreement, the
Servicer will not be relieved of its obligations under the Pooling and Servicing
Agreement and the Servicer will be obligated to the same extent and under the
same terms and conditions as if it alone were servicing and administering the
Home Equity Loans. The Servicer shall be entitled to enter into any agreement
with a Sub-Servicer for indemnification of the Servicer by such Sub-Servicer and
nothing contained in such Sub-Servicing Agreement shall be deemed to limit or
modify the Pooling and Servicing Agreement.
The Servicer (except the Trustee if it is required to succeed the
Servicer under the Pooling and Servicing Agreement) has agreed to indemnify and
hold the Trustee, the Certificate Insurer, and each Owner harmless against any
and all claims, losses, penalties, fines, forfeitures, legal fees and related
costs, judgments, and any other costs, fees and expenses that the Trustee, the
Certificate Insurer, and any Owner may sustain in any way related to the failure
of the Servicer to perform its duties and service the Home Equity Loans in
compliance with the terms of the Pooling and Servicing Agreement. The Servicer
shall immediately notify the Trustee, the Certificate Insurer and each Owner if
a claim is made by a third party with respect to the Pooling and Servicing
Agreement, and the Servicer shall assume the defense of any such claim and pay
all expenses in connection therewith, including reasonable counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against the Servicer, the Trustee, the Certificate Insurer and/or Owner in
respect of such claim. The Trustee shall reimburse the Servicer from amounts
otherwise distributable on the Class R Certificates for all amounts advanced by
it pursuant to the preceding sentence, except when a final nonappealable
adjudication determines that the claim relates directly to the failure of the
Servicer to perform its duties in compliance with the Pooling and Servicing
S-56
<PAGE>
Agreement. The indemnification provisions shall survive the termination of the
Pooling and Servicing Agreement and the payment of the outstanding Certificates.
The Servicer will be required to deliver to the Trustee, the
Certificate Insurer, and the Rating Agencies on or before __________ of each
year, commencing in 199__: (1) an officers' certificate stating, as to each
signer thereof, that (i) a review of the activities of the Servicer during such
preceding calendar year and of performance under the Pooling and Servicing
Agreement has been made under such officers' supervision, and (ii) to the best
of such officers' knowledge, based on such review, the Servicer has fulfilled
all its obligations under the Pooling and Servicing Agreement for such year, or,
if there has been a default in the fulfillment of all such obligation,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by the Servicer to remedy such default
and (2) a letter or letters of a firm of independent, nationally recognized
certified public accountants reasonably acceptable to the Certificate Insurer
stating that such firm has examined the Servicer's overall servicing operations
in accordance with the requirements of the Uniform Single Audit Procedure for
Mortgage Bankers, and stating such firm's conclusions relating thereto.
Removal and Resignation of Servicer
The Certificate Insurer (or, the Owners, with the consent of the
Certificate Insurer) will have the right to, pursuant to the Pooling and
Servicing Agreement, remove the Servicer upon the occurrence of certain events
(collectively, the "Servicer Termination Events") including, without limitation:
(a) certain acts of bankruptcy or insolvency on the part of the Servicer; (b)
certain failures on the part of the Servicer to perform its obligations under
the Pooling and Servicing Agreement (including certain performance tests related
to the delinquency rate and cumulative losses of the Home Equity Loan Pool); (c)
the failure to cure material breaches of the Servicer's representations in the
Pooling and Servicing Agreement; or (d) certain mergers or other combinations of
the Servicer with another entity.
The Servicer is not permitted to resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement except upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Servicer so
causing such conflict being of a type and nature carried on by the Servicer on
the date of the Pooling and Servicing Agreement. Any such determination
permitting the resignation of the Servicer is required to be evidenced by an
opinion of counsel to such effect which shall be delivered, and reasonably
acceptable, to the Trustee and the Certificate Insurer.
Upon removal or resignation of the Servicer, the Trustee may (A)
solicit bids for a successor servicer as described in the Pooling and Servicing
Agreement or (B) shall appoint the Backup Servicer as Servicer. The Trustee, if
it is unable to obtain a qualifying bid and is prevented by law from acting as
servicer, will be required to appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution designated as an approved seller-servicer by
FHLMC or FNMA, having equity of not less than $5,000,000, and acceptable to the
Certificate Insurer and a majority of the Owners of the Class R Certificates
(provided that if the Certificate Insurer and such Owners cannot agree as to the
acceptability of such successor Servicer, the decision of the Certificate
Insurer shall control) as the successor to the Servicer in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer.
No removal or resignation of the Servicer will become effective until
the Backup Servicer, the Trustee or a successor servicer shall have assumed the
Servicer's responsibilities and obligations in accordance with the Pooling and
Servicing Agreement.
The Trustee
____________________, having its principal corporate trust office at
_______________________________________________, will be named as Trustee under
the Pooling and Servicing Agreement.
Reporting Requirements
On each Payment Date the Trustee will be required to report in writing
(based on information provided to the Trustee by the Servicer) to each Owner,
the Rating Agencies and the Certificate Insurer:
S-57
<PAGE>
(i) the amount of the distribution with respect to the Class A
Certificates, the Class S Certificates and the Class R Certificates
(based on a Certificate in the original principal amount of $1,000);
(ii) the amount of such distributions allocable to principal
on the Home Equity Loans, separately identifying the aggregate amount
of any prepayments in full or Prepayments or other recoveries of
principal included therein and, with respect to the Fixed Rate Group
only, any Pre-Funded Amounts distributed as a prepayment (based on a
Certificate in the original principal amount of $1,000) and any
Subordination Increase Amount with respect to each Home Equity Loan
Group;
(iii) the amount of such distribution allocable to interest on
the Home Equity Loans in each Group (based on a Certificate in the
original principal amount of $1,000);
(iv) if the distribution (net of any Insured Payment) to the
Owners of any Class of the Class A Certificates on such Payment Date
was less than the related Class A Distribution Amounts on such Payment
Date and the related Class A Carry-Forward Amount resulting therefrom;
(v) the amount of any Insured Payment included in the amounts
distributed to the Owners of Class A Certificates on such Payment Date;
(vi) the principal amount of each Class of Class A Certificate
(based on a Certificate in the original principal amount of $1,000)
which will be Outstanding after giving effect to any payment of
principal on such Payment Date;
(vii) the Subordinated Amount and Subordination Deficit for
each Group, if any, remaining after giving effect to all distributions
and transfers on such Payment Date;
(viii) the aggregate Loan Balance of all Home Equity Loans,
the aggregate Loan Balance of the Home Equity Loans in each Group and,
in the case of the Fixed Rate Group only, the aggregate Loan Balance of
the Initial Home Equity Loans and the Subsequent Home Equity Loans, in
each case after giving effect to any payment of principal on such
Payment Date;
(ix) based upon information furnished by the Seller such
information as may be required by Section 6049(d)(7)(C) of the Code and
the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(x) the total of any Substitution Amounts or Loan Purchase
Price amounts included in such distribution with respect to each Group;
(xi) the weighted average Coupon Rate of the Home Equity
Loans;
(xii) such other information as the Certificate Insurer or any
Owner may reasonably request with respect to delinquent Home Equity
Loans;
(xiii) the largest Home Equity Loan balance outstanding; and
(xiv) for Payment Dates during the Funding Period, the
remaining Pre-Funded Amount.
Certain obligations of the Trustee to provide information to the Owners
are conditioned upon such information being received from the Servicer.
In addition, on the Business Day preceding each Payment Date the
Trustee will be required to distribute to each Owner, the Certificate Insurer
and the Rating Agencies, together with the information described above, the
following information prepared by the Servicer and furnished to the Trustee for
such purpose and with respect to each Home Equity Loan Group;
(a) the number and aggregate principal balances of Home Equity
Loans (i) 30-59 days delinquent, (ii) 60-89 days delinquent, (iii) 90
or more days delinquent, as of the close of business on the last day of
the Remittance Period immediately preceding the Payment Date, (iv) the
numbers and aggregate Loan Balances of all Home Equity Loans as of such
Payment Date and (v) the percentage that each of the
S-58
<PAGE>
amounts represented by clauses (i), (ii) and (iii) represent as a
percentage of the respective amounts in clause (iv);
(b) the status and the number and dollar amounts of all Home
Equity Loans in foreclosure proceedings as of the close of business on
the last day of the Remittance Period immediately preceding such
Payment Date;
(c) the number of Mortgagors and the Loan Balances of (i) the
related Mortgages involved in bankruptcy proceedings as of the close of
business on the last day of the Remittance Period immediately preceding
such Payment Date and (ii) Home Equity Loans that are "balloon" loans;
(d) the existence and status of any Properties as to which
title has been taken in the name of, or on behalf of the Trustee, as of
the close of business of the last day of the Remittance Period
immediately preceding the Payment Date;
(e) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure as of the close
of business on the last day of the Remittance Period immediately
preceding the Payment Date;
(f) the Cumulative Loss Percentage, the amount of cumulative
Realized Losses, the current period Realized Losses and the Annual Loss
Percentage (Rolling Twelve Month) (each as defined in the Pooling and
Servicing Agreement); and
(g) the 60+ Delinquency Percentage and the amount of 60-Day
Delinquent Loans (each as defined in the Pooling and Servicing
Agreement).
Removal of Trustee for Cause
The Trustee may be removed upon the occurrence of any one of the
following events (whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) on the part of the Trustee: (1) failure to
make distributions of available amounts; (2) certain breaches of covenants and
representations by the Trustee; (3) certain acts of bankruptcy or insolvency on
the part of the Trustee; and (4) failure to meet the standards of Trustee
eligibility as set forth in the Pooling and Servicing Agreement.
If any such event occurs and is continuing, then and in every such case
(i) the Certificate Insurer or (ii) with the prior written consent of the
Certificate Insurer (which is required not to be unreasonably withheld), the
Depositor and the Owners of a majority of the Percentage Interests represented
by the Class A Certificates or, if there are no Class A Certificates then
Outstanding, by a majority of the Percentage Interests represented by the Class
R Certificates, may appoint a successor trustee.
Governing Law
The Pooling and Servicing Agreement and each Certificate will be
construed in accordance with and governed by the laws of the State of New York
applicable to agreements made and to be performed therein.
Amendments
The Trustee, the Depositor, the Seller and the Servicer with the
consent of the Certificate Insurer may, at any time and from time to time and
without notice to or the consent of the Owners, amend the Pooling and Servicing
Agreement, and the Trustee will be required to consent to such amendment, for
the purposes of (i) if accompanied by an approving opinion of counsel
experienced in federal income tax matters, removing the restriction against the
transfer of a Class R Certificate to a Disqualified Organization (as such term
is defined in the Code), (ii) complying with the requirements of the Code
including any amendments necessary to maintain REMIC status, (iii) curing any
ambiguity, (iv) correcting or supplementing any provisions therein which are
inconsistent with any other provisions therein, or (v) for any other purpose,
provided that in the case of clause (v), (A) the Seller delivers an opinion of
counsel acceptable to the Trustee that such amendment will not adversely affect
in any material respect the interest of the Owners and (B) such amendment will
not result in a withdrawal or reduction of the rating of the
S-59
<PAGE>
Class A Certificates without regard to the Certificate Insurance Policy.
Notwithstanding anything to the contrary, no such amendment shall (a) change in
any manner the amount of, or delay the timing of, payments which are required to
be distributed to any Owner without the consent of the Owner of such
Certificate, (b) change the percentages of Percentage Interest which are
required to consent to any such amendments, without the consent of the Owners of
all Certificates of the Class or Classes affected then Outstanding or (c) which
affects in any manner the terms or provisions of the Certificate Insurance
Policy.
The Trustee will be required to furnish written notification of the
substance of any such amendment to each Owner in the manner set forth in the
Pooling and Servicing Agreement.
Termination of the Trust
The Pooling and Servicing Agreement will provide that the Trust will
terminate upon the payment to the Owners of all Certificates from amounts other
than those available under the Certificate Insurance Policy of all amounts
required to be paid to such Owners upon the later to occur of (a) the final
payment or other liquidation (or any advance made with respect thereto) of the
last Home Equity Loan, (b) the disposition of all property acquired in respect
of any Home Equity Loan remaining in the Trust Estate and (c) at any time when a
Qualified Liquidation of the Trust Estate is effected as described below. To
effect a termination pursuant to clause (c) above, the Owners of all
Certificates then outstanding will be required to furnish to the Trustee an
opinion of counsel experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee to the effect that such liquidation
constitutes a Qualified Liquidation.
Optional Termination
By Owners of Class R Certificates. At their option, the Owners of a
majority of the Percentage Interest represented by the Class R Certificates then
Outstanding may on any Monthly Remittance Date when the aggregate outstanding
Loan Balances of the Home Equity Loans is __% or less of the Maximum Collateral
Amount purchase from the Trust all (but not fewer than all) remaining Home
Equity Loans, in whole only, and other property acquired by foreclosure, deed in
lieu of foreclosure, or otherwise then constituting the Trust Estate, and
thereby effect early retirement of the Certificates.
Termination Upon Loss of REMIC Status. Following a final determination
by the Internal Revenue Service or by a court of competent jurisdiction, in
either case from which no appeal is taken within the permitted time for such
appeal, or if any appeal is taken, following a final determination of such
appeal from which no further appeal can be taken, to the effect that either the
Base REMIC or the Upper-Tier REMIC does not and will no longer qualify as a
"REMIC" pursuant to Section 860D of the Code (the "Final Determination"), at any
time on or after the date which is 30 calendar days following such Final
Determination the Certificate Insurer or the Owners of a majority in Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer may direct the Trustee on behalf of the Trust
to adopt a plan of complete liquidation, as contemplated by Section 860F(a)(4)
of the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following section discusses certain of the material anticipated
federal income tax consequences of the purchase, ownership and disposition of
the Class A Certificates. Such section must be considered only in connection
with "Certain Federal Income Tax Consequences" in the Prospectus. The discussion
herein and in the Prospectus is based upon laws, regulations, rulings and
decisions now in effect, all of which are subject to change. The discussion
below and in the Prospectus does not purport to deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Class A Certificates.
REMIC Elections
Pursuant to the Pooling and Servicing Agreement, the Trustee will elect
to treat the Trust Estate (other than the Pre-Funding Account and the
Capitalized Interest Account) as two segregated asset pools with respect to
which elections will be made to treat each as a separate REMIC for federal
income tax purposes. The Base REMIC will issue several uncertificated subclasses
of non-voting interests (the "Base REMIC Regular Interests"), which will be
designated as the regular interests in the Base REMIC and the uncertificated
Base REMIC Residual Class, which
S-60
<PAGE>
will be designated as the residual interest in the Base REMIC. The assets of the
Base REMIC will consist of the Home Equity Loans and all other property in the
Trust Estate except for the property in the Trust Estate allocated to the
Upper-Tier REMIC, the Pre-Funding Account and the Capitalized Interest Account.
The Upper-Tier REMIC will issue the Class A Certificates all of which will be
designated as the regular interests in the Upper-Tier REMIC, and the Class R
Certificate which will be designated as the residual interest in the Upper-Tier
REMIC. The assets of the Upper-Tier REMIC will consist of the Base REMIC Regular
Interests. Aggregate distributions on the Base REMIC Regular Interests will
equal the aggregate distributions on the Class A Certificates and Class S
Certificates. See "Formation of the Trust and Trust Property" herein.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Arter & Hadden, special tax counsel, is of the opinion that for
federal income tax purposes, assuming (i) the REMIC elections are made and (ii)
compliance with the Pooling and Servicing Agreement, each of the Upper-Tier
REMIC and the Base REMIC will be treated as a REMIC, the Class A Certificates
will be treated as "regular interests" in the Upper-Tier REMIC, the Class R
Certificates will be the sole "residual interest" in the Upper-Tier REMIC, the
Base REMIC Regular Interests will be treated as "regular interests" in the Base
REMIC and the uncertificated Base REMIC Residual Class will be the sole
"residual" in the Base REMIC. Except as indicated below and in the Prospectus,
for federal income tax purposes, regular interests in a REMIC are treated as
debt instruments issued by the REMIC on the date on which those interests are
created, and not as ownership interests in the REMIC or its assets. Owners of
the Class A Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to such Class A
Certificates under an accrual method.
The prepayment assumption for each Class of the Class A Certificates
for calculating original issue discount is ___% of the applicable Prepayment
Assumption. See "Prepayment and Yield Considerations -- Projected Prepayment and
Yield for Class A Certificates" herein.
As a result of the qualification of the Base REMIC and the Upper-Tier
REMIC as REMICs, the Trust will not be subject to federal income tax except with
respect to (i) income from prohibited transactions, (ii) "net income from
foreclosure property" and (iii) certain contributions to the Trust after the
Closing Date (see "Certain Federal Income Tax Consequences" in the Prospectus).
The total income of the Trust (exclusive of any income that is taxed at the
REMIC level) will be taxable to the Beneficial Owners of the Certificates.
Under the laws of New York State and New York City, an entity that is
treated for federal income tax purposes as a REMIC generally is exempt from
entity level taxes imposed by those jurisdictions. This exemption does not
apply, however, to the income on the Class A Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans subject to
ERISA ("Plans") and on persons who are parties in interest or disqualified
persons ("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election has
been made under section 410(d) of the Code), are not subject to the restrictions
of ERISA, and assets of such plans may be invested in the Certificates without
regard to the ERISA considerations described below, subject to other applicable
federal and state law. However, any such governmental or church plan which is
qualified under section 401(a) of the Code and exempt from taxation under
section 501(a) of the Code is subject to the prohibited transaction rules set
forth in section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions ("prohibited transactions") involving
a Plan and its assets unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA)
on parties in interest which engage in non-exempt prohibited transactions.
The United States Department of Labor ("DOL") has issued a final
regulation (29 C.F.R. Section 2510.3- 101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in
S-61
<PAGE>
which a Plan makes an "equity investment" will be deemed for purposes of ERISA
to be assets of the Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Home Equity Loans and any other assets held
by the Trust. In such an event, persons providing services with respect to the
assets of the Trust, may be parties in interest, subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of Section 406 of ERISA (and of Section 4975 of the
Code), with respect to transactions involving such assets unless such
transactions are subject to a statutory or administrative exemption.
One such exception applies if the class of equity interests in question
is (i) "widely held", (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"). In addition the regulation provides that if at all times more than
75% of the value of classes of equity interests in the Trust are held by
investors other than benefit plan investors (which is defined as including plans
subject to ERISA, government plans and individual retirement accounts), the
investing Plan's assets will not include any of the underlying assets of the
Trust.
The DOL has issued to ____________________ an individual prohibited
transaction exemption from certain of the prohibited transaction rules of ERISA
(the "Exemption"), with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The loans covered by the Exemption include home
equity loans such as the Home Equity Loans.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arms-length transaction
with an unrelated party;
(2) the rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) the certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of the three highest
generic rating categories from either Standard & Poor's, Moody's, Duff
& Phelps Credit Rating Co. ("D&P") or Fitch Investors Service, Inc.
("Fitch");
(4) the Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
Underwriters in connection with the distribution of the certificates
represents not more than reasonable compensation for underwriting the
certificates; the sum of all payments made to and retained by the
Depositor pursuant to the assignment of the loans to the Trust Estate
represents not more than the fair market value of such loans; the sum
of all payments made to and retained by the Trustee and the Servicer
represents not more than reasonable compensation for such person's
services under the Agreement and reimbursement of such person's
reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of an acquisition in connection with the initial
issuance of certificates, at least fifty percent of each class of certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group; (ii) the Plan's investment in certificates of any class does
not exceed twenty-five percent of all of the certificates of that class
outstanding at the time of the acquisition; and (iii) immediately after the
acquisition, no more than twenty-five percent of the assets of the Plan with
respect to which such person is a fiduciary are invested in certificates
representing an interest in one or more trusts containing
S-62
<PAGE>
assets sold or serviced by the same entity. The Exemption does not apply to
Plans sponsored by the Depositor, the Certificate Insurer, the Underwriters, the
Trustee, the Servicer, any obligor with respect to Home Equity Loans included in
the Trust Estate constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Estate, or any
affiliate of such parties (the "Restricted Group").
In addition, as of the date hereof, there is no single Home Equity Loan
included in the Trust Estate that constitutes more than five percent of the
aggregate unamortized principal balance of the assets of the Trust Estate.
Before purchasing a Class A Certificate based on the Exemption, however, a
fiduciary of a Plan should itself confirm (1) that such Certificate constitutes
a "certificate" for purposes of the Exemption and (2) that the specific
conditions and other requirements set forth in the Exemption would be satisfied.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption,
and the potential consequences in their specific circumstances, prior to making
an investment in the Class A Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment procedure
and diversification an investment in the Class A Certificates is appropriate for
the Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
RATINGS
It is a condition of the issuance of the Class A Certificates that the
Class A Certificates receive ratings of "AAA" by Standard & Poor's and "Aaa" by
Moody's. The ratings assigned to the Class A Certificates will be based
primarily on the claims-paying ability of the Certificate Insurer. Explanations
of the significance of such ratings may be obtained from Moody's, 99 Church
Street, New York, New York and Standard & Poor's, 25 Broadway, New York, New
York 10004. Such ratings will be the views only of such rating agencies. There
is no assurance that any such ratings will continue for any period of time or
that such ratings will not be revised or withdrawn. Any such revision or
withdrawal of such ratings may have an adverse effect on the market price of the
Class A Certificates. A security rating is not a recommendation to buy, sell or
hold securities.
LEGAL INVESTMENT CONSIDERATIONS
Although the [Fixed Rate] Certificates are expected to be rated "AAA"
by Standard & Poor's and "Aaa" by Moody's, the [Fixed Rate] Certificates will
not constitute "mortgage related securities" for purposes of SMMEA because a
portion of the Home Equity Loans represent second liens. Accordingly, many
institutions with legal authority to invest in comparably rated securities based
on first home equity loans may not be legally authorized to invest in the [Fixed
Rate] Certificates.
S-63
<PAGE>
[The Class A-8 Certificates will constitute "mortgage related
securities" for purposes of SMMEA for so long as they are rated in one of the
two highest rating categories by one or more nationally recognized statistical
rating organizations. As such, such Classes of Certificates will be legal
investments for certain entities to the extent provided in SMMEA, subject to
state laws overriding SMMEA. In addition, institutions whose investment
activities are subject to review by federal or state regulatory authorities may
be or may become subject to restrictions, which may be retroactively imposed by
such regulatory authorities, on the investment by such institutions in certain
forms of mortgage related securities. Furthermore, certain states have enacted
legislation overriding the legal investment provisions of SMMEA. In addition,
institutions whose activities are subject to review by federal or state
regulatory authorities may be or may become subject to restrictions, which may
be retroactively imposed by such regulatory authorities, on the investment by
such institutions in certain forms of mortgage related securities.]
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Certificates (the "Underwriting Agreement"), the
Depositor has agreed to cause the Trust to sell to each of the Underwriters
named below (the "Underwriters"), and each of the Underwriters has severally
agreed to purchase, the principal amount or Percentage Interest of the Class A
Certificates set forth opposite its name below:
Class A-1 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
-------------------- $
Total $
Class A-2 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
Total $
Class A-3 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
Total $
Class A-4 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
Total $
S-64
<PAGE>
Class A-5 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
Total $
Class A-6 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
Total $
Class A-7 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
Total $
Class A-8 Certificates
Underwriters Principal Amount
-------------------- $
-------------------- $
Total $
The Seller has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Certificates
offered hereby, if any are purchased. The Depositor has been advised by the
Underwriters that they propose initially to offer the Class A Certificates to
the public at the respective offering prices set forth on the cover page hereof
and to certain dealers at such price less a concession not in excess of the
respective amounts set forth in the table below (expressed as a percentage of
the relative Certificate Principal Balance). The Underwriters may allow and such
dealers may reallow a discount not in excess of the respective amounts set forth
in the table below to certain other dealers.
Selling Reallowance
Class Concession Discount
- ----- ---------- --------
A-1..................................... % %
A-2..................................... % %
A-3..................................... % %
A-4..................................... % %
A-5..................................... % %
A-6..................................... % %
A-7..................................... % %
A-8..................................... % %
S-65
<PAGE>
After the initial public offering, such prices and discounts may be
changed.
The Depositor has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
REPORT OF EXPERTS
The consolidated balance sheets of ____________________ and
Subsidiaries as of ___________, 199__ and 199__ and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended ___________, 199__, incorporated by
reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of ________________________, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Depositor and the Seller by Arter &
Hadden, Washington, D.C. Certain legal matters relating to insolvency issues and
certain federal income tax matters concerning the Certificates will be passed
upon by Arter & Hadden. Certain legal matters relating to the validity of the
issuance of the Certificates will be passed upon for the Underwriters by
- --------------------------------.
S-66
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
----
5/25 Loans...............................................................S-4
Agreement................................................................S-2
Appraised Values........................................................S-21
Available Funds.........................................................S-42
Backup Servicer.........................................................S-17
Balloon Loans...........................................................S-16
Base REMIC..............................................................S-12
Base REMIC Regular Interests............................................S-60
Beneficial Owners.......................................................S-11
Book-Entry Certificates.................................................S-43
Capitalized Interest Account............................................S-10
Carry-Forward Amount....................................................S-42
Cede....................................................................S-11
Certificate Account.....................................................S-39
Certificate Insurer......................................................S-9
Certificate Insurer Default..............................................S-9
Class....................................................................S-1
Class A Certificate Principal Balance...................................S-34
Class A Certificates.....................................................S-1
Class A Distribution Amount..............................................S-5
Class A Principal Distribution Amount....................................S-6
Class A-1 Certificates...................................................S-1
Class A-2 Certificates...................................................S-1
Class A-3 Certificates...................................................S-1
Class A-4 Certificates...................................................S-1
Class A-5 Certificates...................................................S-1
Class A-6 Certificates...................................................S-1
Class A-7 Certificates...................................................S-1
Class R Certificates.....................................................S-2
Class S Certificates.....................................................S-2
Closing Date.............................................................S-1
CMT Loans................................................................S-3
Code....................................................................S-12
Combined Loan-to-Value Ratios...........................................S-23
Compensating Interest...................................................S-55
Coupon Rate..............................................................S-3
CPR.....................................................................S-35
Current Interest........................................................S-42
Custodian...............................................................S-52
Cut-Off Date.............................................................S-1
D&P.....................................................................S-62
Daily Collections.......................................................S-54
Definitive Certificate..................................................S-43
Delinquency Advances....................................................S-54
Depositor................................................................S-1
DOL.....................................................................S-61
DTC.....................................................................S-11
DTC Participants........................................................S-44
ERISA...................................................................S-61
Excess Subordinated Amount..............................................S-50
Exemption...............................................................S-62
FHLMC...................................................................S-18
Final Determination.....................................................S-60
Financial Intermediary..................................................S-44
Fitch...................................................................S-62
Fixed Rate Certificates..................................................S-1
FNMA....................................................................S-18
FNMA Guide..............................................................S-53
Funding Period..........................................................S-10
Home Equity Loans........................................................S-2
Initial Home Equity Loans................................................S-3
Insurance Policy.........................................................S-9
Insured Payment..........................................................S-9
Loan Balance.............................................................S-7
Loan Purchase Price.....................................................S-52
Loan-to-Value Ratios....................................................S-23
Maximum Collateral Amount...............................................S-12
Monthly Remittance Date..................................................S-8
Moody's.................................................................S-10
Mortgagor...............................................................S-33
Net Liquidation Proceeds................................................S-54
Notes...................................................................S-21
Original Aggregate Loan Balance.........................................S-21
Participants............................................................S-43
Payment Date.............................................................S-5
Percentage Interest.....................................................S-39
Plans...................................................................S-61
Preference Amount........................................................S-8
Pre-Funded Amount.......................................................S-10
Pre-Funding Account......................................................S-2
Premium Amount..........................................................S-11
Prepayment Assumption...................................................S-35
Prepayments.............................................................S-14
Preservation Expenses...................................................S-55
Principal and Interest Account..........................................S-54
Properties...............................................................S-2
Qualified Replacement Mortgage..........................................S-51
Rating Agencies.........................................................S-12
Realized Loss...........................................................S-50
Record Date..............................................................S-5
Reference Banks.........................................................S-43
Register................................................................S-39
Registrar...............................................................S-39
REMIC...................................................................S-12
REMIC Opinion...........................................................S-51
Remittance Period........................................................S-8
Restricted Group........................................................S-63
Rules...................................................................S-44
Seller...................................................................S-1
Servicer.................................................................S-1
Servicer Termination Events.............................................S-57
Servicing Advance.......................................................S-55
Servicing Fee............................................................S-8
Six Month LIBOR..........................................................S-3
SMMEA...................................................................S-13
Specified Subordinated Amount...........................................S-49
Subordinated Amount.....................................................S-49
Subordination Deficit...................................................S-50
Subordination Increase Amount...........................................S-49
Subordination Reduction Amount..........................................S-50
Subsequent Cut-Off Date.................................................S-15
Subsequent Mortgage Loans................................................S-2
Subsequent Transfer Agreement...........................................S-15
Subsequent Transfer Date................................................S-10
Sub-Servicers...........................................................S-17
Sub-Servicing Agreements................................................S-17
Substitution Amount.....................................................S-51
Telerate Page 3750......................................................S-43
Total Available Funds...................................................S-42
Total Monthly Excess Spread.............................................S-49
Trust....................................................................S-1
Trust Estate............................................................S-38
Trustee..................................................................S-1
Underwriters............................................................S-64
Upper Tier REMIC........................................................S-12
Weighted average life...................................................S-34
A-i
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or by the Underwriters. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction 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 made hereunder shall, under
any circumstances, create any implication that information herein is correct as
of any time subsequent to the date hereof or that there has been no change in
the affairs of the Depositor since such date.
----------
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary................................................................S-
Risk Factors ..........................................................S-
The Seller and Servicer................................................S-
Use of Proceeds........................................................S-
The Depositor..........................................................S-
The Home Equity Loan Pool..............................................S-
Prepayment and Yield Considerations....................................S-
Formation of the Trust and Trust Property..............................S-
Additional Information.................................................S-
Description of the Class A Certificates................................S-
The Certificate Insurer................................................S-
Credit Enhancement.....................................................S-
The Pooling and Servicing Agreement....................................S-
Certain Federal Income Tax Consequences................................S-
ERISA Considerations...................................................S-
Ratings................................................................S-
Legal Investment Considerations........................................S-
Underwriting...........................................................S-
Report of Experts......................................................S-
Certain Legal Matters..................................................S-
Index to Location of Principal Defined Terms..........................A-1
PROSPECTUS
Summary of Prospectus...................................................1
Risk Factors............................................................6
Description of the Certificates.........................................9
The Trusts.............................................................14
Credit Enhancement.....................................................17
Servicing of the Home Equity Loans and
Contracts............................................................21
Administration.........................................................27
Use of Proceeds........................................................34
The Depositor..........................................................34
Certain Legal Aspects of the Mortgage Assets...........................34
Legal Investment Matters...............................................47
ERISA Considerations...................................................48
Certain Federal Income Tax Consequences................................49
Plan of Distribution...................................................73
Legal Matters..........................................................73
Financial Information..................................................73
Index to Location of Principal Defined Terms..........................A-1
================================================================================
<PAGE>
IMC HOME EQUITY
LOAN TRUST 199_-__
$-----------
$
Class A-1 Certificates
$
Class A-2 Certificates
$
Class A-3 Certificates
$
Class A-4 Certificates
$
Class A-5 Certificates
$
Class A-6 Certificates
$
Class A-7 Certificates
$
Class A-8 Certificates
IMC Home Equity Loan Trust
Series 199_-__
-----------
PROSPECTUS SUPPLEMENT
-----------
--------------------
--------------------
__________ __, 199__
<PAGE>
PROSPECTUS
Home Equity Loan Pass Through Certificates
(Issuable in Series)
IMC Securities, Inc.
(Depositor)
This Prospectus relates to Home Equity Loan Pass Through Certificates to be
issued from time to time in one or more series (and one or more classes within a
series), certain classes of which may be offered on terms determined at the time
of sale and described in this Prospectus and the related Prospectus Supplement.
Each series of Certificates will be issued by a separate trust (each, a "Trust")
and will evidence either a beneficial ownership interest in, or the debt
obligation of, such Trust. The assets of a Trust will include one or more of the
following: (i) single family residential mortgage loans, including mortgage
loans secured by junior liens on the related mortgaged properties, (ii) mortgage
backed securities and (iii) investment income, reserve funds, cash accounts,
insurance policies, guaranties, letters of credit or other assets as described
in the related Prospectus Supplement.
One or more classes of Certificates of a series may be (i) entitled to
receive distributions allocable to principal, principal prepayments, interest or
any combination thereof prior to one or more other classes of Certificates of
such series or after the occurrence of certain events or (ii) subordinated in
the right to receive such distributions to one or more senior classes of
Certificates of such series, in each case as specified in the related Prospectus
Supplement. Interest on each class of Certificates entitled to distributions
allocable to interest may accrue at a fixed rate or at a rate that is subject to
change from time to time as specified in the related Prospectus Supplement. The
Depositor or its affiliates may retain or hold for sale from time to time one or
more classes of a series of Certificates.
Distributions on the Certificates will be made at the intervals and on the
dates specified in the related Prospectus Supplement from the assets of the
related Trust and any other assets pledged for the benefit of the Certificates.
An affiliate of the Depositor may make or obtain for the benefit of the
Certificates limited representations and warranties with respect to mortgage
assets assigned to the related Trust. Neither the Depositor nor any affiliates
will have any other obligation with respect to the Certificates.
The yield on Certificates will be affected by the rate of payment of
principal (including prepayments) of mortgage assets in the related Trust. Each
series of Certificates will be subject to early termination under the
circumstances described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election may be made to treat
the Trust for the related series or specified portions thereof as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax purposes. See
"Certain Federal Income Tax Consequences" herein and in the related Prospectus
Supplement.
It is a condition to the issuance of the Certificates that the Certificates
be rated in not less than the fourth highest rating category by a nationally
recognized rating organization.
See "Risk Factors" beginning on page 6 herein and in the related Prospectus
Supplement for a discussion of significant matters affecting investments in the
Certificates.
See "ERISA Considerations" herein and in the related Prospectus Supplement
for a discussion of restrictions on the acquisition of Certificates by "plan
fiduciaries."
An investor should carefully review the information in the related
Prospectus Supplement concerning the risks associated with the different types
and classes of Certificates.
THE ASSETS OF A TRUST ARE THE SOLE SOURCE OF PAYMENTS ON THE RELATED
CERTIFICATES. THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
THE DEPOSITOR, ANY SERVICER, ANY MASTER SERVICER, ANY ORIGINATOR, ANY TRUSTEE OR
ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
ASSETS WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, ANY SERVICER, ANY MASTER SERVICER, ANY
ORIGINATOR, ANY TRUSTEE OR ANY OF THEIR AFFILIATES, EXCEPT AS SET FORTH IN THE
RELATED PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described
herein and in the related Prospectus Supplement. See "Plan of Distribution"
herein and "Underwriting" in the related Prospectus Supplement.
Prior to their issuance there will have been no market for the Certificates
nor can there by any assurance that one will develop or if it does develop, that
it will provide the Owners of the Certificates with liquidity or will continue
for the life of the Certificates.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Certificates unless accompanied by a Prospectus
Supplement.
- --------------------------------------------------------------------------------
The date of this Prospectus is _________ __, 199_.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY OF PROSPECTUS..................................................... 1
RISK FACTORS.............................................................. 6
DESCRIPTION OF THE CERTIFICATES........................................... 8
General.............................................................. 9
Classes of Certificates.............................................. 9
Distributions of Principal and Interest.............................. 11
Book Entry Registration.............................................. 12
List of Owners of Certificates....................................... 12
THE TRUSTS................................................................ 13
Mortgage Loans....................................................... 13
Mortgage-Backed Securities........................................... 15
Other Mortgage Securities............................................ 15
CREDIT ENHANCEMENT........................................................ 16
SERVICING OF MORTGAGE LOANS............................................... 20
Payments on Mortgage Loans........................................... 21
Advances............................................................. 21
Collection and Other Servicing Procedures............................ 22
Primary Mortgage Insurance........................................... 23
Standard Hazard Insurance............................................ 23
Title Insurance Policies............................................. 24
Claims Under Primary Mortgage Insurance Policies
and Standard Hazard Insurance Policies; Other
Realization Upon Defaulted Loan.................................. 24
Servicing Compensation and Payment of Expenses....................... 25
Master Servicer...................................................... 25
ADMINISTRATION............................................................ 25
Assignment of Mortgage Assets........................................ 25
Evidence as to Compliance............................................ 27
The Trustee.......................................................... 27
Administration of the Certificate Account............................ 28
Reports.............................................................. 29
Forward Commitments; Pre-Funding..................................... 29
Servicer Events of Default........................................... 30
Rights Upon Servicer Event of Default................................ 30
Amendment............................................................ 30
Termination.......................................................... 31
USE OF PROCEEDS........................................................... 31
THE DEPOSITOR............................................................. 31
CERTAIN LEGAL ASPECTS OF THE MORTGAGE
ASSETS............................................................... 31
General.............................................................. 32
Foreclosure.......................................................... 32
Soldiers' and Sailors' Civil Relief Act.............................. 37
LEGAL INVESTMENT MATTERS.................................................. 38
ERISA CONSIDERATIONS...................................................... 38
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 40
Federal Income Tax Consequences For REMIC
Certificates..................................................... 40
Taxation of Regular Certificates..................................... 42
Taxation of Residual Certificates.................................... 47
Treatment of Certain Items of REMIC Income and
Expense.......................................................... 49
Tax-Related Restrictions on Transfer of Residual
Certificates..................................................... 51
Sale or Exchange of a Residual Certificate........................... 53
Taxes That May Be Imposed on the REMIC Pool.......................... 53
Liquidation of the REMIC Pool........................................ 54
Administrative Matters............................................... 54
Limitations on Deduction of Certain Expenses......................... 54
Taxation of Certain Foreign Investors................................ 55
Backup Withholding................................................... 56
Reporting Requirements............................................... 56
Federal Income Tax Consequences for Certificates as
to Which No REMIC Election Is Made............................... 57
Premium and Discount................................................. 58
Stripped Certificates................................................ 60
Reporting Requirements and Backup Withholding........................ 62
Taxation of Certain Foreign Investors................................ 62
Taxation of Securities Classified as Partnership
Interests........................................................ 63
PLAN OF DISTRIBUTION...................................................... 63
LEGAL MATTERS............................................................. 63
FINANCIAL INFORMATION..................................................... 63
INDEX TO LOCATION OF PRINCIPAL DEFINED
TERMS................................................................A-1
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with respect to each respective Trust pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934
subsequent to the date of this Prospectus and prior to the termination of the
offering of the securities of such Trust offered hereby shall be deemed to be
incorporated by reference into this Prospectus when delivered with respect to
such Trust. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
documents expressly incorporated therein by reference). Requests should be
directed to IMC Securities, Inc., 3450 Buschwood Park Drive, Tampa, Florida
33618 (telephone number (813) 932-2211).
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the Prospectus Supplement relating to a particular series of Certificates and to
the related Agreement which will be prepared in connection with each series of
Certificates. Unless otherwise specified, capitalized terms used and not defined
in this Summary of Prospectus have the meanings given to them in this Prospectus
and in the related Prospectus Supplement.
Securities................... Home Equity Loan Pass Through Certificates,
issuable in series, in fully registered form or
book entry only form, in authorized
denominations, as described in the Prospectus
Supplement (the "Certificates"). Each Certificate
will represent a beneficial ownership interest in
a trust (a "Trust") created from time to time
pursuant to a pooling and servicing agreement or
trust agreement (each, an "Agreement").
The Depositor................ IMC Securities, Inc. (the "Depositor") is a
Delaware corporation. The Depositor's principal
executive offices are located at 3450 Buschwood
Park Drive, Tampa, Florida 33618; telephone
number (813) 932-2211. See "The Depositor"
herein. The Depositor or its affiliates may
retain or hold for sale from time to time one or
more classes of a series of Certificates.
The Servicer................. The entity or entities named as the Servicer in
the Prospectus Supplement (the "Servicer"), will
act as servicer, with respect to the Mortgage
Loans included in the related Trust. The Servicer
may be an affiliate of the Depositor and may be
the seller of Mortgage Assets to the Depositor
(each, a "Seller").
The Master Servicer.......... A "Master Servicer" may be specified in the
related Prospectus Supplement for the related
series of Certificates.
The Trustee.................. The trustee (the "Trustee") for each series of
Certificates will be specified in the related
Prospectus Supplement.
Trust Assets................. The assets of a Trust will be mortgage-related
assets (the "Mortgage Assets") consisting of one
or more of the following types of assets:
A. The Mortgage Loans....... "Mortgage Loans" may include: (i) conventional
(i.e., not insured or guaranteed by any
governmental agency) Mortgage Loans secured by
one-to-four family residential properties; (ii)
Mortgage Loans secured by security interests in
shares issued by private, non-profit, cooperative
housing corporations ("Cooperatives") and in the
related proprietary leases or occupancy
agreements granting exclusive rights to occupy
specific dwelling units in such Cooperatives'
buildings; and, (iii) Mortgage Loans secured by
junior liens on the related mortgaged properties,
including home improvement retail installment
contracts. See "The Trusts - Mortgage Loans"
herein.
B. Mortgage-
Backed Securities...... "Mortgage-Backed Securities" (or "MBS") may
include (i) private (that is, not guaranteed or
insured by the United States or any agency or
instrumentality thereof) mortgage participations,
mortgage pass-through certificates or other
mortgage-backed securities or (ii) certificates
insured
1
<PAGE>
or guaranteed by Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National
Mortgage Association ("FNMA") or Government
National Mortgage Association ("GNMA"). See "The
Trusts - Mortgage-Backed Securities" herein.
C. Other Mortgage Assets..... Trust assets may also include reinvestment
income, reserve funds, cash accounts, insurance
policies, guaranties, letters of credit or other
assets as described in the related Prospectus
Supplement.
The related Prospectus Supplement for a series of
Certificates will describe the Mortgage Assets to
be included in the Trust for such series.
The Certificates.............. The Certificates of any series may be issued in
one or more classes, as specified in the
Prospectus Supplement. One or more classes of
Certificates of each series (i) may be entitled
to receive distributions allocable only to
principal, only to interest or to any combination
thereof; (ii) may be entitled to receive
distributions only of prepayments of principal
throughout the lives of the Certificates or
during specified periods; (iii) may be
subordinated in the right to receive
distributions of scheduled payments of principal,
prepayments of principal, interest or any
combination thereof to one or more other classes
of Certificates of such series throughout the
lives of the Certificates or during specified
periods; (iv) may be entitled to receive such
distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) may
be entitled to receive distributions in
accordance with a schedule or formula or on the
basis of collections from designated portions of
the assets in the related Trust; (vi) as to
Certificates entitled to distributions allocable
to interest, may be entitled to receive interest
at a fixed rate or a rate that is subject to
change from time to time; (vii) may accrue
interest, with such accrued interest added to the
principal or notional amount of the Certificates,
and no payments being made thereon until certain
other classes of the series have been paid in
full; and (viii) as to Certificates entitled to
distributions allocable to interest, may be
entitled to distributions allocable to interest
only after the occurrence of events specified in
the Prospectus Supplement and may accrue interest
until such events occur, in each case as
specified in the related Prospectus Supplement.
The timing and amounts of such distributions may
vary among classes, over time, or otherwise as
specified in the related Prospectus Supplement.
Distributions on
the Certificates............ The related Prospectus Supplement will specify
(i) whether distributions on the Certificates
entitled thereto will be made monthly, quarterly,
semi-annually or at other intervals and dates out
of the payments received in respect of the
Mortgage Assets included in the related Trust and
other assets, if any, pledged for the benefit of
the related Owners of Certificates; (ii) the
amount allocable to payments of principal and
interest on any Payment Date; and (iii) whether
all distributions will be made pro rata to Owners
of Certificates of the class entitled thereto.
The aggregate original principal balance of the
Certificates will equal the aggregate
distributions allocable to principal that such
Certificates will be entitled to receive; the
Certificates will have an aggregate original
principal
2
<PAGE>
balance equal to or less than the aggregate
unpaid principal balance of the related Mortgage
Assets (plus amounts held in a Pre-Funding
Account, if any) as of the first day of the month
of creation of the Trust; and the Certificates
will bear interest in the aggregate at a rate
(the "Pass-Through Rate") equal to the interest
rate borne by the related Mortgage Assets net of
servicing fees and any other specified amounts.
Pre-Funding Account.......... A Trust may enter into an agreement (each, a
"Pre-Funding Agreement") with the Depositor
whereby the Depositor will agree to transfer
additional Mortgage Assets to such Trust
following the date on which such Trust is
established and the related Certificates are
issued. Any Pre-Funding Agreement will require
that any Mortgage Loans so transferred conform to
the requirements specified in such Pre-Funding
Agreement. If a Pre- Funding Agreement is to be
utilized, the related 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 Assets will be
transferred to the related Trust in exchange for
money released to the Depositor from the related
Pre-Funding Account. The maximum amount deposited
in the Pre- Funding Account to acquire Mortgage
Loans for transfer to a Trust will not exceed 40%
of the aggregate principal amount of the
Certificates offered pursuant to the related
Prospectus Supplement. Each Pre-Funding Agreement
will set a specified period during which any such
transfers must occur, which period will not
exceed 90 days from the date the Trust is
established. If all moneys originally deposited
to such Pre-Funding Account are not used by the
end of such specified period, then any remaining
moneys will be applied as a mandatory prepayment
of a class or classes of Certificates as
specified in the related Prospectus Supplement.
The specified period for the acquisition by a
Trust of additional Mortgage Loans will generally
not exceed three months from the date such Trust
is established.
Optional Termination......... The Servicer, the Seller, the Depositor, or, if
specified in the related Prospectus Supplement,
the Owners of a related class of Certificates or
a credit enhancer may at their respective options
effect early retirement of a series of
Certificates through the purchase of the Mortgage
Assets in the related Trust. See "Administration
- Termination" herein.
Mandatory Termination........ The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of a series of Certificates by
soliciting competitive bids for the purchase of
the assets of the related Trust or otherwise. See
"Administration -- Termination" herein.
Advances..................... The Servicer of the Mortgage Loans will be
obligated (but only to the extent set forth in
the related Prospectus Supplement) to advance
delinquent installments of principal and/or
interest (less applicable servicing fees) on the
Mortgage Loans in a Trust. Any such obligation to
make advances may be limited to amounts due to
the Owners of Certificates of the related series,
to amounts deemed to be recoverable from late
payments or liquidation proceeds, to specified
periods or to any
3
<PAGE>
combination thereof, in each case as specified in
the related Prospectus Supplement. Any such
advance will be recoverable as specified in the
related Prospectus Supplement. See "Servicing of
Mortgage Loans and Contracts" herein.
Credit Enhancement........... If specified in the related Prospectus
Supplement, a series of Certificates, or certain
classes within such series, may have the benefit
of one or more types of credit enhancement
("Credit Enhancement") including but not limited
to subordination, cross support, mortgage pool
insurance, special hazard insurance, financial
guaranty insurance policies, a bankruptcy bond,
reserve funds, other insurance, guaranties and
similar instruments and arrangements. The
protection against losses afforded by any such
Credit Enhancement will be limited. See "Credit
Enhancement" herein.
Book Entry Registration...... Certificates of one or more classes of a series
may be issued in book entry form ("Book Entry
Certificates") in the name of a clearing agency
(a "Clearing Agency") registered with the
Securities and Exchange Commission, or its
nominee. Transfers and pledges of Book Entry
Certificates may be made only through entries on
the books of the Clearing Agency in the name of
brokers, dealers, banks and other organizations
eligible to maintain accounts with the Clearing
Agency ("Clearing Agency Participants") or their
nominees. Transfers and pledges by purchasers and
other beneficial owners of Book Entry
Certificates ("Beneficial Owners") other than
Clearing Agency Participants may be effected only
through Clearing Agency Participants. All
references to the Owners of Certificates shall
mean Beneficial Owners to the extent Beneficial
Owners may exercise their rights through a
Clearing Agency. Except as otherwise specified in
this Prospectus or a related Prospectus
Supplement, the term "Owners" shall be deemed to
include Beneficial Owners. See "Risk Factors -
Book Entry Registration" and "Description of the
Certificates - Book Entry Registration" herein.
Certain Federal Income Tax
Consequences............. Federal income tax consequences will depend on,
among other factors, whether one or more
elections are made to treat a Trust or specified
portions thereof as a "real estate mortgage
investment conduit" ("REMIC") under the Internal
Revenue Code of 1986, as amended (the "Code"),
or, if no REMIC election is made, whether the
Certificates are considered to be Standard
Certificates, Stripped Certificates or
Partnership Interests. The related Prospectus
Supplement for each series of Certificates will
specify whether a REMIC election will be made.
See "Certain Federal Income Tax Consequences"
herein and in the related Prospectus Supplement.
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.
Certain classes of Certificates may not be
transferred unless the Trustee and the Depositor
are furnished with a letter of representation or
an opinion of counsel to the effect that such
transfer will not result in a violation of the
4
<PAGE>
prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee, the
Depositor or the Servicer to additional
obligations. See "Description of the Certificates
- General" herein and "ERISA Considerations"
herein and in the related Prospectus Supplement.
Legal Investment Matters..... Certificates that constitute "mortgage related
securities" under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") will be so
described in the related Prospectus Supplement.
Certificates that are not so qualified may not be
legal investments for certain types of
institutional investors, subject, in any case, to
any other regulations which may govern
investments by such institutional investors. See
"Legal Investment Matters" herein and in the
related Prospectus Supplement.
Use of Proceeds.............. Substantially all the net proceeds from the sale
of a series of Certificates will be applied to
the simultaneous purchase of the Mortgage Assets
included in the related Trust (or to reimburse
the amounts previously used to effect such
purchase), the costs of carrying the Mortgage
Assets until sale of the Certificates and to pay
other expenses. See "Use of Proceeds" herein.
Rating....................... Each class of Certificates offered by a
Prospectus Supplement will be rated in one of the
four highest rating categories of a nationally
recognized statistical rating agency; provided,
however, that one or more classes of Subordinated
Certificates and Residual Certificates, which
will not be so offered, need not be so rated.
Risk Factors................. Investment in the Certificates will be subject to
one or more risk factors, including declines in
the value of Mortgaged Properties, prepayment of
Mortgage Loans, higher risks of defaults on
particular types of Mortgage Loans, limitations
on security for the Mortgage Loans, limitations
on credit enhancement and various other factors.
See "Risk Factors" herein and in the related
Prospectus Supplement.
5
<PAGE>
RISK FACTORS
Prospective investors should consider, among other things, the
following risk factors in connection with the purchase of the Certificates:
General. If the residential real estate market in general or a regional
or local area where Mortgage Assets for a Trust are concentrated should
experience an overall decline in property values, or a significant downturn in
economic conditions, rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry.
See "The Trusts - Mortgage Loans" herein.
Limited Obligations. The Certificates will not represent an interest in
or obligation of the Depositor. The Certificates of each series will not be
insured or guaranteed by any government agency or instrumentality, the
Depositor, any Servicer or the Seller.
Prepayment Considerations. The prepayment experience on Mortgage Loans
constituting or underlying the Mortgage Assets will affect the average life of
each class of Certificates relating to a Trust. Prepayments may be influenced by
a variety of economic, geographic, social and other factors, including changes
in interest rate levels. In general, if mortgage interest rates fall, the rate
of prepayment would be expected to increase. Conversely, if mortgage interest
rates rise, the rate of prepayment would be expected to decrease. Other factors
affecting prepayment of mortgage loans include changes in housing needs, job
transfers, unemployment and servicing decisions. See "Prepayment and Yield
Considerations" in the related Prospectus Supplement.
Risk of Higher Default Rates for Mortgage Loans with Balloon Payments.
A portion of the aggregate principal balance of the Mortgage Loans at any time
may be "balloon loans" that provide for the payment of the unamortized principal
balance of such Mortgage Loan in a single payment at maturity ("Balloon Loans").
Such Balloon Loans provide for equal monthly payments, consisting of principal
and interest, generally based on a 30- year amortization schedule, and a single
payment of the remaining balance of the Balloon Loan generally 5, 7, 10, or 15
years after origination. Amortization of a Balloon Loan based on a scheduled
period that is longer than the term of the loan results in a remaining principal
balance at maturity that is substantially larger than the regular scheduled
payments. The Depositor does not have any information regarding the default
history or prepayment history of payments on Balloon Loans. Because borrowers of
Balloon Loans are required to make substantial single payments upon maturity, it
is possible that the default risk associated with the Balloon Loans is greater
than that associated with fully-amortizing Mortgage Loans.
Limited Liquidity. There will be no market for the Certificates of any
series prior to the issuance thereof, and there can be no assurance that a
secondary market will develop or, if it does develop, that it will provide
liquidity of investment or will continue for the life of the Certificates of
such series. The market value of the Certificates will fluctuate with changes in
prevailing rates of interest. Consequently, the sale of Certificates in any
market that may develop may be at a discount from the Certificates' par value or
purchase price. Owners of Certificates generally have no right to request
redemption of Certificates, and the Certificates are subject to redemption only
under the limited circumstances described in the related Prospectus Supplement.
In addition, the Certificates will not be listed on any securities exchange.
Limited Assets. Owners of Certificates of each series must rely upon
distributions on the related Mortgage Assets, together with the other specific
assets pledged for the benefit of such series (which assets may be subject to
release from such pledge prior to payment in full of the Certificates), for the
payment of principal of, and interest on, that series of Certificates. If the
assets comprising the Trust are insufficient to make payments on such
Certificates, no other assets of the Depositor will be available for payment of
the deficiency. Because payments of principal will be applied to classes of
outstanding Certificates of a series in the priority specified in the related
Prospectus Supplement, a deficiency may have a disproportionately greater effect
on the Certificates of classes having lower priority in payment. In addition,
due to the priority of payments and the allocation of losses, defaults
experienced on the assets comprising a Trust may have a disproportionate effect
on a specified class or classes within such series.
6
<PAGE>
Limitations, Reduction and Substitution of Credit Enhancement. Credit
Enhancement may be provided in one or more of the forms described in the related
Prospectus Supplement, including, but not limited to, prioritization as to
payments of one or more classes of such series, a Mortgage Pool Insurance
Policy, a Financial Guaranty Insurance Policy, a Special Hazard Insurance
Policy, a bankruptcy bond, one or more Reserve Funds, other insurance,
guaranties and similar instruments and agreements, or any combination thereof.
Regardless of the Credit Enhancement provided, the amount of coverage may be
limited in amount and in most cases will be subject to periodic reduction in
accordance with a schedule or formula. Furthermore, such Credit Enhancement may
provide only very limited coverage as to certain types of losses and may provide
no coverage as to certain other types of losses. The Trustee may be permitted to
reduce, terminate or substitute all or a portion of the Credit Enhancement for
any series of Certificates, if the applicable rating agencies indicate that the
then-current rating thereof will not be adversely affected.
Original Issue Discount. All the Compound Interest Certificates and
Stripped Certificates that are entitled only to interest distributions will be,
and certain of the other Certificates may be, issued with original issue
discount for federal income tax purposes. An Owner of a Certificate issued with
original issue discount will be required to include original issue discount in
ordinary gross income for federal income tax purposes as it accrues, in advance
of receipt of the cash attributable to such income. Accrued but unpaid interest
on such Certificates generally will be treated as original issue discount for
this purpose. See "Certain Federal Income Tax Consequences - Federal Income Tax
Consequences for REMIC Certificates," "- Taxation of Regular Certificates -
Variable Rate Regular Certificates," "Certain Federal Income Tax Consequences -
Federal Income Tax Consequences for Certificates as to Which No REMIC Election
Is Made - Standard Certificates," and "Certain Federal Income Tax Consequences -
Premium and Discount" and "- Stripped Certificates" herein.
Book Entry Registration. Because transfers and pledges of Book Entry
Certificates may be effected only through book entries at a Clearing Agency
through Clearing Agency Participants, the liquidity of the secondary market for
Book Entry Certificates may be reduced to the extent that some investors are
unwilling to hold Certificates in book entry form in the name of Clearing Agency
Participants and the ability to pledge Book Entry Certificates may be limited
due to lack of a physical certificate. Beneficial Owners of Book Entry
Certificates may, in certain cases, experience delay in the receipt of payments
of principal and interest because such payments will be forwarded by the Trustee
to the Clearing Agency who will then forward payment to the Clearing Agency
Participants who will thereafter forward payment to Beneficial Owners. In the
event of the insolvency of the Clearing Agency or of a Clearing Agency
Participant in whose name Certificates are recorded, the ability of Beneficial
Owners to obtain timely payment and (if the limits of applicable insurance
coverage by the Securities Investor Protection Corporation are exceeded, or if
such coverage is otherwise unavailable) ultimate payment of principal and
interest on Book Entry Certificates may be impaired.
Certain Matters Relating to Insolvency. The Sellers of the Mortgage
Assets to the Depositor and the Depositor intend that the transfers of such
Mortgage Assets to the Depositor, and in turn to the applicable Trust,
constitute sales rather than pledges to secure indebtedness for insolvency
purposes. If, however, a seller of Mortgage Assets were to become a debtor under
the federal bankruptcy code, it is possible that a creditor,
trustee-in-bankruptcy or receiver of such seller may argue that the sale thereof
by such Seller is a pledge rather than a sale. This position, if argued or
accepted by a court, could result in a delay in or reduction of distributions on
the related Certificates.
Junior Lien Mortgage Loans. Because Mortgage Loans secured by junior
(i.e., second, third, etc.) liens are subordinate to the rights of the
beneficiaries under the related senior deeds of trust or senior mortgages, a
decline in the residential real estate market would adversely affect the
position of the related Trust as a junior beneficiary or junior mortgagee before
having such an effect on the position of the related senior beneficiaries or
senior mortgagees. A rise in interest rates over a period of time, the general
condition of a Mortgaged Property and other factors may also have the effect of
reducing the value of the Mortgaged Property from the value at the time the
junior lien Mortgage Loan was originated and, as a result, may reduce the
likelihood that, in the event of a default by the borrower, liquidation or other
proceeds will be sufficient to satisfy the junior lien Mortgage Loan after
satisfaction of any senior liens and the payment of any liquidation expenses.
7
<PAGE>
Liquidation expenses with respect to defaulted Mortgage Loans do not
vary directly with the outstanding principal balance of the Mortgage Loans at
the time of default. Therefore, assuming that a Servicer took the same steps in
realizing upon defaulted Mortgage Loans having small remaining principal
balances as in the case of defaulted Mortgage Loans having larger principal
balances, the amount realized after expenses of liquidation would be smaller as
a percentage of the outstanding principal balance of the smaller Mortgage Loans.
To the extent the average outstanding principal balances of the Mortgage Loans
in a Trust are relatively small, realizations net of liquidation expenses may
also be relatively small as a percentage of the principal amount of the Mortgage
Loans.
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, a Mortgagor who enters military
service after the origination of the related Mortgage Loan (including a
Mortgagor who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest (including fees and charges) above an annual rate of
6% during the period of such Mortgagor's active duty status, unless a court
orders otherwise upon application of the lender. It is possible that such action
could have an effect, for an indeterminate period of time, on the ability of the
related Servicer to collect full amounts of interest on certain of the Mortgage
Loans. In addition, the Relief Act imposes limitations that would impair the
ability of the related Servicer to foreclose on an affected Mortgage Loan during
the Mortgagor's period of active duty status. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely fashion.
Security Ratings. The rating of Certificates credit enhanced through
external credit enhancement such as a letter of credit, financial guaranty
insurance policy or mortgage pool insurance will depend primarily on the
creditworthiness of the issuer of such external credit enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer below the rating initially given to the
related Certificates would likely result in a reduction in the rating of the
Certificates. See "Ratings" in the Prospectus Supplement.
Other Legal Considerations. Applicable federal and state laws generally
regulate interest rates and other charges, require certain disclosures, prohibit
unfair and deceptive practices, regulate debt collection, and require licensing
of the originators of the mortgage loans and contracts. Depending on the
provisions of the applicable law and the specified facts and circumstances
involved, violations of those laws, policies and principles may limit the
ability to collect all or part of the principal of or interest on the Mortgage
Loans and may entitle the borrower to a refund of amounts previously paid. See
"Certain Legal Aspects of the Mortgage Assets" herein.
DESCRIPTION OF THE CERTIFICATES
Each Trust will be created pursuant to an Agreement entered into among
the Depositor, the Trustee, the Master Servicer, if any, and the Servicer. The
provisions of each Agreement will vary depending upon the nature of the
Certificates to be issued thereunder and the nature of the related Trust.
Certificates which represent beneficial interests in the Trust will be issued
pursuant to the Agreement. The following summaries and the summaries set forth
under "Administration" describe certain provisions relating to each series of
Certificates. The Prospectus Supplement for a series of Certificates will
describe the specific provisions relating to such series. The Depositor will
provide Owners of Certificates, without charge, on written request a copy of the
Agreement for the related series. Requests should be addressed to IMC
Securities, Inc., 3450 Buschwood Park Drive, Tampa, Florida 33618. The Agreement
relating to a series of Certificates will be filed with the Securities and
Exchange Commission within 15 days after the date of issuance of such series of
Certificates (the "Delivery Date").
The Certificates of a series will be entitled to payment only from the
assets of the Trust and any other assets pledged for the benefit of the
Certificates and will not be entitled to payments in respect of the assets
included in any other trust fund established by the Depositor. The Certificates
will not represent obligations of the Depositor, the Trustee, the Master
Servicer, if any, any Servicer or any affiliate thereof and will not be
guaranteed by any governmental agency. See "The Trusts" herein.
8
<PAGE>
The Mortgage Assets relating to a series of Certificates will not be
insured or guaranteed by any governmental entity and, to the extent that
delinquent payments on or losses in respect of defaulted Mortgage Assets, are
not advanced or paid from any applicable Credit Enhancement, such delinquencies
may result in delays in the distribution of payments on, or losses allocated to
one or more classes of Certificates of such series.
General
The Certificates of each series will be issued either in book entry
form or in fully registered form. The minimum original denomination of each
class of Certificates will be specified in the related Prospectus Supplement.
The original "Certificate Principal Balance" of each Certificate will equal the
aggregate distributions or payments allocable to principal to which such
Certificate is entitled and distributions allocable to interest on each
Certificate that is not entitled to distributions allocable to principal will be
calculated based on the "Notional Principal Balance" of such Certificate. The
Notional Principal Balance of a Certificate will not evidence an interest in or
entitlement to distributions allocable to principal but will be used solely for
convenience in expressing the calculation of interest and for certain other
purposes.
Except as described below under "Book Entry Registration" with respect
to Book Entry Certificates, the Certificates of each series will be transferable
and exchangeable on a "Certificate Register" to be maintained at the corporate
trust office or such other office or agency maintained for such purposes by the
Trustee. The Trustee will be appointed initially as the "Certificate Registrar"
and no service charge will be made for any registration of transfer or exchange
of Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required.
Under current law the purchase and holding of certain classes of
Certificates may result in "prohibited transactions" within the meaning of ERISA
and the Code. See "ERISA Considerations" herein and in the related Prospectus
Supplement. Transfer of Certificates of such a class will not be registered
unless the transferee (i) executes a representation letter stating that it is
not, and is not purchasing on behalf of, any such plan, account or arrangement
or (ii) provides an opinion of counsel satisfactory to the Trustee and the
Depositor that the purchase of Certificates of such a class by or on behalf of
such plan, account or arrangement is permissible under applicable law and will
not subject the Trustee, the Servicer or the Depositor to any obligation or
liability in addition to those undertaken in the Agreement.
As to each series, one or more elections may be made to treat the
related Trust or designated portions thereof as a REMIC for federal income tax
purposes. The related Prospectus Supplement will specify whether a REMIC
election is to be made. Alternatively, the Agreement for a series may provide
that a REMIC election may be made at the discretion of the Depositor or the
Servicer and may only be made if certain conditions are satisfied. See "Certain
Federal Income Tax Considerations" herein. As to any such series, the terms and
provisions applicable to the making of a REMIC election, as well as any material
federal income tax consequences to Owners of Certificates not otherwise
described herein, will be set forth in the related Prospectus Supplement. If
such an election is made with respect to a series, one of the classes will be
designated as evidencing the "residual interests" in the related REMIC, as
defined in the Code. All other classes of Certificates in such a series will
constitute "regular interests" in the related REMIC, as defined in the Code. As
to each series with respect to which a REMIC election is to be made, the
Servicer, the Trustee, an Owner of Residual Certificates or another person as
specified in the related Prospectus Supplement will be obligated to take all
actions required in order to comply with applicable laws and regulations and
will be obligated to pay any prohibited transaction taxes. The person so
specified will be entitled to reimbursement for any such payment.
Classes of Certificates
Each series of Certificates will be issued in one or more classes which
will evidence the beneficial ownership in the assets of the Trust that are
allocable to (i) principal of such class of Certificates and (ii) interest on
such Certificates. If specified in the Prospectus Supplement, one or more
classes of a series of Certificates may evidence beneficial ownership interests
in separate groups of assets included in the related Trust.
9
<PAGE>
The Certificates will have an aggregate original Certificate Principal
Balance equal to the aggregate unpaid principal balance of the Mortgage Assets
(plus, amounts held in a Pre-Funding Account, if any) as of the time and day
prior to creation of the Trust specified in the related Prospectus Supplement
(the "Cut-Off Date") after deducting payments of principal due before the
Cut-Off Date and will bear interest at rates which, on a weighted basis, will be
equal to the Pass-Through Rate. The Pass-Through Rate will equal the weighted
average rate of interest borne by the related Mortgage Assets, net of the
aggregate servicing fees, amounts allocated to the residual interests and any
other amounts as are specified in the Prospectus Supplement. The original
Certificate Principal Balance (or Notional Principal Balance) of the
Certificates of a series and the interest rate on the classes of such
Certificates will be determined in the manner specified in the Prospectus
Supplement.
Each class of Certificates that is entitled to distributions allocable
to interest will bear interest at a fixed rate or a rate that is subject to
change from time to time (a) in accordance with a schedule, (b) by reference to
an index, or (c) otherwise (each, a "Certificate Interest Rate"). One or more
classes of Certificates may provide for interest that accrues but is not
currently payable ("Compound Interest Certificates"). With respect to any class
of Compound Interest Certificates, any interest that has accrued but is not paid
on a given Payment Date will be added to the aggregate Certificate Principal
Balance of such class of Certificates on that Payment Date.
A series of Certificates may include one or more classes entitled only
to distributions or payments (i) allocable to interest, (ii) allocable to
principal (and allocable as between scheduled payments of principal and
Principal Prepayments, as defined below), or (iii) allocable to both principal
(and allocable as between scheduled payments of principal and Principal
Prepayments) and interest. A series of Certificates may consist of one or more
classes as to which distributions or payments will be allocated (i) on the basis
of collections from designated portions of the assets of the Trust, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise. The timing and amounts of such distributions or
payments may vary among classes, over time or otherwise.
A series of Certificates may include one or more Classes of Scheduled
Amortization Certificates and Companion Certificates. "Scheduled Amortization
Certificates" are Certificates with respect to which payments of principal are
to be made in specified amounts on specified Payment Dates, to the extent of
funds available on such Payment Date. "Companion Certificates" are Certificates
which receive payments of all or a portion of any funds available on a given
Payment Date which are in excess of amounts required to be applied to payments
on Scheduled Amortization Certificates on such Payment Date. Because of the
manner of application of payments of principal to Companion Certificates, the
weighted average lives of Companion Certificates of a series may be expected to
be more sensitive to the actual rate of prepayments on the Mortgage Assets in
the related Trust than will the Scheduled Amortization Certificates of such
series.
One or more series of Certificates may constitute series of "Special
Allocation Certificates", which may include Senior Certificates, Subordinated
Certificates, Priority Certificates and Non-Priority Certificates. As specified
in the related Prospectus Supplement for a series of Special Allocation
Certificates, the timing and/or priority of payments of principal and/or
interest may favor one or more classes of Certificates over one or more other
classes of Certificates. Such timing and/or priority may be modified or
reordered upon the occurrence of one or more specified events. Losses on Trust
assets for such series may be disproportionately borne by one or more classes of
such series, and the proceeds and distributions from such assets may be applied
to the payment in full of one or more classes within such series before the
balance, if any, of such proceeds are applied to one or more other classes
within such series. For example, Special Allocation Certificates in a series may
be comprised of one or more classes of Senior Certificates having a priority in
right to distributions of principal and interest over one or more classes of
Subordinated Certificates, as a form of Credit Enhancement. See "Credit
Enhancement Subordination" herein. Typically, the Subordinated Certificates will
carry a rating by the rating agencies lower than that of the Senior
Certificates. In addition, one or more classes of Certificates ("Priority
Certificates") may be entitled to a priority of distributions of principal or
interest from assets in the Trust over another class of Certificates
("Non-Priority Certificates"), but only after the exhaustion of other Credit
Enhancement applicable to such series. The Priority Certificates and
Non-Priority Certificates nonetheless may be within the same rating category.
10
<PAGE>
Distributions of Principal and Interest
General. Distributions of principal and interest will be made to the
extent of funds available therefor, on the dates specified in the Prospectus
Supplement (each, a "Payment Date") to the persons in whose names the
Certificates are registered (the "Owners") at the close of business on the dates
specified in the Prospectus Supplement (each, a "Record Date"). With respect to
Certificates other than Book Entry Certificates, distributions will be made by
check or money order mailed to the person entitled thereto at the address
appearing in the Certificate Register or, if specified in the Prospectus
Supplement, in the case of Certificates that are of a certain minimum
denomination as specified in the Prospectus Supplement, upon written request by
the Owner of a Certificate, by wire transfer or by such other means as are
agreed upon with the person entitled thereto; provided, however, that the final
distribution in retirement of the Certificates (other than Book Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee specified in the notice of
such final distribution. With respect to Book Entry Certificates, such payments
will be made as described below under "Book Entry Registration".
Distributions will be made out of, and only to the extent of, funds in
a separate account established and maintained for the benefit of the
Certificates of the related series (the "Certificate Account" with respect to
such series), including any funds transferred from any related Reserve Fund.
Amounts may be invested in the Eligible Investments specified herein and in the
Prospectus Supplement, and all income or other gain from such investments will
be deposited in the related Certificate Account and may be available to make
payments on the Certificates of the applicable series on the next succeeding
Payment Date or pay after amounts owed by the Trust.
Distributions of Interest. Interest will accrue on the aggregate
Certificate Principal Balance (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate Notional Principal Balance
(as defined below)) of each class of Certificates entitled to interest from the
date, at the applicable Certificate Interest Rate and for the periods (each, an
"Interest Accrual Period") specified in the Prospectus Supplement. The aggregate
Certificate Principal Balance of any class of Certificates entitled to
distributions of principal will be the aggregate original Certificate Principal
Balance of such class of Certificates, reduced by all distributions allocable to
principal, and, in the case of Compound Interest Certificates, increased by all
interest accrued but not then distributable on such Compound Interest
Certificates. With respect to a class of Certificates entitled only to
distributions allocable to interest, such interest will accrue on a notional
principal balance (the "Notional Principal Balance") of such class, computed
solely for purposes of determining the amount of interest accrued and payable on
such class of Certificates.
To the extent funds are available therefor, interest accrued during
each Interest Accrual Period on each class of Certificates entitled to interest
(other than a class of Compound Interest Certificates) will be distributable on
the Payment Dates specified in the Prospectus Supplement until the aggregate
Certificate Principal Balance of the Certificates of such class has been
distributed in full or, in the case of Certificates entitled only to
distributions allocable to interest, until the aggregate Notional Principal
Balance of such Certificates is reduced to zero or for the period of time
designated in the Prospectus Supplement. Distributions of interest on each class
of Compound Interest Certificates will commence only after the occurrence of the
events specified in the Prospectus Supplement and, prior to such time, the
aggregate Certificate Principal Balance (or Notional Principal Balance) of such
class of Compound Interest Certificates, will increase on each Payment Date by
the amount of interest that accrued on such class of Compound Interest
Certificates during the preceding Interest Accrual Period but that was not
required to be distributed to such class on such Payment Date. Any such class of
Compound Interest Certificates will thereafter accrue interest on its
outstanding Certificate Principal Balance (or Notional Principal Balance) as so
adjusted.
Distributions of Principal. The Prospectus Supplement will specify the
method by which the amount of principal to be distributed on the Certificates on
each Payment Date will be calculated and the manner in which such amount will be
allocated among the classes of Certificates entitled to distributions of
principal.
One or more classes of Certificates may be entitled to receive all or a
disproportionate percentage of the payments of principal which are received on
the related Mortgage Assets in advance of their scheduled due dates
11
<PAGE>
and are not accompanied by amounts representing scheduled interest due after the
month of such payments ("Principal Prepayments"). Any such allocation may have
the effect of accelerating the amortization of such Certificates relative to the
interests evidenced by the other Certificates.
Unscheduled Distributions. The Certificates of a series may be subject
to receipt of distributions before the next scheduled Payment Date under the
circumstances and in the manner described below and in the related Prospectus
Supplement. If applicable, such unscheduled distributions will be made on the
Certificates of a series on the date and in the amount specified in the related
Prospectus Supplement if, due to substantial payments of principal (including
Principal Prepayments) on the related Mortgage Assets, low rates then available
for reinvestment of such payments or both, it is determined, based on specified
assumptions, that the amount anticipated to be on deposit in the Certificate
Account for such series on the next related Payment Date, together with, if
applicable, any amounts available to be withdrawn from any related Reserve Fund
or from any other Credit Enhancement provided for such series, may be
insufficient to make required distributions on the Certificates on such Payment
Date. The amount of any such unscheduled distribution that is allocable to
principal will not exceed the amount that would otherwise have been required to
be distributed as principal on the Certificates on the next Payment Date and
will include interest at the applicable Certificate Interest Rate (if any) on
the amount of the unscheduled distribution allocable to principal for the period
and to the date specified in the Prospectus Supplement.
All distributions allocable to principal in any unscheduled
distribution will be made in the same priority and manner as distributions of
principal on the Certificates would have been made on the next Payment Date
except as otherwise stated in the related Prospectus Supplement, and, with
respect to Certificates of the same class, unscheduled distributions of
principal will be made on a pro rata basis. Notice of any unscheduled
distribution will be given by the Trustee prior to the date of such
distribution.
Book Entry Registration
Certificates may be issued as Book Entry Certificates and held in the
name of a Clearing Agency registered with the Securities and Exchange Commission
or its nominee. Transfers and pledges of Book Entry Certificates may be made
only through entries on the books of the Clearing Agency in the name of Clearing
Agency Participants or their nominees. Clearing Agency Participants may also be
Beneficial Owners of Book Entry Certificates.
Purchasers and other Beneficial Owners may not hold Book Entry
Certificates directly but may hold, transfer or pledge their ownership interest
in the Certificates only through Clearing Agency Participants. Furthermore,
Beneficial Owners will receive all payments of principal and interest with
respect to the Certificates and, if applicable, may request redemption of
Certificates, only through the Clearing Agency and the Clearing Agency
Participants. Beneficial Owners will not be registered Owners of Certificates or
be entitled to receive definitive certificates representing their ownership
interest in the Certificates except under the limited circumstances, if any,
described in the related Prospectus Supplement. See "Risk Factors - Book Entry
Registration" herein.
If Certificates of a series are issued as Book Entry Certificates, the
Clearing Agency will be required to make book entry transfers among Clearing
Agency Participants, to receive and transmit payments of principal and interest
with respect to the Certificates of such series, and to receive and transmit
requests for redemption with respect to such Certificates. Clearing Agency
Participants with whom Beneficial Owners have accounts with respect to such Book
Entry Certificates will be similarly required to make book entry transfers and
receive and transmit payments and redemption requests on behalf of their
respective Beneficial Owners. Accordingly, although Beneficial Owners will not
be registered Owners of Certificates and will not possess physical certificates,
a method will be provided whereby Beneficial Owners may receive payments,
transfer their interests, and submit redemption requests.
List of Owners of Certificates
Upon written request of a specified number or percentage interests of
Owners of Certificates of record of a series of Certificates for purposes of
communicating with other Owners of Certificates with respect to their rights as
Owners of Certificates, the Trustee will afford such Owners access during
business hours to the most recent list
12
<PAGE>
of Owners of Certificates of that series held by the Trustee. With respect to
Book Entry Certificates, the only named Owner on the Certificate Register will
be the Clearing Agency.
The Agreement will not provide for the holding of any annual or other
meetings of Owners of Certificates.
THE TRUSTS
The Trust for a series of Certificates will consist of: (i) the
Mortgage Assets (subject, if specified in the Prospectus Supplement, to certain
exclusions) received on and after the related Cut-Off Date; (ii) all payments
(subject, if specified in the Prospectus Supplement, to certain exclusions) in
respect of such Mortgage Assets, which may be adjusted, to the extent specified
in the related Prospectus Supplement, in the case of interest payments on
Mortgage Assets, to the Pass-Through Rate; (iii) if specified in the Prospectus
Supplement, reinvestment income on such payments; (iv) with respect to a Trust
that includes Mortgage Loans all property acquired by foreclosure or deed in
lieu of foreclosure with respect to any such Mortgage Loan; (v) certain rights
of the Trustee, the Depositor and the Servicer under any policies required to be
maintained in respect of the related Mortgage Assets; and (vi) if so specified
in the Prospectus Supplement, one or more forms of Credit Enhancement.
The Certificates of each series will be entitled to payment only from
the assets of the related Trust and any other assets pledged therefor and will
not be entitled to payments in respect of the assets of any other trust
established by the Depositor.
Mortgage Assets may be acquired by the Depositor from affiliated or
unaffiliated originators. The following is a brief description of the Mortgage
Assets expected to be included in the Trusts. If specific information respecting
the Mortgage Assets is not known at the time the related series of Certificates
initially are offered, more general information of the nature described below
will be provided in the related Prospectus Supplement, and specific information
will be set forth in a report on Form 8-K to be filed with the Securities and
Exchange Commission within fifteen days after the initial issuance of such
Certificates. A copy of the Agreement with respect to each series of
Certificates will be attached to the Form 8-K and will be available for
inspection at the corporate trust office of the Trustee specified in the related
Prospectus Supplement. A schedule of the Mortgage Assets relating to each series
of Certificates, will be attached to the related Agreement delivered to the
Trustee upon delivery of such Certificates.
Mortgage Loans
The Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by mortgages or deeds of trust (the "Mortgages") creating liens
on residential properties (the "Mortgaged Properties"). Such Mortgage Loans will
be within the broad classification of single family mortgage loans, defined
generally as loans on residences containing one to four dwelling units. If
specified in the Prospectus Supplement, the Mortgage Loans may include
cooperative apartment loans ("Cooperative Loans") secured by security interests
in shares issued by Cooperatives and in the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specific dwelling units
in such Cooperatives' buildings, or the Mortgage Loans may be secured by junior
liens on the related mortgaged properties, including home improvement retail
installment contracts. The Mortgaged Properties securing the Mortgage Loans may
include investment properties and vacation and second homes. Each Mortgage Loan
will be selected by the Depositor for inclusion in the Trust from among those
acquired by the Depositor or originated or acquired by one or more affiliated or
unaffiliated originators, including newly originated loans.
The Mortgage Loans will be "conventional" mortgage loans, that is they
will not be insured or guaranteed by any governmental agency, the principal and
interest on the Mortgage Loans included in the Trust for a series of
Certificates will be payable either on the first day of each month or on
different scheduled days throughout each month, and the interest will be
calculated either on a simple-interest or accrual method as described in the
related Prospectus Supplement. When a full principal amount is paid on a
Mortgage Loan during a month, the mortgagor
13
<PAGE>
is generally charged interest only on the days of the month actually elapsed up
to the date of such prepayment, at a daily interest rate that is applied to the
principal amount of the Mortgage Loan so prepaid.
The payment terms of the Mortgage Loans to be included in a Trust for a
series will be described in the related Prospectus Supplement and may include
any of the following features or combinations thereof or other features
described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index, a rate that is fixed for a
period of time or under certain circumstances and followed by an
adjustable rate, a rate that otherwise varies from time to time, or a
rate that is convertible from an adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of such limitations.
Accrued interest may be deferred and added to the principal of a
Mortgage Loan for such periods and under such circumstances as may be
specified in the related Prospectus Supplement. Mortgage Loans may
provide for the payment of interest at a rate lower than the specified
mortgage rate for a period of time or for the life of the Mortgage Loan
with the amount of any difference contributed from funds supplied by
the seller of the Mortgaged Property or another source.
(b) Principal may be payable on a level debt service basis to
fully amortize the Mortgage Loan over its term, may be calculated on
the basis of an amortization schedule that is longer than the original
term to maturity or on an interest rate that is different from the
interest rate on the Mortgage Loan or may not be amortized during all
or a portion of the original term. Payment of all or a substantial
portion of the principal may be due on maturity. Principal may include
interest that has been deferred and added to the principal balance of
the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed
for the life of the Mortgage Loan, may increase over a specified period
of time or may change from period to period. Mortgage Loans may include
limits on periodic increases or decreases in the amount of monthly
payments and may include maximum or minimum amounts of monthly
payments.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Mortgage Loan or may
decline over time, and may be prohibited for the life of the Mortgage
Loan or for certain periods ("lockout periods"). Certain Mortgage Loans
may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection
with any such subsequent prepayment. Other Mortgage Loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The Mortgage Loans may include
"due-on-sale" clauses which permit the mortgagee to demand payment of
the entire Mortgage Loan in connection with the sale or certain
transfers of the related mortgaged property. Other Mortgage Loans may
be assumable by persons meeting the then applicable underwriting
standards of the Servicer, or as may be required by any applicable
government program.
With respect to a series for which the related Trust includes Mortgage
Loans, the related Prospectus Supplement may specify, among other things,
information regarding the interest rates (the "Mortgage Rates"), the average
Principal Balance and the aggregate Principal Balance, the years of origination
and original principal balances and the original loan-to-value ratios. The
"Principal Balance" of any Mortgage Loan will be the unpaid principal balance of
such Mortgage Loan as of the Cut-Off Date, after deducting any principal
payments due before the Cut-Off Date, reduced by all principal payments,
including principal payments advanced pursuant to the related Agreement,
previously distributed with respect to such Mortgage Loan and reported as
allocable to principal.
The "Loan-to-Value Ratio" of any Mortgage Loan will be determined by
dividing the amount of the Mortgage Loan by the Original Value (defined below)
of the related Mortgaged Property. The "principal amount" of the Mortgage Loan,
for purposes of computation of the Loan-to-Value Ratio of any Mortgage Loan,
will include any part of an origination fee that has been financed. In some
instances, it may also include amounts which the seller or some other party to
the transaction has paid to the mortgagee, such as minor reductions in the
purchase price made at the closing. The "Original Value" of a Mortgage Loan is
(a) in the case of any purchase money
14
<PAGE>
Mortgage Loan, the lesser of (i) the value of the mortgaged property, based on
an appraisal thereof and (ii) the selling price, and (b) otherwise the value of
the mortgaged property, based on an appraisal thereof.
There can be no assurance that the Original Value will reflect actual
real estate values during the term of a Mortgage Loan. If the residential real
estate market should experience an overall decline in property values such that
the outstanding principal balances of the Mortgage Loans become equal to or
greater than the values of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry. In addition, adverse
economic conditions (which may or may not affect real estate values) may affect
the timely and ultimate payment by mortgagors of scheduled payments of principal
and interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the Mortgage Loans.
Mortgage-Backed Securities
"Mortgage-Backed Securities" (or "MBS") may include (i) private (that
is, not guaranteed or insured by the United States or any agency or
instrumentality thereof) mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities or (ii) certificates insured or
guaranteed by FHLMC or FNMA or GNMA.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). A seller (the "MBS Issuer") and/or servicer (the "MBS
Servicer") of the underlying mortgage loans will have entered into the MBS
Agreement with a trustee or a custodian under the MBS Agreement (the "MBS
Trustee"), if any, or with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with
characteristics similar to the classes of Certificates described herein.
Distributions in respect of the MBS will be made by the MBS Servicer or the MBS
Trustee on the dates specified in the related Prospectus Supplement. The MBS
Issuer or the MBS Servicer or another person specified in the related Prospectus
Supplement may have the right or obligation to repurchase or substitute assets
underlying the MBS after a certain date or under other circumstances specified
in the related Prospectus Supplement.
Reserve funds, subordination, cross-support or other credit enhancement
similar to that described for the Certificates under "Credit Enhancement" may
have been provided with respect to the MBS. The type, characteristics and amount
of such credit enhancement, if any, will be a function of the characteristics of
the underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates that evidence
interests in MBS will specify, to the extent available, (i) the aggregate
approximate initial and outstanding principal amount and type of the MBS to be
included in the Trust, (ii) the original and remaining term to stated maturity
of the MBS, if applicable, (iii) the pass-through or bond rate of the MBS or the
formula for determining such rates, (iv) the payment characteristics of the MBS,
(v) the MBS Issuer, MBS Servicer and MBS Trustee, as applicable, (vi) a
description of the credit support, if any, (vii) the circumstances under which
the stated underlying mortgage loans, or the MBS themselves may be purchased
prior to their maturity, (viii) the terms on which mortgage loans may be
substituted for those originally underlying the MBS, (ix) the servicing fees
payable under the MBS Agreement, (x) to the extent available to the Depositor,
information in respect of the underlying mortgage loans, and (xi) the
characteristics of any cash flow agreements that relate to the MBS.
Other Mortgage Securities
Other Mortgage Securities include other securities that directly or
indirectly represent an ownership interest in, or are secured by and payable
from, mortgage loans on real property or mortgage-backed securities, including
residual interests in issuances of collateralized mortgage obligations or
mortgage pass-through certificates. Any
15
<PAGE>
Other Mortgage Securities that are privately placed securities will not be
included in a Trust until such time as such privately placed securities would be
freely transferrable pursuant to Rule 144A of the Securities Act of 1933, as
amended. Further (i) such privately placed securities will have been acquired in
the secondary market and not pursuant to an initial offering thereof and (ii)
the underlying issuer of such securities will not be affiliated with the
Depositor and will not have an interest in the Trust. The Prospectus Supplement
for a series of Certificates will describe any Other Mortgage Securities to be
included in the Trust for such series.
CREDIT ENHANCEMENT
General. Various forms of Credit Enhancement may be provided with
respect to one or more classes of a series of Certificates or with respect to
the assets in the related Trust. Credit Enhancement may be in the form of the
subordination of one or more classes of the Certificates of such series, the
establishment of one or more Reserve Funds, the use of a cross-support feature,
use of a Mortgage Pool Insurance Policy, Special Hazard Insurance Policy,
bankruptcy bond, or another form of Credit Enhancement described in the related
Prospectus Supplement, or any combination of the foregoing. Credit Enhancement
may not provide protection against all risks of loss and may not guarantee
repayment of the entire principal balance of the Certificates and interest
thereon. If losses occur which exceed the amount covered by Credit Enhancement
or which are not covered by the Credit Enhancement, Owners of Certificates will
bear their allocable share of deficiencies.
Financial Guaranty Insurance Policies. If so specified in the related
Prospectus Supplement, a financial guaranty insurance policy or surety bond
("Financial Guaranty Insurance Policy") may be obtained and maintained for each
class or series of Certificates. The issuer of any Financial Guaranty Insurance
Policy (a "Financial Guaranty Insurer") will be described in the related
Prospectus Supplement. Such description will include financial information on
the Financial Guaranty Insurer. In addition, the audited financial statements of
a Financial Guaranty Insurer and an auditors consent to use such financial
statements will be filed with the Securities and Exchange Commission on Form 8-K
or will be incorporated by reference to financial statements already on file
with the Securities and Exchange Commission.
Unless otherwise specified in the related Prospectus Supplement, a
Financial Guaranty Insurance Policy will unconditionally and irrevocably
guarantee to Certificateholders that an amount equal to each full and completed
insured payment will be received by an agent of the Trustee (an "Insurance
Paying Agent") on behalf of Certificateholders, for distribution by the Trustee
to each Certificateholder. The "insured payment" will be defined in the related
Prospectus Supplement, and will generally equal the full amount of the
distributions of principal and interest to which Certificateholders are entitled
under the related Agreement plus any other amounts specified therein or in the
related Prospectus Supplement (the "Insured Payment").
Financial Guaranty Insurance Policies may apply only to certain
specified classes, or may apply at the Mortgage Asset level and only to
specified Mortgage Assets.
The specific terms of any Financial Guaranty Insurance Policy will be
as set forth in the related Prospectus Supplement. Financial Guaranty Insurance
Policies may have limitations including (but not limited to) limitations on the
insurer's obligation to guarantee the obligations of the Seller or Depositor to
repurchase or substitute for any Mortgage Loans, Financial Guaranty Insurance
Policies will not guarantee any specified rate of prepayments and/or to provide
funds to redeem Certificates on any specified date.
Subject to the terms of the related Agreement, the Financial Guaranty
Insurer may be subrogated to the rights of Certificateholder to receive payments
under the Certificates to the extent of any payment by such Financial Guaranty
Insurer under the related Financial Guaranty Insurance Policy.
Subordination. Distributions in respect of scheduled principal,
interest or any combination thereof otherwise payable to one or more classes of
Certificates of a series (the "Subordinated Certificates") may be paid to one or
more other classes of such series (the "Senior Certificates") under the
circumstances and to the extent provided in the Prospectus Supplement. If
specified in the Prospectus Supplement, delays in receipt of scheduled
16
<PAGE>
payments on the Mortgage Assets and losses on defaulted Mortgage Assets will be
borne first by the various classes of Subordinated Certificates and thereafter
by the various classes of Senior Certificates, in each case under the
circumstances and subject to the limitations specified in the Prospectus
Supplement. The aggregate distributions in respect of delinquent payments on the
Mortgage Assets over the lives of the Certificates or at any time, the aggregate
losses in respect of defaulted Mortgage Assets which must be borne by the
Subordinated Certificates by virtue of subordination and the amount of the
distributions otherwise distributable to the Subordinated Certificates that will
be distributable to Owners of Senior Certificates on any Payment Date may be
limited as specified in the Prospectus Supplement. If aggregate distributions in
respect of delinquent payments on the Mortgage Assets or aggregate losses in
respect of such Mortgage Assets were to exceed the total amounts payable and
available for distribution to Owners of Subordinated Certificates or, if
applicable, were to exceed the specified maximum amount, Owners of Senior
Certificates could experience losses on the Certificates.
In addition to or in lieu of the foregoing, all or any portion of
distributions otherwise payable to Subordinated Certificates on any Payment Date
may instead be deposited into one or more Reserve Funds (as defined below)
established by the Trustee. If so specified in the Prospectus Supplement, such
deposits may be made on each Payment Date, on each Payment Date for specified
periods, or on each Payment Date until the balance in the Reserve Fund has
reached a specified amount and, following payments from the Reserve Fund to
Owners of Senior Certificates or otherwise, thereafter to the extent necessary
to restore the balance in the Reserve Fund to required levels, in each case as
specified in the Prospectus Supplement. If so specified in the Prospectus
Supplement, amounts on deposit in the Reserve Fund may be released to the
Depositor or the Owners of any class of Certificates at the times and under the
circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, various classes of
Subordinate Certificates and Subordinated Certificates may themselves be
subordinate in their right to receive certain distributions to other classes of
Senior and Subordinated Certificates, respectively, through a cross-support
mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events, or
(iv) otherwise, in each case as specified in the Prospectus Supplement. As
between classes of Subordinated Certificates, payments with respect to Senior
Certificates on account of delinquencies or losses and payments to any Reserve
Fund will be allocated as specified in the Prospectus Supplement.
Overcollateralization. If specified in the Prospectus Supplement,
subordination provisions of a Trust may be used to accelerate to a limited
extent the amortization of one or more classes of Certificates relative to the
amortization of the related Mortgage Loans. The accelerated amortization is
achieved by the application of certain excess interest to the payment of
principal of one or more classes of Certificates. This acceleration feature
creates, with respect to the Mortgage Loans or groups thereof,
overcollateralization which results from the excess of the aggregate principal
balance of the related Mortgage Loans, or a group thereof, over the principal
balance of the related class of Certificates. Such acceleration may continue for
the life of the related Certificates, or may be limited. In the case of limited
acceleration, once the required level of overcollateralization is reached, and
subject to certain provisions specified in the related Prospectus Supplement,
such limited acceleration feature may cease, unless necessary to maintain the
required level of overcollateralization.
Cross-Support. If specified in the related Prospectus Supplement, the
beneficial ownership of separate groups of assets included in the Trust for a
series may be evidenced by separate classes of related series of Certificates.
In such case, Credit Enhancement may be provided by a cross-support feature
which may require that distributions be made with respect to Certificates
evidencing beneficial ownership of one or more asset groups prior to
distributions to Subordinated Certificates evidencing a beneficial ownership
interest in other asset groups within the same Trust. The Prospectus Supplement
for a series which includes a cross-support feature will describe the manner and
conditions for applying such cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one
or more forms of Credit Enhancement may apply concurrently to two or more
separate Trusts for a separate series of Certificates. If
17
<PAGE>
applicable, the Prospectus Supplement will identify the Trusts to which such
credit support relates and the manner of determining the amount of the coverage
provided thereby and of the application of such coverage to the identified
Trusts.
Pool Insurance. If specified in the related Prospectus Supplement, one
or more mortgage pool insurance policies (each, a "Mortgage Pool Insurance
Policy") will be obtained.
Any such Mortgage Pool Insurance Policy will, subject to the
limitations described below and in the Prospectus Supplement, cover loss by
reason of default in payments on such Mortgage Loans up to the amounts specified
in the Prospectus Supplement or report on Form 8-K and for the periods specified
in the Prospectus Supplement. The Trustee under the related Agreement will agree
to use its best reasonable efforts to cause to be maintained in effect any such
Mortgage Pool Insurance Policy and to supervise the filing of claims thereunder
to the issuer of such Mortgage Pool Insurance Policy (the "Pool Insurer") for
the period of time specified in the related Prospectus Supplement. A Mortgage
Pool Insurance Policy, however, is not a blanket policy against loss, because
claims thereunder may only be made respecting particular defaulted Mortgage
Loans and only upon satisfaction of certain conditions precedent set forth in
such policy as described in the related Prospectus Supplement. The Mortgage Pool
Insurance Policies, if any, will not cover loss due to a failure to pay or
denial of a claim under a primary mortgage insurance policy, irrespective of the
reason therefor. The related Prospectus Supplement will describe the terms of
any applicable Mortgage Pool Insurance Policy and will set forth certain
information with respect to the related Pool Insurer.
In general, a Mortgage Pool Insurance Policy may not insure against
loss sustained by reason of a default arising from, among other things, (i)
fraud or negligence in the origination or servicing of a Mortgage Loan,
including misrepresentation by the Mortgagor or persons involved in the
origination thereof or (ii) failure to construct a Mortgaged Property in
accordance with plans and specifications. If so specified in the related
Prospectus Supplement, a failure of coverage attributable to one of the
foregoing events might result in a breach of a representation of the Seller and
in such event might give rise to an obligation on the part of the Seller to
purchase the defaulted Mortgage Loan if the breach materially and adversely
affects the interests of the Owners of the Certificates and cannot be cured by
the Seller.
The original amount of coverage under any Mortgage Pool Insurance
Policy will be reduced over the life of such Certificates by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the Pool Insurer upon disposition of all foreclosed properties. The amount of
claims paid will generally include certain expenses incurred with respect to the
applicable Mortgage Loans as well as accrued interest on delinquent Mortgage
Loans to the date of payment of the claim. See "Certain Legal Aspects of the
Mortgage Assets - Foreclosure" herein. Accordingly, if aggregate net claims paid
under any Mortgage Pool Insurance Policy reach the original policy limit,
coverage under that Mortgage Pool Insurance Policy will be exhausted and any
further losses will be borne by one or more classes of Certificates unless
otherwise covered by another form of Credit Enhancement, as specified in the
Prospectus Supplement.
Since any Mortgage Pool Insurance Policy may require that the Mortgaged
Property subject to a defaulted Mortgage Loan be restored to its original
condition prior to claiming against the Pool Insurer, such policy may not
provide coverage against hazard losses. As set forth under "Servicing of
Mortgage Loans -- Standard Hazard Insurance", the hazard policies concerning the
Mortgage Loans typically exclude from coverage physical damage resulting from a
number of causes and even when the damage is covered, may afford recoveries
which are significantly less than the full replacement cost of such losses. Even
if special hazard insurance is applicable as specified in the Prospectus
Supplement, no coverage in respect of special hazard losses will cover all
risks, and the amount of any such coverage will be limited. See "Special Hazard
Insurance" below. As a result, certain hazard risks will not be insured against
and will therefore be borne by Owners of the Certificates, unless otherwise
covered by another form of Credit Enhancement, as specified in the Prospectus
Supplement.
Special Hazard Insurance. If specified in the related Prospectus
Supplement, one or more special hazard insurance policies (each, a "Special
Hazard Insurance Policy") will be obtained.
18
<PAGE>
Any such Special Hazard Insurance Policy will, subject to limitations
described below and in the Prospectus Supplement, cover (i) loss by reason of
damage to Mortgaged Properties caused by certain hazards (including earthquakes
and, to a limited extent, tidal waves and related water damage) not covered by
the standard form of hazard insurance policy for the respective states in which
the Mortgaged Properties are located or under flood insurance policies, if any,
covering the Mortgaged Properties, and (ii) loss caused by reason of the
application of the coinsurance clause contained in hazard insurance policies.
See "Servicing of Mortgage Loans -- Standard Hazard Insurance." Any Special
Hazard Insurance Policy may not cover losses occasioned by war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear reaction, flood (if
the Mortgaged Property is located in a federally designated flood area),
chemical contamination and certain other risks. Aggregate claims under each
Special Hazard Insurance Policy will be limited as described in the related
Prospectus Supplement. Any Special Hazard Insurance Policy may also provide that
no claim may be paid unless hazard and, if applicable, flood insurance on the
Mortgaged Property has been kept in force and other protection and preservation
expenses have been paid.
Subject to the foregoing limitations, any Special Hazard Insurance
Policy generally will provide that, where there has been damage to property
securing a foreclosed Mortgage Loan (title to which has been acquired by the
insured) and to the extent such damage is not covered by the hazard insurance
policy or flood insurance policy, if any, maintained with respect to such
Mortgage Loan, the issuer of the Special 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 Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure, plus
accrued interest to the date of claim settlement and certain expenses incurred
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 related Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the property. Any
amount paid as the cost of repair or replacement of the property will also
reduce coverage by such amount. Restoration of the property with the proceeds
described under (i) above will satisfy the condition under any applicable
Mortgage Pool Insurance Policy that the property be restored before a claim
under such Mortgage Pool Insurance Policy may be validly presented with respect
to the defaulted Mortgage Loan secured by such property. The payment described
under (ii) above will render unnecessary presentation of a claim in respect of
such Mortgage Loan under any related Mortgage Pool Insurance Policy. Therefore,
so long as a Mortgage Pool Insurance Policy remains in effect, the payment by
the Special Hazard Insurer under a Special Hazard Insurance Policy of the cost
of repair or replacement or the unpaid principal balance of the Mortgage Loan
plus accrued interest and certain expenses will not affect the total insurance
proceeds but will affect the relative amounts of coverage remaining under any
related Special Hazard Insurance Policy and any related Mortgage 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
Mortgage Loan at an amount less than the then outstanding principal balance of
such Mortgage Loan. The amount of the secured debt could be reduced to such
value and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the property by the bankruptcy court. In
addition, certain other modifications of the terms of a Mortgage Loan can result
from a bankruptcy proceeding, including the reduction in monthly payments
required to be made by the borrower. See "Certain Legal Aspects of the Mortgage
Assets" herein. If so provided in the related Prospectus Supplement, the
Depositor 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 Mortgage Loan or a reduction by such court of the principal amount
of a Mortgage Loan and will cover certain unpaid interest on the amount of such
a principal reduction from the date of the filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement. Such amount will be reduced by
payments made under such bankruptcy bond in respect of the related Mortgage
Loans and will not be restored.
19
<PAGE>
If specified in the related Prospectus Supplement, other forms of
Credit Enhancement may be provided to cover such bankruptcy-related losses. Any
bankruptcy bond or other form of Credit Enhancement provided to cover
bankruptcy-related losses will be described in the related Prospectus
Supplement.
Reserve Funds. If specified in the Prospectus Supplement, cash, U.S.
Treasury securities, instruments evidencing ownership of principal or interest
payments thereon, letters of credit, surety bonds, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will be deposited by the Depositor on the Delivery Date in
one or more accounts (each, a "Reserve Fund") established and maintained with
the Trustee. Such cash and the principal and interest payments on such other
investments will be used to enhance the likelihood of timely payment of
principal of, and interest on, or, if so specified in the Prospectus Supplement,
to provide additional protection against losses in respect of, the assets in the
related Trust, to pay the expenses of the Trust or for such other purposes
specified in the Prospectus Supplement. Whether or not the Depositor has any
obligation to make such a deposit, certain amounts to which the Owners of
Subordinated Certificates, if any, would otherwise be entitled may instead be
deposited into the Reserve Fund from time to time and in the amounts as
specified in the Prospectus Supplement. Any cash in any Reserve Fund and the
proceeds of any other instrument upon maturity will be invested in Eligible
Investments. If a letter of credit is deposited with the Trustee, such letter of
credit will be irrevocable. Any instrument deposited therein will name the
Trustee as a beneficiary and will be issued by an entity acceptable to each
rating agency that rates the Certificates. Additional information with respect
to such instruments deposited in the Reserve Funds may be set forth in the
Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will
be available for withdrawal from the Reserve Fund for distribution with respect
to the Certificates for the purposes, in the manner and at the times specified
in the Prospectus Supplement.
Other Insurance, Guaranties and Similar Instruments or Agreements. If
specified in the Prospectus Supplement, the related Trust may also include
insurance, guaranties, surety bonds, letters of credit, guaranteed investment
contracts or similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses on the assets
included in such Trust, (ii) paying administrative expenses, (iii) establishing
a minimum reinvestment rate on the payments made in respect of such assets or
principal payment rate on such assets, (iv) guaranteeing timely payment of
principal and interest under the Certificates, or for such other purpose as is
specified in such Prospectus Supplement. Such arrangements may include
agreements under which Owners of Certificates are entitled to receive amounts
deposited in various accounts held by the Trustee upon the terms specified in
the Prospectus Supplement. Such arrangements may be in lieu of any obligation of
the Servicer or the Seller to advance delinquent installments in respect of the
Mortgage Loans. See "Servicing of Mortgage Loans - Advances" herein.
SERVICING OF MORTGAGE LOANS
With respect to each series of Certificates, the related Mortgage Loans
will be serviced by a sole servicer or by a master servicer with various
sub-servicers pursuant to, or as provided for in, the Agreement. The Prospectus
Supplement for each series will specify the servicer and the master servicer, if
any, for such series.
The related Prospectus Supplement will specify whether the Servicer is
a FNMA- or FHLMC-approved servicer of conventional mortgage loans. In addition,
the Depositor will require adequate servicing experience, where appropriate, and
financial stability, generally including a net worth requirement (to be
specified in the Agreement) as well as satisfaction of certain other criteria.
Each Servicer will be required to perform the customary functions of a
mortgage loan servicer, including collection of payments from borrowers (the
"Mortgagors") and remittance of such collections to the Trustee, maintenance of
applicable standard hazard insurance or primary mortgage insurance policies,
attempting to cure delinquencies, supervising foreclosures, management of
Mortgaged Properties under certain circumstances, and maintaining accounting
records relating to the Mortgage Loans and, if specified in the related
Prospectus
20
<PAGE>
Supplement, maintenance of escrow or impoundment accounts of Mortgagors for
payment of taxes, insurance, and other items required to be paid by the
Mortgagor pursuant to the Mortgage Loan. Each Servicer will also be obligated to
make advances in respect of delinquent installments on Mortgage Loans as
described more fully under " - Payments on Mortgage Loans" and " - Advances"
below and in respect of certain taxes and insurance premiums not paid on a
timely basis by Mortgagors.
Each Servicer will be entitled to a monthly servicing fee as specified
in the related Prospectus Supplement. Each Servicer will also generally be
entitled to collect and retain, as part of its servicing compensation, late
payment charges and assumption underwriting fees. Each Servicer will be
reimbursed from proceeds of one or more of the insurance policies described
herein ("Insurance Proceeds") or from proceeds received in connection with the
liquidation of defaulted Mortgage Loans ("Liquidation Proceeds") for certain
expenditures pursuant to the Agreement. See " - Advances" and " - Servicing
Compensation and Payment of Expenses" below.
Each Servicer will be required to service each Mortgage Loan pursuant
to the terms of the Agreement for the entire term of such Mortgage Loan unless
such Agreement is earlier terminated. Upon termination, a replacement for the
Servicer will be appointed.
Payments on Mortgage Loans
Each Servicer will establish and maintain a separate account (each, a
"Custodial Account"). Subject to the following paragraph, each Custodial Account
must be an account the deposits in which are fully insured by either the Federal
Deposit Insurance Corporation ("FDIC") or the National Credit Union
Administration ("NCUA") or are, to the extent such deposits are in excess of the
coverage provided by such insurance, continuously secured by certain obligations
issued or guaranteed by the United States of America. If at any time the amount
on deposit in such Custodial Account shall exceed the amount so insured or
secured, the applicable Servicer must remit to the Trustee the amount on deposit
in such Custodial Account which exceeds the amount so insured or secured, less
any amount such Servicer may retain for its own account pursuant to its
Servicing Agreement.
Notwithstanding the foregoing, the deposits in a Servicer's Custodial
Account will not be required to be fully insured or secured as described above,
and such Servicer will not be required to remit amounts on deposit therein in
excess of the amount so insured or secured, so long as such Servicer meets
certain requirements established by the rating agencies requested to rate the
Certificates.
Each Servicer is required to deposit into its Custodial Account on a
daily basis all amounts in respect of each Mortgage Loan received by such
Servicer, with interest adjusted to a rate (the "Remittance Rate") equal to the
related Mortgage Rate less the Servicer's servicing fee rate. On the day of each
month specified in the related Prospectus Supplement (the "Remittance Date"),
each Servicer of the Mortgage Loans will remit to the Trustee all funds held in
its Custodial Account with respect to each Mortgage Loan; provided, however,
that Principal Prepayments may be remitted on the Remittance Date in the month
following the month of such prepayment. Each Servicer will be required pursuant
to the terms of the Agreement and as specified in the related Prospectus
Supplement, to remit with each Principal Prepayment interest thereon at the
Remittance Rate through the last day of the month in which such Principal
Prepayment is made. Each Servicer may also be required to advance its own funds
as described below.
Advances
With respect to a delinquent Mortgage Loan, the Servicer may be
obligated (but only to the extent set forth in the related Prospectus
Supplement) to advance its own funds or funds from its Custodial Account equal
to the aggregate amount of payments of principal and interest (adjusted to the
applicable Remittance Rate) which were due on a due date and which are
delinquent as of the close of business on the business day preceding the
Remittance Date ("Monthly Advance"). Generally, such advances will be required
to be made by the Servicer unless the Servicer determines that such advances
ultimately would not be recoverable under any applicable insurance policy, from
the proceeds of liquidation of the related Mortgaged Properties, or from any
other source (any amount not so reimbursable being referred to herein as a
"Nonrecoverable Advance"). Such advance obligation generally will
21
<PAGE>
continue through the month following the month of final liquidation of such
Mortgage Loan. Any Servicer funds thus advanced will be reimbursable to such
Servicer out of recoveries on the Mortgage Loans with respect to which such
amounts were advanced. Each Servicer will also be obligated to make advances
with respect to certain taxes and insurance premiums not paid by Mortgagors on a
timely basis. Funds so advanced are reimbursable to the Servicers out of
recoveries on the related Mortgage Loans. Each Servicer's right of reimbursement
for any advance will be prior to the rights of the Trust to receive any related
Insurance Proceeds or Liquidation Proceeds. Failure by a Servicer to make a
required Monthly Advance will be grounds for termination under the related
Agreement.
Collection and Other Servicing Procedures
Each Servicer will service the Mortgage Loans pursuant to guidelines
established in the related Agreement.
The Servicer will be responsible for making reasonable efforts to
collect all payments called for under the Mortgage Loans. The Servicer will be
obligated to follow such normal practices and procedures as it deems necessary
or advisable to realize upon a defaulted Mortgage Loan. In this regard, the
Servicer may (directly or through a local assignee) sell the property at a
foreclosure or trustee's sale, negotiate with the Mortgagor for a deed in lieu
of foreclosure or, in the event a deficiency judgment is available against the
Mortgagor or other person (see "Certain Legal Aspects of the Mortgage Assets --
Foreclosure - Anti-Deficiency Legislation and Other Limitations on Lenders" for
a description of the limited availability of deficiency judgments), foreclose
against such property and proceed for the deficiency against the appropriate
person. The amount of the ultimate net recovery (including the proceeds of any
Mortgage Pool Insurance Policy or other applicable Credit Enhancement), after
reimbursement to the Servicer of its expenses incurred in connection with the
liquidation of any such defaulted Mortgage Loan and prior unreimbursed advances
of principal and interest with respect thereto will be deposited in the
Certificate Account when realized and will be distributed to Owners of
Certificates on the next Payment Date following the month of receipt.
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Assets" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for those
shares and otherwise limit the Trust's ability to sell and realize the value of
those shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)
(2)) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Code Section 216(b)(1) is allowed a deduction for amounts
paid or accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders.
By virtue of this requirement, the status of a corporation for purposes of Code
Section 216(b)(1) must be determined on a year-to-year basis. Consequently,
there can be no assurance that Cooperatives relating to the Cooperative Loans
will qualify under such Section for any particular year. In the event that such
a Cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to its tenant-stockholders
under Code Section 216(a) with respect to those years. In view of the
significance of the tax benefits accorded tenant-stockholders of a corporation
that qualifies as a cooperative housing corporation, however, the likelihood
that such a failure would be permitted to continue over a period of years
appears remote.
The Servicer will expend its own funds to restore property securing a
Mortgage Loan which has sustained uninsured damage only if it determines that
such restoration will increase the proceeds to the Trust of liquidation of the
Mortgage Loan after the reimbursement to the Servicer of its expenses.
22
<PAGE>
If a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer will be obligated (to the extent it has knowledge of
such conveyance) to accelerate the maturity of the Mortgage Loan, unless it
reasonably believes it is unable to enforce that Mortgage Loan's "due-on-sale"
clause under the applicable law. If it reasonably believes it may be restricted
by law, for any reason, from enforcing such a "due-on-sale" clause, the Servicer
may enter into an assumption and modification agreement with the person to whom
such property has been or is about to be conveyed, pursuant to which such person
becomes liable under the Mortgage Note, provided such person satisfies the
criteria required to maintain the coverage provided by applicable insurance
policies (unless otherwise restricted by applicable law). Any fee collected by
the Servicer for entering into an assumption agreement will be retained by the
Servicer as additional servicing compensation. For a description of
circumstances in which the Servicer may be unable to enforce "due-on-sale"
clauses, see "Certain Legal Aspects of the Mortgage Assets - Foreclosure -
Enforceability of Certain Provisions" herein. In connection with any such
assumption, the Mortgage Rate borne by the related Mortgage Note may not be
decreased.
If specified in the related Prospectus Supplement, the Servicer will
maintain with one or more depository institutions one or more accounts into
which it will deposit all payments of taxes, insurance premiums, assessments or
comparable items received for the account of the Mortgagors. Withdrawals from
such account or accounts may be made only to effect payment of taxes, insurance
premiums, assessments or comparable items, to reimburse the Servicer out of
related collections for any cost incurred in paying taxes, insurance premiums
and assessments or otherwise preserving or protecting the value of the
Mortgages, to refund to mortgagors any amounts determined to be overages and to
pay interest to Mortgagors on balances in such account or accounts to the extent
required by law.
So long as it acts as servicer of the Mortgage Loans, the Servicer will
be required to maintain certain insurance covering errors and omissions in the
performance of its obligations as servicer and certain fidelity bond coverage
ensuring against losses through wrongdoing of its officers, employees and
agents.
Primary Mortgage Insurance
Mortgage Loans that the Depositor acquires will generally not have
primary mortgage insurance. If obtained, the primary mortgage insurance policies
will not insure against certain losses which may be sustained in the event of a
personal bankruptcy of the mortgagor under a Mortgage Loan.
Standard Hazard Insurance
The Servicer will be required to cause to be maintained for each
Mortgage Loan a standard hazard insurance policy. The coverage of such policy is
required to be in an amount not less than the maximum insurable value of the
improvements securing such Mortgage Loan from time to time or the principal
balance owing on such Mortgage Loan from time to time, whichever is less. In all
events, such coverage shall be in an amount sufficient to ensure avoidance of
the applicability of the co-insurance provisions under the terms and conditions
of the applicable policy. The ability of each Servicer to assure that hazard
insurance proceeds are appropriately applied may be dependent on its being named
as an additional insured under any standard hazard insurance policy and under
any flood insurance policy referred to below, or upon the extent to which
information in this regard is furnished to such Servicer by Mortgagors. Each
Agreement may provide that the related Servicer may satisfy its obligation to
cause hazard insurance policies to be maintained by maintaining a blanket policy
insuring against hazard losses on the Mortgage Loans serviced by such Servicer.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, wind-storm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mud flow), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive. If the
property securing a Mortgage Loan is located in a federally designated flood
area, flood insurance will be required to be maintained in such amounts
23
<PAGE>
as would be required by FNMA in connection with its mortgage loan purchase
program. The Depositor may also purchase special hazard insurance against
certain of the uninsured risks described above. See "Credit Enhancement -
Special Hazard Insurance".
Since the amount of hazard insurance the Servicer is required to cause
to be maintained on the improvements securing the Mortgage Loans declines as the
principal balances owing thereon decrease, if the residential properties
securing the Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property.
The Depositor will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
Title Insurance Policies
The Agreements will generally require that a title insurance policy be
in effect on each of the Mortgaged Properties and that such title insurance
policy contain no coverage exceptions, except customary exceptions generally
accepted in the mortgage banking industry.
Claims Under Primary Mortgage Insurance Policies and Standard Hazard Insurance
Policies; Other Realization Upon Defaulted Loan
Each Servicer will present claims to any primary insurer under any
related primary mortgage insurance policy and to the hazard insurer under any
related standard hazard insurance policy. All collections under any related
primary mortgage insurance policy or any related standard hazard insurance
policy (less any proceeds to be applied to the restoration or repair of the
related Mortgaged Property or to the reimbursement of Advances by the Servicer)
will be remitted to the Trustee.
If any Mortgaged Property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related standard hazard insurance policy are
insufficient to restore the damaged property to a condition sufficient to permit
recovery under any applicable Mortgage Pool Insurance Policy or any related
primary mortgage insurance policy, each Servicer may be required to expend its
own finds to restore the damaged property to the extent specified in the related
Prospectus Supplement, but only to the extent it determines such expenditures
are recoverable from Insurance Proceeds or Liquidation Proceeds.
If recovery under any applicable Mortgage Pool Insurance Policy or any
related primary mortgage insurance policy is not available, the Servicer will
nevertheless be obligated to attempt to realize upon the defaulted Mortgage
Loan. Foreclosure proceedings will be conducted by the Servicer in accordance
with the Agreement. If the proceeds of any liquidation of the Mortgaged Property
securing the defaulted Mortgage Loan are less than the Principal Balance of the
defaulted Mortgage Loan plus interest accrued thereon, a loss will be realized
on such Mortgage Loan, to the extent the applicable Credit Enhancement is not
sufficient, in the amount of such difference plus the aggregate of expenses
which are incurred by the Servicer in connection with such proceedings and are
reimbursable under the Agreement. In such case there will be a reduction in the
value of the Mortgage Loans and Trust may be unable to recover the full amount
of principal and interest due thereon.
In addition, where a Mortgaged Property securing a defaulted Mortgage
Loan can be resold for an amount exceeding the principal balance of the related
Mortgage Loan together with accrued interest and expenses, it may be expected
that, where retention of any such amount is legally permissible, the Pool
Insurer will exercise its right under the related Mortgage Pool Insurance
Policy, if any, to purchase such Mortgaged Property and realize for itself
24
<PAGE>
any excess proceeds. Any amounts remaining in the Certificate Account after such
foreclosure or liquidation and attributable to such Mortgage Loan will be
distributed to Owners of the Certificates.
Servicing Compensation and Payment of Expenses
As compensation for its servicing duties, each Servicer will be
entitled to a monthly servicing fee in the amount specified in the related
Prospectus Supplement. In addition to the primary compensation, a Servicer may
be permitted to retain all assumption underwriting fees and late payment
charges, to the extent collected from Mortgagors.
As set forth above, each Servicer will be entitled to reimbursement for
certain expenses incurred by it in connection with the liquidation of defaulted
Mortgage Loans and in connection with advancing delinquent payments. No loss
will be suffered on the Certificates by reason of such expenses to the extent
claims for such expenses are paid directly under any applicable Mortgage Pool
Insurance Policy, a primary mortgage insurance policy, the special hazard
insurance policy or from other forms of Credit Enhancement. In the event,
however, that the defaulted Mortgage Loans are not covered by a Mortgage Pool
Insurance Policy, primary mortgage insurance policies, the Special Hazard
Insurance Policy or another form of Credit Enhancement, or claims are either not
made or paid under such policies or Credit Enhancement, or if coverage
thereunder has ceased, such a loss will occur to the extent that the proceeds
from the liquidation of a defaulted Mortgage Loan or Contract, after
reimbursement of the Servicer's expenses, are less than the Principal Balance of
such defaulted Mortgage Loan.
Master Servicer
A Master Servicer may be specified in the related Prospectus Supplement
for the related series of Certificates. Customary servicing functions with
respect to Mortgage Loans constituting the Mortgage Pool will be provided by the
Servicer directly or through one or more Sub-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 Servicer of its servicing responsibilities under the
Agreement with the Master Servicer, (ii) maintain a current data base with the
payment histories of each Mortgagor, (iii) review monthly servicing reports and
data relating to the Mortgage Pool for discrepancies and errors, and (iv) act as
back-up Servicer during the term of the transaction unless the Servicer is
terminated or resigns in such case the Master Servicer shall assume the
obligations of the Servicer.
The Master Servicer will be a party to the Agreement for any series for
which Mortgage Loans comprise the assets of a Trust. The Master Servicer will be
required to satisfy the standard established for the qualification of the Master
Servicer in the related Agreement. The Master Servicer will be compensated for
the performance of its services and duties under each Agreement as specified in
the related Prospectus Supplement.
ADMINISTRATION
The following summary describes certain provisions which will be common
to each Agreement. The summary does not purport to be complete and is subject to
the provisions of a particular Agreement.
Assignment of Mortgage Assets
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates, the Depositor will assign the Mortgage Loans to the Trustee,
together with all principal and interest adjusted to the Remittance Rate,
subject to exclusions specified in the Prospectus Supplement, due on or with
respect to such Mortgage Loans on or after the Cut-Off Date. The Trustee will,
concurrently with such assignment, execute, countersign and deliver the
Certificates to the Depositor in exchange for the Mortgage Loans. Each Mortgage
Loan will be identified in a schedule appearing as an exhibit to the Agreement.
Such schedule may include information as to the Principal Balance of each
Mortgage Loan as of the Cut-Off Date, as well as information respecting the
Mortgage Rate, the
25
<PAGE>
scheduled monthly payment of principal and interest as of the Cut-Off Date and
the maturity date of each Mortgage Note.
In addition, as to each Mortgage Loan, the Depositor will deliver to
the Trustee the Mortgage Note and Mortgage, any assumption and modification
agreement, an assignment of the Mortgage in recordable form (but not necessarily
recorded), evidence of title insurance, if obtained, and, if applicable, the
certificate of private mortgage insurance. In instances where recorded documents
cannot be delivered due to delays in connection with recording, the Depositor
may deliver copies thereof and deliver the original recorded documents promptly
upon receipt.
With respect to any Mortgage Loans which are Cooperative Loans, the
Depositor will cause to be delivered to the Trustee, the related original
Cooperative note endorsed to the order of the Trustee, the original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing agreement and the relevant stock certificate
and related blank stock powers. The Depositor will file in the appropriate
office an assignment and a financing statement evidencing the Trustee's security
interest in each Cooperative Loan.
Each Seller generally will represent and warrant to the Depositor with
respect to the Mortgage Loans sold by it, among other things, that (i) the
information set forth in the schedule of Mortgage Loans attached thereto is
correct in all material respects: (ii) a lender's title insurance policy or
binder for each Mortgage Loan subject to the Agreement was issued on the date of
origination thereof and each such policy or binder assurance is valid and
remains in full force and effect or a legal opinion concerning title or title
search was obtained or conducted in connection with the origination of the
Mortgage Loans; (iii) at the date of initial issuance of the Certificates, the
Seller has good title to the Mortgage Loans and the Mortgage Loans are free of
offsets, defenses or counterclaims; (iv) at the date of initial issuance of the
Certificates, each Mortgage is a valid first lien on the property securing the
Mortgage Note (subject only to (a) the lien of current real property taxes and
assessments, (b) covenants, conditions, and restrictions, rights of way,
easements and other matters of public record as of the date of the recording of
such Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally in the area wherein the property subject to the
Mortgage is located or specifically reflected in the appraisal obtained by the
Depositor and (c) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security intended to
be provided by such Mortgage) and such property is free of material damage and
is in good repair or, with respect to a junior lien Mortgage Loan, that such
Mortgage is a valid junior lien Mortgage, as the case may be and specifying the
percentage of the Mortgage Loan Pool comprised of junior lien Mortgage Loans;
(v) at the date of initial issuance of the Certificates, no Mortgage Loan is 31
or more days delinquent (with such exceptions as may be specified in the related
Prospectus Supplement) and there are no delinquent tax or assessment liens
against the property covered by the related Mortgage; (vi) at the date of
initial issuance of the Certificates, the portion of each Mortgage Loan, if any,
which in the circumstances set forth below under "Servicing of Mortgage Loans -
Primary Mortgage Insurance" should be insured with a private mortgage insurer is
so insured; and (vii) each Mortgage Loan at the time it was made complied in all
material respects with applicable state and federal laws, including, with out
limitation, usury, equal credit opportunity and disclosure laws. The Depositor's
rights against the Seller in the event of a breach of its representations will
be assigned to the Trustee for the benefit of the Certificates of such series.
Assignment of Mortgage-Backed Securities and Other Mortgage Securities.
With respect to each series, the Depositor will cause any Mortgage-Backed
Securities and Other Mortgage Securities included in the related Trust to be
registered in the name of the Trustee (directly or through a participant in a
depository). The Trustee (or its custodian) will have possession of any
certificated Mortgage-Backed Securities and Other Mortgage Securities. The
Trustee will not be in possession of or be assignee of record of any underlying
assets for a Mortgage-Backed Security or Other Mortgage Security. Each
Mortgage-Backed Security and Other Mortgage Security will be identified in a
schedule appearing as an exhibit to the related Agreement which may specify
certain information with respect to such security, including, as applicable, the
original principal amount, outstanding principal balance as of the Cut-Off Date,
annual pass-through rate or interest rate and maturity date and certain other
pertinent information for each such security. The Depositor will represent and
warrant to the Trustee, among other things, the information contained in such
schedule is true and correct and that immediately prior to the transfer of the
related securities to the Trustee, the Depositor had good title to, and was the
sole owner of, each such security.
26
<PAGE>
Repurchase or Substitution of Mortgage Loans. The Trustee will review
the documents delivered to it with respect to the Mortgage Loans included in the
related Trust. If any document is not delivered or is found to be defective in
any material respect and the Depositor or the related Seller, if so required
cannot deliver such document or cure such defect within the period specified in
the related Prospectus Supplement after notice thereof (which the Trustee will
undertake to give within the period specified in the related Prospectus
Supplement), and if any other party obligated to deliver such document or cure
such defect has not done so and has not substituted or repurchased the affected
Mortgage Loan or Contract then the Depositor will cause the Seller, not later
than the first date designated for the deposit of payments into the Certificate
Account (a "Deposit Date") which is more than a specified number of days after
such period, (a) if so provided in the Prospectus Supplement to remove the
affected Mortgage Loan from the Trust and substitute one or more other Mortgage
Loans therefor or (b) repurchase the Mortgage Loan from the Trustee for a price
equal to 100% of its Principal Balance plus one month's interest thereon at the
applicable Remittance Rate. This repurchase and, if applicable, substitution
obligation will generally constitute the sole remedy available to the Trustee
for a material defect in a document relating to a Mortgage Loan.
The Depositor is required to cause the Seller to do either of the
following (a) cure any breach of any representation or warranty that materially
and adversely affects the interests of the Owners of the Certificates in a
Mortgage Loan (each, a "Defective Mortgage Loan") within a specified number of
days of its discovery by the Depositor or its receipt of notice thereof from the
Trustee, (b) repurchase such Defective Mortgage Loan not later than the first
Deposit Date which is more than a specified number of days after such period for
a price equal to 100% of its Principal Balance plus one month's interest thereon
at the applicable Remittance Rate, or (c) if so specified in the Prospectus
Supplement, remove the affected Mortgage Loan from the Trust and substitute one
or more other mortgage loans or contracts therefor. This repurchase and, if
applicable, substitution obligation will generally constitute the sole remedies
available to the Trustee for any such breach.
If the related Prospectus Supplement so provides, the Depositor or a
designated affiliate may be obligated to repurchase or substitute Mortgage Loans
as described above, whether or not the Depositor obtains such an agreement from
the Seller which sold such Mortgage Loans.
In the case of Certificates representing debt obligations of a Trust
all assets of the Trust will be pledged to the Indenture Trustee.
If a REMIC election is to be made with respect to all or a portion of a
Trust, there may be federal income tax limitations on the right to substitute
Mortgage Loans.
Evidence as to Compliance
The Agreement will provide that on or before a specified date in each
year, beginning the first such date that is at least a specified number of
months on and after the Cut-Off Date, a firm of independent public accountants
will furnish a statement to the Trustee to the effect that, based on an
examination of certain specified documents and records relating to the servicing
of the Depositor's mortgage loan portfolio conducted substantially in compliance
with the audit program for mortgages serviced for FNMA or FHLMC, the United
States Department of Housing and Urban Development Mortgage Audit Standards or
the Uniform Single Audit Program for Mortgage Bankers or in accordance with
other standards specified in the Agreement (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.
The Trustee
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Depositor. In addition, the Depositor and the
Trustee acting jointly will have the power and the responsibility for appointing
co-trustees or separate trustees of all or any part of the Trust relating to a
particular series of Certificates. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
Agreement shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee
27
<PAGE>
jointly, or, in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the Agreement, the Certificates or of any Mortgage Asset or
related document, and will not be accountable for the use or application by the
Depositor of any funds paid to the Depositor in respect of the Certificates or
the related assets, or amounts deposited in the Certificate Account or deposited
into the Distribution Account. If no Event of Default has occurred, the Trustee
will be required to perform only those duties specifically required of it under
the Agreement. However, upon receipt of the various certificates, reports or
other instruments required to be furnished to it, the Trustee will be required
to examine them to determine whether they conform to the requirements of the
Agreement.
The Trustee may resign at any time, and the Depositor may remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, if the Trustee becomes insolvent or in such other instances, if any,
as are set forth in the Agreement. Following any resignation or removal of the
Trustee, the Depositor will be obligated to appoint a successor Trustee. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
Administration of the Certificate Account
The Agreement will require that the Certificate Account be either (i)
maintained with a depository institution the debt obligations of which (or, in
the case of a depository institution which is a part of a holding company
structure, the debt obligations of the holding company of which) have a rating
acceptable to each rating agency that was requested to rate the Certificates, or
(ii) an account or accounts the deposits in which are fully insured by either
the Bank Insurance Fund (the "BIF") of the FDIC or the Savings Association
Insurance Fund (as successor to the Federal Savings and Loan Insurance
Corporation) ("SAIF") of the FDIC. The collateral eligible to secure amounts in
the Certificate Account is limited to United States government securities and
other investments acceptable to the rating agencies rating such series of
Certificates, and may include one or more Certificates of a series ("Eligible
Investments"). If so specified in the related Prospectus Supplement, a
Certificate Account may be maintained as an interest bearing account, or the
funds held therein may be invested pending each succeeding Payment Date in
Eligible Investments. If so specified in the related Prospectus Supplement, the
Servicer or its designee will be entitled to receive any such interest or other
income earned on funds in the Certificate Account as additional compensation.
The Servicer will deposit in the Certificate Account from amounts previously
deposited by it into the Servicer's Custodial Account on the related Remittance
Date the following payments and collections received or made by it on and after
the Cut-Off Date (including scheduled payments of principal and interest due on
and after the Cut-Off Date but received before the Cut-Off Date):
(i) all Mortgagor payments on account of principal, including
Principal Prepayments and, if specified in the related Prospectus
Supplement, prepayment penalties:
(ii) all Mortgagor payments on account of interest, adjusted
to the Remittance Rate;
(iii) all Liquidation Proceeds net of certain amounts
reimbursed to the Servicer or other person entitled thereto, as
described above;
(iv) all Insurance Proceeds, other than proceeds to be applied
to the restoration or repair of the related property or released to the
Mortgagor and net of certain amounts reimbursed to the Servicer or
other person entitled thereto, as described above;
(v) all condemnation awards or settlements which are not
released to the Mortgagor in accordance with normal servicing
procedures;
(vi) any Advances made as described under "Servicing of
Mortgage Loans - Advances" herein and certain other amounts required
under the Agreement to be deposited in the Certificate Account;
28
<PAGE>
(vii) all proceeds of any Mortgage Loan or property acquired
in respect thereof repurchased by the Depositor, the Seller or
otherwise as described above or under "Termination" below;
(viii) all amounts, if any, required to be deposited in the
Certificate Account from any Credit Enhancement for the related
series; and
(ix) all other amounts required to be deposited in the
Certificate Account pursuant to the related Agreement.
Reports
Concurrently with each distribution on the Certificates, there will be
mailed to Owners a statement generally setting forth, to the extent applicable
to any series, among other things:
(i) the aggregate amount of such distribution allocable to
principal, separately identifying the amount allocable to each class;
(ii) the amount of such distribution allocable to interest,
separately identifying the amount allocable to each class;
(iii) the aggregate Certificate Principal Balance of each
class of the Certificates after giving effect to distributions on such
Payment Date;
(iv) the aggregate Certificate Principal Balance of any class
of Compound Interest Certificates after giving effect to any increase
in such Principal Balance that results from the accrual of interest
that is not yet distributable thereon;
(v) if applicable, the amount otherwise distributable to any
class of Certificates that was distributed to other classes of
Certificates;
(vi) if any class of Certificates has priority in the right
to receive Principal Prepayments, the amount of Principal Prepayments
in respect of the related Mortgage Assets;
(vii) the aggregate Principal Balance and number of Mortgage
Loans which were delinquent as to a total of two installments of
principal and interest; and
(viii) the aggregate Principal Balances of Mortgage Loans
which (a) were delinquent 30-59 days, 60-89 days, and 90 days or more,
and (b) were in foreclosure.
Customary information deemed necessary for Owners to prepare their tax
returns will be furnished annually.
Forward Commitments; Pre-Funding
The Trustee of a Trust may enter into a Pre-Funding Agreement for the
transfer of additional Mortgage Loans to such Trust following the date on which
such Trust is established and the related Certificates are issued. The Trustee
of a Trust may enter into Pre-Funding 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
Delivery Date. Any Pre-Funding Agreement will require that any Mortgage Loans so
transferred to a Trust conform to the requirements specified in such Pre-Funding
Agreement. If a Pre-Funding Agreement is to be utilized, the related Trustee
will be required to deposit in the Purchase 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 in exchange for money released from the
related Pre-Funding Account. The maximum amount deposited in the Pre-Funding
Account to acquire Mortgage Loans for transfer to a Trust will not exceed 40% of
the aggregate principal amount of the Certificates offered pursuant
29
<PAGE>
to the related Prospectus Supplement. Each Pre-Funding Agreement will set a
specified period during which any such transfers must occur, which period will
not exceed 90 days from the date the Trust is established. The Pre- Funding
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 of additional Mortgage Loans is not expected to exceed three months from
the date such Trust is established.
Servicer Events of Default
"Events of Default" under the Agreement will consist of (i) any failure
by the Servicer to duly observe or perform in any material respect any other of
its covenants or agreements in the Agreement materially affecting the rights of
Owners which continues unremedied for a specified number of days after the
giving of written notice of such failure to the Depositor by the Trustee or to
the Servicer and the Trustee by the Owners of Certificates evidencing interests
aggregating not less than 25% of the affected class of Certificates; and (ii)
certain events of insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings and certain actions by the Servicer
indicating its insolvency, reorganization or inability to pay its obligations.
Rights Upon Servicer Event of Default
As long as an Event of Default under the Agreement remains unremedied
by the Servicer, the Trustee, or Owners of Certificates may terminate all the
rights and obligations of the Servicer under the Agreement, whereupon the
Trustee or Master Servicer, if any, or a new Servicer appointed pursuant to the
Agreement, will succeed to all the responsibilities, duties and liabilities of
the Servicer under the Agreement and will be entitled to similar compensation
arrangements. Following such termination, the Depositor shall appoint any
established mortgage loan servicer satisfying the qualification standards
established in the Agreement to act as successor to the Servicer under the
Agreement. If no such successor shall have been appointed within a specified
number of days following such termination, then either the Depositor or the
Trustee may petition a court of competent jurisdiction for the appointment of a
successor Servicer. Pending the appointment of a successor Servicer, the Trustee
or the Master Servicer, if any, shall act as Servicer.
The Owners of Certificates will not have any right under the Agreement
to institute any proceeding with respect to the Agreement, unless they
previously have given to the Trustee written notice of default and unless the
Owners of the percentage of the Certificates specified in the Prospectus
Supplement have made written request to the Trustee to institute such proceeding
in its own name as Trustee thereunder and have offered to the Trustee reasonable
indemnity and the Trustee for a specified number of days has neglected or
refused to institute any such proceedings. However, the Trustee is under no
obligation to exercise any of the trusts or powers vested in it by the Agreement
or to make any investigation of matters arising thereunder or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the Owners, unless such Owners have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Amendment
An Agreement generally may be amended by the Depositor, the Servicer
and the Trustee, without the consent of the Owners of the Certificates, to cure
any ambiguity, to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein, to take any action
necessary to maintain REMIC status of any Trust as to which a REMIC election has
been made, to add any other provisions with respect to matters or questions
arising under the Agreement which are not materially inconsistent with the
provisions of the Agreement or for any other purpose, provided that with respect
to amendments for any other purpose (A) the Depositor shall deliver an opinion
of counsel satisfactory to the Trustee, that such amendment will not adversely
affect in any material respect the interests of any Owners of Certificates of
that series and (B) such amendment will not result in a withdrawal or reduction
of the rating of any rated Certificate. Notwithstanding the foregoing, no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
collections of payments received on the related Mortgage Assets or distributions
which are required to be made on any Certificate without the consent
30
<PAGE>
of the Owner of such Certificate, (ii) adversely affect in any material respect
the interests of the Owners of any class of Certificates in any manner other
than as described in (i), without the consent of the Owners of Certificates of
such class evidencing not less than a majority of the interests of such class or
(iii) reduce the aforesaid percentage of Certificates of any class required to
consent to any such amendment, without the consent of the Owners of all
Certificates of such class then outstanding. Any other amendment provisions
inconsistent with the foregoing shall be specified in the related Prospectus
Supplement.
Termination
The obligations of the Depositor, the Servicer, and the Trustee created
by the Agreement will terminate upon the payment as required by the Agreement of
all amounts held by the Servicer or in the Certificate Account and required to
be paid to them pursuant to the Agreement after the later of (i) the maturity or
other liquidation of the last Mortgage Asset subject thereto or the disposition
of all property acquired upon foreclosure of any such Mortgage Loan or (ii) the
repurchase by the Depositor from the Trust of all the outstanding Certificates
or all remaining assets in the Trust. The Agreement will establish the
repurchase price for the assets in the Trust and the allocation of such purchase
price among the classes of Certificates. The exercise of such right will effect
early retirement of the Certificates of that series, but the Depositor's right
so to repurchase will be subject to the conditions described in the related
Prospectus Supplement. If a REMIC election is to be made with respect to all or
a portion of a Trust, there may be additional conditions to the termination of
such Trust which will be described in the related Prospectus Supplement. In no
event, however, will the trust created by the Agreement continue beyond the
expiration of 21 years from the death of the survivor of certain persons named
in the Agreement. The Trustee will give written notice of termination of the
Agreement to each Owner, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency of the
Trustee specified in such notice of termination.
USE OF PROCEEDS
Substantially all the net proceeds to be received from the sale of each
series of Certificates will be applied to the simultaneous purchase of the
Mortgage Assets related to such series (or to reimburse the amounts previously
used to effect such a purchase), the costs of carrying such Mortgage Assets
until sale of the Certificates and to pay other expenses.
THE DEPOSITOR
The Depositor will have no ongoing servicing obligations or
responsibilities with respect to any Mortgage Pool. The Depositor does not have,
nor is it expected in the future to have, any significant net worth.
The Depositor anticipates that it will acquire Mortgage Assets in the
open market or in privately negotiated transactions, which may be through or
from an affiliate.
Neither the Depositor nor any of its affiliates will insure or
guarantee the Certificates of any series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing contracts which are general in nature.
Because such legal aspects are governed primarily by applicable state law (which
laws may differ substantially), the summaries do not purport to be complete nor
to reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Mortgage Loans is situated. The summaries
are qualified by reference to the applicable federal and state laws governing
the Mortgage Loans.
31
<PAGE>
General
Mortgages. The Mortgage Loans will be secured either by deeds of trust
or mortgages. A mortgage creates a lien upon the real property encumbered by the
mortgage. It is not prior to liens for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order of
filing with a state or county office. There are two parties to a mortgage: the
mortgagor, who is the borrower and 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. Although a
deed of trust is similar to a mortgage, a deed of trust formally has three
parties, the borrower-homeowner called the trustor (similar to a mortgager), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure payment of the obligation. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by law, the express provisions of the deed of trust or mortgage
and, in some cases, the directions of the beneficiary.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans.
The private, non-profit, cooperative apartment corporation owns all the real
property that comprises the project, including the land, separate dwelling units
and all common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the cooperative apartment
building and or underlying land, as is generally the case, the cooperative, as
project mortgagor, is also responsible for meeting these mortgage obligations. A
blanket mortgage is ordinarily incurred by the cooperative in connection with
the construction or purchase of the cooperative's apartment building. The
interest of the occupant under proprietary leases or occupancy agreements to
which that cooperative is a party are generally subordinate to the interest of
the holder of the blanket mortgage in that building. If the cooperative is
unable to meet the payment obligations arising under its blanket mortgage, the
mortgagee holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements. In
addition, the blanket mortgage on a cooperative may provide financing in the
form of a mortgage that does not fully amortize with a significant portion of
principal being due in one lump sum at final maturity. The inability of the
cooperative to refinance this mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee providing the
financing. A foreclosure in either event by the holder of the blanket mortgage
could eliminate or significantly diminish the value of any collateral held by
the lender who financed the purchase by an individual tenant-stockholder of
cooperative shares or in the case of a Trust including Cooperative Loans, the
collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a cooperative must
make a monthly payment to the cooperative representing such tenant-stockholder's
pro rata share of the cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a cooperative and accompanying occupancy rights is
financed through a cooperative share loan evidenced by a promissory note and
secured by a security interest in the occupancy agreement or proprietary lease
and in the related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the cooperative shares is filed in the appropriate state and local offices
to perfect the lenders interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares.
Foreclosure
Mortgages. Foreclosure of a deed of trust is generally accomplished by
a non-judicial trustee's sale under a specific provision in the deed of trust
that authorizes the trustee to sell the property to a third party upon any
default by the borrower under the terms of the note or deed of trust. In some
states, the trustee must record a
32
<PAGE>
notice of default and send a copy to the borrower-trustor or and any person who
has recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest in the real property, including any junior lienholders. The
borrower, or any other person having a junior encumbrance on the real estate,
may, during a reinstatement period, cure the default by paying the entire amount
in arrears plus the costs and expenses incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorney's fees' which may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place and,
in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the foreclosure
may occasionally result from difficulties in locating necessary parties
defendant. Judicial foreclosure proceedings are often not protested by any of
the parties defendant. However, when the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be time
consuming. After the completion of judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other court officer
to conduct the sale of the property.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and expenses of foreclosure. Thereafter, the
lender will assume the burdens of ownership, including paying real estate taxes,
obtaining casualty insurance and making such repairs at its own expense as are
necessary to render the property suitable for sale. The lender will commonly
obtain the services of a real estate broker and pay the broker's commission in
connection with the sale of the property. Depending upon market conditions, the
ultimate proceeds of the sale of the property may not equal the lender's
investment in the property. Any loss may be reduced by the receipt of any
mortgage insurance proceeds.
When the junior mortgagee or beneficiary under a junior deed of trust
cures the default and state law allows it to reinstate or redeem by paying the
full amount of the senior mortgage or deed of trust, then in those states the
amount paid so to cure or redeem generally becomes a part of the indebtedness
secured by the junior mortgage or deed of trust. See "Junior Liens; Rights of
Senior Mortgagors or Beneficiaries" below.
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the trustee
confers, in most states, legal title to the real property to the purchaser, free
of all junior mortgages or deeds of trust and free of all other liens and claims
subordinate to the mortgage or deed of trust under which the sale is made (with
the exception of certain governmental liens). The purchaser's title is, however,
subject to all senior liens, encumbrances and mortgages and may be subject to
mechanic's and materialman's liens in some states. Thus, if the mortgage or deed
of trust being foreclosed is a junior mortgage or deed of trust, the sheriff or
trustee will convey title to the purchaser of the real property, subject to any
existing first mortgage or deed of trust and any other prior liens and claims.
The foreclosure of a junior mortgage or deed of trust, generally, will have an
effect on the first mortgage or deed of trust, if the senior mortgage or deed of
trust grants to the senior mortgagee or beneficiary the right to accelerate its
indebtedness under a "due-on-sale" clause or "due on further encumbrance" clause
contained in the senior mortgage or deed of trust. See "Anti-Deficiency
Legislation and Other Limitations on Lenders" below.
The proceeds received by the sheriff or trustee from the sale are
applied pursuant to the terms of the deed of trust, which may require
application 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. In some states, any surplus money remaining may be
available to satisfy claims of the holders of junior mortgages or deeds of trust
and other junior liens and claims in order of their priority, whether or not the
mortgagor or trustee is in default, while
33
<PAGE>
in some states, any surplus money remaining may be payable directly to the
mortgagor or trustor. Any balance remaining is generally payable to the
mortgagor or trustor. Following the sale, in some states the mortgagee or
beneficiary following a foreclosure of a mortgage or deed of trust may not
obtain a deficiency judgment against the mortgagor or trustor. A junior
lienholder whose rights in the property are terminated by the foreclosure by a
senior lienholder will not share in the proceeds from the subsequent disposition
of the property.
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative's Certificate of
Incorporation and Bylaws, as well as the proprietary lease or occupancy
agreement, and may be canceled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owned by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. The proprietary lease or occupancy
agreement generally permits the cooperative to terminate such lease or agreement
in the event an obligor fails to make payments or defaults in the performance of
covenants required thereunder. Typically, the lender and the cooperative enter
into a recognition agreement which establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those shares.
Article 9 of the UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a foreclosure sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. The recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to the right of the
cooperative corporation to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible for
the deficiency. See "Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
Junior Liens; Rights of Senior Mortgagees or Beneficiaries. Certain of
the Mortgage Loans may be secured by mortgages or deeds of trust providing for
junior (i.e., second, third, etc.) liens on the related Mortgaged Properties
which are junior to the other mortgages or deeds of trust held by other lenders
or institutional investors. The rights of the 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
34
<PAGE>
property securing the Mortgage Loans to be sold upon default of the mortgagor or
trustor. As discussed more fully below, a junior mortgagee or beneficiary in
some states may satisfy a defaulted senior loan in full and in some states may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. In most states, absent a
provision in the senior mortgage or deed of trust, no notice of default is
required to be given to a junior mortgagee or beneficiary.
The forms of the mortgage or deed of trust used by most institutional
lenders generally confer 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 bankruptcy is taken by condemnation, the mortgagee or
beneficiary under the underlying first mortgage or deed of trust may have the
prior right to collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the condemnation and to apply
the same to the indebtedness secured by the first mortgage or deed of trust. In
those situations, proceeds in excess of the amount of first mortgage
indebtedness generally may be applied to the indebtedness of a junior mortgage
or trust deed.
Other provisions typically found in the form of the mortgagee or deed
of trust generally used by most institutional lenders obligate the mortgagor or
trustor to pay before delinquency all taxes and assessments on the property and,
when due, all encumbrances, charges and liens on the property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary typically 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 trustor. All sums so expended by the mortgagee or beneficiary generally
become part of the indebtedness secured by the mortgage or deed of trust
Right of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and foreclosed junior lienors
are given a statutory period in which to redeem the property following
foreclosure. In some states, redemption may occur only upon payment of the
entire principal balance of the loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The rights of redemption would defeat the title of any purchaser from
the lender subsequent to foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to retain the property and pay the expenses of ownership until the
redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory prohibitions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the
35
<PAGE>
ability of the secured mortgage lender to realize upon collateral and/or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular fact of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan. Federal bankruptcy law and limited case law indicate that the foregoing
modifications could not be applied to the terms of a loan secured by property
that is the principal residence of the debtor.
The Code provides priority to certain tax liens over the lien of the
mortgage. In addition, substantive requirements are imposed upon mortgage
lenders in connection with the origination and the servicing of mortgage loans
by numerous federal and some state consumer protection laws. These laws include
the federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the law. In some cases, this liability may affect assignees of the mortgage
loans.
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
Enforceability of Certain Provisions. Certain of the Mortgage Loans
will contain due-on-sale clauses. These clauses permit the lender to accelerate
the maturity of a loan if the borrower sells, transfers, or conveys the
property. The enforceability of these clauses was the subject of legislation or
litigation in many states, and in some cases the enforceability of these clauses
was limited or denied. However, the Garn-St. Germain Depository Institutions Act
of 1982 (the "Garn-St. Germain Act") preempts state constitutional, statutory
and case law prohibiting the enforcement of due-on-sale clauses and permits
lenders to enforce these clauses in accordance with their terms, subject to
certain limited exceptions. The Garn-St. Germain Act does "encourage" lenders to
permit assumption of loans at the original rate of interest or at some other
rate less than the average of the original rate and the market rate.
The Garn-St. Germain Act also sets forth nine specific instances in
which a mortgage lender covered by the Garn-St. Germain Act (including federal
savings and loan associations and federal savings banks) may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St. Germain Act by the
Federal Home Loan Bank Board as succeeded by the Office of Thrift Supervision
(the "OTS"), also prohibit the imposition of a prepayment penalty upon the
acceleration of a loan pursuant to a due-on-sale clause. Any inability of the
Depositor to enforce due-on-sale clauses may affect the average life of the
Mortgage Loans and the number of Mortgage Loans that may be outstanding until
maturity.
Upon foreclosure, courts have imposed general equitable principles.
These equitable principles are generally designed to relieve the borrower from
the legal effect of his defaults under the loan documents. Examples
36
<PAGE>
of judicial remedies that have been fashioned include requirements that the
lender undertake affirmative and expensive actions to determine the causes for
the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower falling to adequately maintain the property or
the borrower executing a second mortgage or deed of trust 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 deeds of trust or mortgages receive
notices in addition to the statutory-prescribed minimum. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
The standard forms of note, mortgage and deed of trust generally
contain provisions obligating the borrower to pay a late charge if payments are
not timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Agreement, late charges (to the extent permitted by law and
not waived by the Servicer) will be retained by the Servicer as additional
servicing compensation.
Adjustable Rate Loans. The laws of certain states may provide that
mortgage notes relating to adjustable rate loans are not negotiable instruments
under the UCC. In such event, the Trustee will not be deemed to be a "holder in
due course," within the meaning of the UCC and may take such a mortgage note
subject to certain restrictions on its ability to foreclose and to certain
contractual defenses available to a mortgagor.
Environmental Legislation. Certain states impose a statutory lien for
associated costs on property that is the subject of a cleanup action by the
state on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien will generally have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens including the lien of a mortgage. In
addition, under federal environmental legislation and under state law in a
number of states, a secured party which takes a deed in lieu of foreclosure or
acquires a mortgaged property at a foreclosure sale or assumes active control
over the operation or management of a property so as to be deemed an "owner" or
"operator" of the property may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender (such as a Trust) to
homeowners. In the event that title to a Mortgaged Property securing a Mortgage
Loan in a Trust was acquired by the Trust and cleanup costs were incurred in
respect of the Mortgaged Property, the Trust might realize a loss if such costs
were required to be paid by the Trust.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Relief Act, a borrower who enters
military service after the origination of a Mortgage Loan by such borrower
(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 or similar limitations under state law could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Mortgage Loans. In addition, the Relief
Act imposes limitations which would impair the ability of the Servicer to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default
there may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
Any shortfalls in interest collections resulting from application of
the Relief Act could adversely affect Certificates.
37
<PAGE>
LEGAL INVESTMENT MATTERS
The Certificates may constitute "mortgage related securities" for
purposes of SMMEA, so long as they are rated in one of the two highest rating
categories by the Rating Agency or Agencies identified in the related Prospectus
Supplement and, as such, would 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,
saving and loan associations and insurance companies, as well as trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or any State (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, in all States which enacted legislation prior to October 4, 1991
specifically limiting the legal investment authority of any of 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 SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, bold or invest in any securities or require the sale or
over disposition of any securities, so long as such contractual commitment was
made or such securities were acquired prior to the enactment of such
legislation. Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida,
Georgia, Illinois, Kansas, Louisiana, Maryland, Michigan, Missouri, Nebraska,
New Hampshire, New York, North Carolina, Ohio, South Dakota, Utah, Virginia and
West Virginia each enacted legislation overriding the exemption afforded by
SMMEA prior to the October 4, 1991 deadline.
Institutions whose investment activities are subject to legal
investment laws or regulations or review by certain regulatory authorities may
be subject to restrictions on investment in certain classes of the Certificates.
Any financial institution which is subject to the jurisdiction of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the FDIC, the OTS, the NCUA or other federal or state agencies with
similar authority should review any applicable rules, guidelines and regulations
prior to purchasing the certificates. The Federal Financial Institutions
Examination Council, for example, has issued a Supervisory Policy Statement on
Securities Activities effective February 10, 1992 (the "Policy Statement"). The
Policy Statement has been adopted by the Comptroller of the Currency, the
Federal Reserve Board, the FDIC and the OTS with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities" except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," or in securities which are issued in book-entry
form.
Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
ERISA CONSIDERATIONS
ERISA imposes requirements on employee benefit plans (and on certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested)
(collectively, "Plans") subject to ERISA and on persons who are fiduciaries with
respect to such Plans. Among other things, ERISA requires that the assets of
Plans be held in trust and that the trustee, or other duly authorized fiduciary,
have exclusive authority and discretion to manage and control the assets of such
Plans. ERISA also imposes certain duties on persons who
38
<PAGE>
are fiduciaries of Plans. 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). In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and persons ("Parties in Interest") having
certain specified relationships to a Plan and imposes additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan.
The United States Department of Labor (the "DOL") has issued
regulations concerning the definition of what constitutes the assets of a Plan.
(DOL Reg Section 2510.3-101). Under this regulation, the underlying assets and
properties of corporations, partnerships and certain other entities in which a
Plan makes an "equity" investment could be deemed for purposes of ERISA to be
assets of the investing Plan in certain circumstances. In such case, the
fiduciary making such an investment for the Plan could be deemed to have
delegated his or her asset management responsibility, and the underlying assets
and properties could be subject to ERISA reporting and disclosure. Certain
exceptions to the regulation may apply in the case of a Plan's investment in the
Certificates, but the Depositor cannot predict in advance whether such
exceptions apply due to the factual nature of the conditions to be met.
Accordingly, because the Mortgage Loans may be deemed Plan assets of each Plan
that purchases Certificates, an investment in the Certificates by a Plan might
give rise to a prohibited transaction under ERISA Sections 406 and 407 and be
subject to an excise tax under Code Section 4975 unless a statutory or
administrative exemption applies.
DOL Prohibited Transaction Exemption 83-1 ("PTE 83-1") exempts from
ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage investment trusts and the purchase, sale and
holding of "mortgage pool pass-through certificates" in the initial issuance of
such certificates. PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in Interest with
respect to those Plans involving the origination, maintenance and termination of
mortgage pools consisting of mortgage loans secured by first or second mortgages
or deeds of trust on single-family residential property, and the acquisition and
holding of certain mortgage pool pass-through certificates representing an
interest in such mortgage pools by PTE.
PTE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying Owners against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan, (ii) the existence of a pool trustee who
is not an affiliate of the sponsor, and (iii) a limitation on the amount of the
payments retained by the pool sponsor, together with other funds inuring to its
benefit, to not more than adequate consideration for selling the mortgage loans
plus reasonable compensation for services provided by the pool sponsor.
Although the Trustee for any series of Certificates will be
unaffiliated with the Depositor, there can be no assurance that the system of
insurance or subordination will meet the general or specific conditions referred
to above. In addition, the nature of a Trust's assets or the characteristics of
one or more classes of the related series of Certificates may not be included
within the scope of PTE 83-1 or any other class exemption under ERISA. The
Prospectus Supplement will provide additional information with respect to the
application of ERISA and the Code to the related Certificates.
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transactions exemptions which are in some respects
broader than PTE 83-1. Such exemptions can only apply to mortgage-backed
securities which, among other conditions, are sold in an offering with respect
to which such underwriter serves as the sole or a managing underwriter, or as a
selling or placement agent. Several other underwriters have applied for similar
exemptions. If such an exemption might be applicable to a series of
Certificates, the related Prospectus Supplement will refer to such possibility.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Certificates
must make its own determination as to whether the general and the specific
39
<PAGE>
conditions of PTE 83-1 have been satisfied or as to the availability of any
other prohibited transaction exemptions Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the 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.
Any Plan proposing to invest in Certificates should consult with its
counsel to confirm that such investment will not result in a prohibited trans
action and will satisfy the other requirements of ERISA and the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is based upon the opinion of Arter & Hadden, special
counsel to the Depositor with respect to the material federal income tax
consequences of the purchase, ownership and disposition of Certificates. The
discussion below does not purport to address all federal income tax consequences
that may be applicable to particular categories of investors, some of which may
be subject to special rules. The authorities on which this discussion is based
are subject to change or differing interpretations, and any such change or
interpretation could apply retroactively. This discussion reflects the
applicable provisions of the Code including recent amendments under the Omnibus
Budget Reconciliation Act of 1993 ("OBRA"), as well as final regulations
concerning REMICs (the "REMIC Regulations") promulgated on December 23, 1992,
and final regulations under Sections 1271 through 1273 and 1275 of the Code
concerning debt instruments promulgated on January 27, 1994 (the "OID
Regulations"). The Depositor intends to rely on the OID Regulations for all
Certificates offered pursuant to this Prospectus; however, investors should be
aware that the OID Regulations do not adequately address certain issues relevant
to prepayable securities, such as the Certificates. Investors should consult
their own tax advisors in determining the federal, state, local and any other
tax consequences to them of the purchase, ownership and disposition of
Certificates, particularly with respect to federal income tax changes effected
by OBRA and the REMIC Regulations. The Prospectus Supplement for each series of
Certificates will discuss any special tax consideration applicable to any class
of Certificates of such series, and the discussion below is qualified by any
such discussion in the related Prospectus Supplement.
For purposes of this opinion, where the applicable Prospectus
Supplement provides for a fixed retained yield with respect to the Mortgage
Assets underlying a series of Certificates, references to the Mortgage Assets
will be deemed to refer to that portion of the Mortgage Assets held by the Trust
which does not include the fixed retained yield.
Federal Income Tax Consequences For REMIC Certificates
General. With respect to a particular series of Certificates, an
election may be made to treat the Trust or one or more trusts or segregated
pools of assets therein as one or more REMICs within the meaning of Code Section
860D. A Trust or a portion or portions thereof as to which one or more REMIC
elections will be made will be referred to as a "REMIC Pool." For purposes of
this discussion, Certificates of a series as to which one or more REMIC
elections are made are referred to as "REMIC Certificates" and will consist of
one or more classes of "Regular Certificates" and one class of "Residual
Certificates" in the case of each REMIC Pool. Qualification as a REMIC requires
ongoing compliance with certain conditions. With respect to each series of REMIC
Certificates, Arter & Hadden, special counsel to the Depositor, has advised the
Depositor that in their opinion, assuming (i) the making of an appropriate
election, (ii) compliance with the Agreement and (iii) compliance with any
changes in the law, including any amendments to the Code or applicable Treasury
regulations thereunder, each REMIC Pool will qualify as a REMIC and that if a
Trust qualifies as a REMIC, the tax consequences to the Owners will be as
described below. In such case, the Regular Certificates will be considered to be
"regular interests" in the REMIC Pool and generally will be treated for federal
income tax purposes as if they were newly originated debt instruments, and the
Residual Certificates will be considered to be "residual interests" in the REMIC
Pool. The Prospectus Supplement for each series of Certificates will indicate
whether one or more REMIC elections with respect to the related Trust will be
made, in which event references to "REMIC" or "REMIC Pool" herein shall be
deemed to refer to each such REMIC Pool.
40
<PAGE>
Status of REMIC Certificates. REMIC Certificates held by a mutual
savings bank or a domestic building and loan association (a "Thrift
Institution") will constitute "qualifying real property loans" within the
meaning of Code Section 593(d)(1) in the same proportion that the assets of the
REMIC Pool would be so treated. REMIC Certificates held by a domestic building
and loan association will constitute "a regular or residual interest in a REMIC"
within the meaning of Code Section 7701(a) (19)(C) (xi) in the same proportion
that the assets of the REMIC Pool would be treated as "loans secured by an
interest in real property" within the meaning of Code Section 7701(a)(19)(C)(v)
or as other assets described in Code Section 7701(a)(19)(C). REMIC Certificates
held by a real estate investment trust (a "REIT") will constitute "real estate
assets" within the meaning of Code Section 856(c)(5)(A), and interest on the
REMIC Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) in the same proportion that, for both purposes, the
assets of the REMIC Pool would be so treated. If at all times 95% or more of the
assets of the REMIC Pool constitute qualifying assets for Thrift Institutions
and REITs, the REMIC Certificates will be treated entirely as qualifying assets
for such entities. Moreover, the REMIC Regulations provide that, for purposes of
Code Sections 593(d)(1) and 856(c)(5)(A), payments of principal and interest on
the Mortgage Assets that are reinvested pending distribution to holders of REMIC
Certificates, constitute qualifying assets for such entities. Where two REMIC
Pools are part of a tiered structure they will be treated as one REMIC for
purposes of the tests described above respecting asset ownership of more or less
than 95%. Notwithstanding the foregoing, however, REMIC income received by a
REIT owning a residual interest in a REMIC Pool could be treated in part as
non-qualifying REIT income if the REMIC Pool holds Mortgage Assets with respect
to which income is contingent on mortgagor profits or property appreciation. In
addition, if the assets of the REMIC include buy-down Mortgage Assets, it is
possible that the percentage of such assets constituting "qualifying real
property loans" or "loans secured by an interest in real property" for purposes
of Code Sections 593(d)(1) and 7701(a)(19)(C)(v), respectively, may be required
to be reduced by the amount of the related buy-down funds. REMIC Certificates
held by a regulated investment company will not constitute "government
securities" within the meaning of Code Section 851(b)(4)(A)(i). REMIC
Certificates held by certain financial institutions will constitute an "evidence
of indebtedness" within the meaning of Code Section 582(c)(i). REMIC
Certificates representing interests in obligations secured by manufactured
housing treated as single family residences under Code Section 25(e)(10) will be
considered interests in "qualified mortgages" as defined in Code Section
860E(a)(3).
Qualification as a REMIC. In order for the REMIC Pool to qualify as a
REMIC, there must be ongoing compliance on the part of the REMIC Pool with the
requirements set forth in the Code. The REMIC Pool must fulfill an asset test,
which requires that no more than a de minimis amount of the assets of the REMIC
Pool, as of the close of the third calendar month beginning after the Delivery
Date (which for purposes of this discussion is the date of issuance of the REMIC
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 will be met if at
all times the aggregate adjusted basis of any nonqualified assets (i.e., assets
other than qualified mortgages and permitted investments) is less than 1% of the
aggregate adjusted basis of all the REMIC Pool's assets.
If a REMIC Pool fails to comply with one or more of the requirements of
the Code for REMIC status during any taxable year, the REMIC Pool will not be
treated as a REMIC for such year and thereafter. In this event, the
classification of the REMIC Pool for federal income tax purposes is uncertain.
The REMIC Pool might be entitled to treatment as a grantor trust under the rules
described in "Federal Income Tax Consequences for Certificates as to Which No
REMIC Election Is Made." In that case, no entity-level tax would be imposed on
the REMIC Pool. Alternatively, the Regular Certificates may continue to be
treated as debt instruments for federal income tax purposes; but the REMIC Pool
could be treated as a taxable mortgage pool (a "TMP"). If the REMIC Pool is
treated as a TMP, any residual income of the REMIC Pool (income from the
Mortgage Assets less interest and original issue discount expense allocable to
the Regular Certificates and any administrative expenses of the REMIC Pool)
would be subject to corporate income tax at the REMIC Pool level. On the other
hand, an entity with multiple classes of ownership interests may be treated as a
separate association taxable as a corporation under Treasury regulations, and
the Regular Certificates may be treated as equity interests therein. The Code,
however, authorizes the Treasury Department to issue regulations that address
situations where failure to meet one or more of the requirements for REMIC
status occurs inadvertently and in good faith, and disqualification of the REMIC
Pool would occur absent regulatory relief. Investors should be aware, however,
that the Conference Committee
41
<PAGE>
Report to the Tax Reform Act of 1986 (the "1986 Act") indicates that the relief
may be accompanied by sanctions, such as the imposition of a corporate tax on
all or a portion of the REMIC Pool's income for the period of time in which the
requirements for REMIC status are not satisfied.
Taxation of Regular Certificates
General. Payments received by holders of Regular Certificates generally
should be accorded the same tax treatment under the Code as payments received on
ordinary taxable corporate debt instruments. In general, interest, original
issue discount and market discount on a Regular Certificate will be treated as
ordinary income to a holder of the Regular Certificate (the "Regular
Certificateholder") as they accrue, and principal payments on a Regular
Certificate will be treated as a return of capital to the extent of the Regular
Certificateholder's basis in the Regular Certificate allocable thereto. Regular
Certificateholders must use the accrual method of accounting with regard to
Regular Certificates, regardless of the method of accounting otherwise used by
such Regular Certificateholders.
Original Issue Discount. Regular Certificates may be issued with
"original issue discount" within the meaning of Code Section 1273(a). Holders of
any class of Regular Certificates having original issue discount generally must
include original issue discount in ordinary income for federal income tax
purposes as it accrues, in accordance with a constant interest method that takes
into account the compounding of interest, in advance of receipt of the cash
attributable to such income. The Depositor anticipates that the amount of
original issue discount required to be included in a Regular Certificateholder's
income in any taxable year will be computed as described below.
Each Regular Certificate (except to the extent described below with
respect to a Regular Certificate on which distributions of principal are made in
a single installment or upon an earlier distribution by lot of a specified
principal amount upon the request of a Regular Certificateholder or by random
lot (a "Retail Class Certificate")) will be treated as a single installment
obligation for purposes of determining the original issue discount includible in
a Regular Certificateholder's income. The total amount of original issue
discount on a Regular Certificate is the excess of the "stated redemption price
at maturity" of the Regular Certificate over its "issue price." The issue price
of a Regular Certificate is the first price at which a substantial amount of
Regular Certificates of that class are first sold to the public. The Depositor
will determine original issue discount by including the amount paid by an
initial Regular Certificateholder for accrued interest that relates to a period
prior to the issue date of the Regular Certificate in the issue price of a
Regular Certificate and will include in the stated redemption price at maturity
any interest paid on the first Payment Date to the extent such interest is
attributable to a period in excess of the number of days between the issue date
and such first Payment Date. The stated redemption price at maturity of a
Regular Certificate always includes the original principal amount of the Regular
Certificate, but generally will not include distributions of stated interest if
such interest distributions constitute "qualified stated interest." Qualified
stated interest generally means stated interest that is unconditionally payable
in cash or in property (other than debt instruments of the issuer) at least
annually at (i) a single fixed rate, (ii) one or more qualified floating rates
(as described below), (iii) a fixed rate followed by one or more qualified
floating rates, (iv) a single objective rate (as described below) or (v) a fixed
rate and an objective rate that is a qualified inverse floating rate. The OID
Regulations state that interest payments are unconditionally payable only if a
late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Certain debt securities may provide for default
remedies in the event of late payment or nonpayment of interest. The interest on
such debt securities will be unconditionally payable and constitute qualified
stated interest, not OID. However, absent clarification of the OID Regulations,
where debt securities do not provide for default remedies, the interest payments
will be included in the debt security's stated redemption price at maturity and
taxed as OID. Any stated interest in excess of the qualified stated interest is
included in the stated redemption price at maturity. If the amount of original
issue discount is "de minimis" as described below, the amount of original issue
discount is treated as zero, and all stated interest is treated as qualified
stated interest. Distributions of interest on Regular Certificates with respect
to which deferred interest will accrue may not constitute qualified stated
interest, in which case the stated redemption price at maturity of such Regular
Certificates includes all distributions of interest as well as principal
thereon. Moreover, if the interval between the issue date and the first Payment
Date on a Regular Certificate is longer than the interval between subsequent
Payment Dates (and interest paid on the first Payment Date is less than would
have been earned if the stated interest rate were applied to outstanding
principal during each day in such interval), the stated interest distributions
on such Regular Certificate technically do not constitute qualified stated
interest. In such case a special
42
<PAGE>
rule, applying solely for the purpose of determining whether original issue
discount is de minimis, provides that the interest shortfall for the long first
period (i.e., the interest that would have been earned if interest had been paid
on the first Payment Date for each day the Regular Certificate was outstanding)
is treated as made at a fixed rate if the value of the rate on which the payment
is based is adjusted in a reasonable manner to take into account the length of
the interval. Regular Certificateholders should consult their own tax advisors
to determine the issue price and stated redemption price at maturity of a
Regular Certificate.
Under a de minimis rule, original issue discount on a Regular
Certificate will be considered to be zero if such original issue discount is
less than 0.25% of the stated redemption price at maturity of the Regular
Certificate multiplied by the weighted average maturity of the Regular
Certificate. For this purpose, the weighted maturity of the Regular Certificate
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the Regular Certificate
and the denominator of which is the stated redemption price at maturity of the
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Assets and the anticipated reinvestment rate, if any,
relating to the Regular Certificates (the "Prepayment Assumption"). The
Prepayment Assumption with respect to a series of Regular Certificates will be
set forth in the related Prospectus Supplement. The holder of a debt instrument
includes any de minimis original issue discount in income pro rata as stated
principal payments are received.
Of the total amount of original issue discount on a Regular
Certificate, the Regular Certificateholder generally must include in gross
income for any taxable year the sum of the "daily portions," as defined below,
of the original issue discount on the Regular Certificate accrued during an
accrual period for each day on which he holds the Regular Certificate, including
the date of purchase but excluding the date of disposition. Although not free
from doubt, the Depositor intends to treat the monthly period ending on the day
before each Payment Date as the accrual period, rather than the monthly period
corresponding to the prior calendar month. With respect to each Regular
Certificate, a calculation will be made of the original issue discount that
accrues during each successive full accrual period (or shorter period from the
date of original issue) that ends on the day before the related Payment Date on
the Regular Certificate. For a Regular Certificate, original issue discount is
to be calculated initially based on a schedule of maturity dates that takes into
account the level of prepayments and an anticipated reinvestment rate that are
most likely to occur, which is expected to be based on the Prepayment
Assumption. The original issue discount accruing in a full accrual period would
be the excess, if any, of (i) the sum of (a) the present value of all of the
remaining distributions to be made on the Regular Certificate as of the end of
that accrual period that are included in the Regular Certificate's stated
redemption price at maturity and (b) the distributions made on the Regular
Certificate during the accrual period that are included in the Regular
Certificate's stated redemption price at maturity over (ii) the adjusted issue
price of the Regular Certificate at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence is calculated based on (i) the yield to maturity of the Regular
Certificate at the issue date, (ii) events (including actual prepayments) that
have occurred prior to the end of the accrual period and (iii) the Prepayment
Assumption. For these purposes, the adjusted issue price of a Regular
Certificate at the beginning of any accrual period equals the issue price of the
Regular Certificate, increased by the aggregate amount of original issue
discount with respect to the Regular Certificate that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
Regular Certificate's stated redemption price at maturity that were made on the
Regular Certificate in such prior period. The original issue discount accruing
during any accrual period (as determined in this paragraph) will then be divided
by the number of days in the period to determine the daily portion of original
issue discount for each day in the period.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the Mortgage Assets or that exceed
the Prepayment Assumption, and generally will decrease (but not below zero for
any period) if the prepayments are slower than the Prepayment Assumption. In the
event of a change in circumstances that does not result in a substantially
contemporaneous pro rata prepayment, the yield and maturity of the Regular
Certificates are redetermined by treating the Regular Certificates as reissued
on the date of the change for an amount equal to the adjusted issue price of the
Regular
43
<PAGE>
Certificates. To the extent specified in the applicable Prospectus Supplement,
an increase in prepayments on the Mortgage Assets with respect to a series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to such Regular Certificates.
A purchaser of a Regular Certificate at a price greater than the issue
price also will be required to include in gross income the daily portions of the
original issue discount on the Regular Certificate. With respect to such a
purchaser, the daily portion for any day is reduced by the amount that would be
the daily portion for such day (computed in accordance with the rules set forth
above) multiplied by a fraction, the numerator of which is the amount, if any,
by which the price paid by such purchaser for the Regular Certificate exceeds
the sum of the issue price and the aggregate amount of original issue discount
that would have been includible in the gross income of an original holder of the
Regular Certificate who purchased the Regular Certificate at its issue price,
less any prior distributions included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for such
Regular Certificate (computed in accordance with the rules set forth above) for
all days after the date of purchase and ending on the date on which the
remaining principal amount of such Regular Certificate is expected to be reduced
to zero under the Prepayment Assumption.
A Certificateholder may elect to include in gross income all stated
interest, original issue discount, de minimis original issue discount, market
discount (as described below under "Market Discount"), de minimis market
discount and unstated interest (as adjusted for any amortizable bond premium or
acquisition premium) currently as it accrues using the constant yield to
maturity method. If this election is made, the holder is treated as satisfying
the requirements for making the elections with respect to amortization of
premium and current inclusion of market discount, each as described under
"Premium" and "Market Discount" below.
Variable Rate Regular Certificates. Regular Certificates may provide
for interest based on a variable rate. The OID Regulations provide special rules
for variable rate instruments that meet three requirements. First, the
noncontingent principal payments may not exceed the instrument's issue price by
more than a specified amount equal to the lesser of (i) .015 multiplied by the
product of the total noncontingent payments and the weighted average maturity or
(ii) 15% of the total noncontingent principal payments. Second, the instrument
must provide for stated interest (compounded or paid at least annually) at (i)
one or more qualified floating rates, (ii) a single fixed rate followed by one
or more qualified floating rates, (iii) a single objective rate or (iv) a single
fixed rate and a single objective rate that is a qualified inverse floating
rate. Third, the instrument must provide that each qualified floating rate or
objective rate in effect during an accrual period is set at a current value of
that rate (one occurring in the interval beginning three months before and
ending one year after the rate is first in effect on the Regular Certificate). A
rate is a qualified floating rate if variations in the rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds. Generally, neither (i) a multiple of a qualified floating rate in excess
of a fixed multiple that is greater than zero but not more than 1.35 (and
increased or decreased by a fixed rate) nor (ii) a cap or floor that is likely
to cause the interest rate on a Regular Certificate to be significantly less or
more than the overall expected return on the Regular Certificate is considered a
qualified floating rate. An objective rate is a rate based on changes in the
price of actively traded property or an index of such prices or is a rate based
on (including multiples of) one or more qualified floating rates. An objective
rate is a qualified inverse floating rate if the rate is equal to a fixed rate
minus a qualified floating rate and variations in such rate can reasonably be
expected to reflect inversely contemporaneous variations in the cost of newly
borrowed funds. A rate will not be an objective rate if it is reasonably
expected that the average rate during the first half of the instrument's term
will be significantly more or less than the average rate in the final term. An
objective rate must be determined according to a single formula that is fixed
throughout the term of the Regular Certificate. Stated interest on a variable
rate debt instrument is qualified stated interest if the interest is
unconditionally payable in cash or property at least annually.
In general, the determination of original issue discount and qualified
stated interest on a variable rate debt instrument is made by converting the
debt instrument into a fixed rate debt instrument and then applying the general
original issue discount rules described above to the instrument. If a variable
rate debt instrument provides for stated interest at a single qualified floating
rate or objective rate, all stated interest is qualified stated interest and the
amount of original issue discount, if any, is determined by assuming the
variable rate is a fixed rate equal to (a)
44
<PAGE>
in the case of a qualified floating or inverse floating rate, the value, as of
the issue date, of the qualified floating inverse floating rate or (b) in the
case of an objective rate (other than a qualified inverse floating rate), a
fixed rate that reflects the yield that is reasonably expected for the debt
instrument. For all other variable rate debt instruments, the amount of interest
and original issue discount accruals are determined using the following steps.
First, a fixed rate substitute for each variable rate under the debt instrument
is determined. In general, the fixed rate substitute is a fixed rate equal to
the rate of the applicable type of variable rate as of the issue date. Second,
an equivalent fixed rate debt instrument is constructed using the fixed rate
substitute(s) in lieu of the variable rates and keeping all other terms
identical. Third, the amount of qualified stated interest and original issue
discount with respect to the equivalent fixed rate debt instrument are
determined under the rules for fixed rate debt instruments. Finally, appropriate
adjustments for actual variable rates are made during the term by increasing or
decreasing the qualified stated interest to reflect the amount actually paid
during the applicable accrual period as compared to the interest assumed to be
accrued or paid under the equivalent fixed rate debt instrument. If there is no
qualified stated interest under the equivalent fixed rate debt instrument, the
adjustment is made to the original issue discount for the period.
Where the issue price of a Regular Certificate exceeds the original
principal amount of the Regular Certificate, it appears appropriate to reduce
the ordinary income reportable for an accrual period by a portion of such excess
in a manner similar to the amortization of premium on the constant yield method.
Under proposed regulations (the "contingent payment rules"), a Regular
Certificate that provides for (i) non-contingent payments greater than or equal
to its issue price and (ii) one or more contingent payments determined by
reference to the value of publicly traded stock, securities, commodities, or
other publicly traded property must be divided into its component parts for
purposes of performing original issue discount calculations (and possibly for
other federal income tax purposes as well). The non-contingent portion of the
Regular Certificate would be treated as a debt instrument, and the original
issue discount accruals on that portion would be computed in the same manner as
with any non-contingent debt instrument. The issue price of the non-contingent
portion would be that portion of the issue price of the Regular Certificate that
reflects the right to receive the non-contingent payments, determined in the
same manner as if the separate non-contingent debt instrument were a debt
instrument issued as part of an investment unit. The contingent components of
the Regular Certificate would constitute options or other property rights and
would be taxed as if issued as a separate instrument. No accrual of original
issue discount generally would be required with respect to such components under
the contingent payment rules. Accordingly, the rate at which income is accrued
by a Certificateholder may vary depending on whether the original issue discount
rules or the contingent payment rules apply to certain variable rate debt
instruments.
Market Discount. A purchaser of a Regular Certificate also may be
subject to the market discount rules of Code Sections 1276 through 1278. Under
these sections and the principles applied by the OID Regulations in the context
of original issue discount, "market discount" is the amount by which a
subsequent purchaser's initial basis in the Regular Certificate (i) is exceeded
by the stated redemption price at maturity of the Regular Certificate or (ii) in
the case of a Regular Certificate having original issue discount, is exceed by
the sum of the issue price of such Regular Certificate plus any original issue
discount that would have previously accrued thereon if held by an original
Regular Certificateholder (who purchased the Regular Certificate at its issue
price), in either case less any prior distributions included in the stated
redemption price at maturity of such Regular Certificate. Such purchaser
generally will be required to recognize accrued market discount as ordinary
income as distributions includible in the stated redemption price at maturity of
such Regular Certificate are received in an amount not exceeding any such
distribution. That recognition rule would apply regardless of whether the
purchaser is a cash-basis or accrual-basis taxpayer. Such market discount would
accrue in a manner to be provided in Treasury regulations and should take into
account the Prepayment Assumption. The Conference Committee Report to the 1986
Act provides that until such regulations are issued, such market discount would
accrue either (i) on the basis of a constant interest rate or (ii) in the ratio
of stated interest allocable to the relevant period to the sum of the interest
for such period plus the remaining interest as of the end of such period, or in
the case of a Regular Certificate issued with original issue discount, in the
ratio of original issue discount accrued for the relevant period to the sum of
the original issue discount accrued for such period plus the remaining original
issue discount as of the end of such period. Such purchaser also generally will
be required to treat a portion of any gain on a sale or exchange of the Regular
Certificate as ordinary income to the extent of the market discount accrued to
the date of disposition under one of the foregoing methods, less any accrued
market discount previously reported as ordinary
45
<PAGE>
income as partial distributions in reduction of the stated redemption price at
maturity were received. Such purchaser will be required to defer deduction of a
portion of the excess of the interest paid or accrued on indebtedness incurred
to purchase or carry a Regular Certificate over the interest distributable
thereon. The deferred portion of such interest expense in any taxable year
generally will not exceed the accrued market discount on the Regular Certificate
for such year. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income is
recognized or the Regular Certificate is disposed of. As an alternative to the
inclusion of market discount in income on the foregoing basis, the Regular
Certificateholder may elect to include market discount in income currently as it
accrues in all market discount instruments acquired by such Regular
Certificateholder in that taxable year or thereafter, in which case the interest
deferral rule will not apply. In Revenue Procedure 92-67, the Internal Revenue
Service set forth procedures for taxpayers (1) electing under Code Section
1278(b) to include market discount in income currently, (2) electing under rules
of Code Section 1276(b) to use a constant interest rate to determine accrued
market discount on a bond where the holder of the bond is required to determine
the amount of accrued market discount at a time prior to the holder's
disposition of the bond, and (3) requesting consent to revoke an election under
Code Section 1278(b).
By analogy to the OID Regulations, market discount with respect to a
Regular Certificate will be considered to be zero if such market discount is
less than 0.25% of the remaining stated redemption price at maturity of such
Regular Certificate multiplied by the weighted average maturity of the Regular
Certificate (determined as described above under "Original Issue Discount")
remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued, and therefore investors should
consult their own tax advisors regarding the application of these rules as well
as the advisability of making any of the elections with respect thereto.
Premium. A Regular Certificate purchased at a cost greater than its
remaining stated redemption price at maturity generally is considered to be
purchased at a premium. If the Regular Certificateholder holds such Regular
Certificate as a "capital asset" within the meaning of Code Section 1221, the
Regular Certificateholder may elect under Code Section 171 to amortize such
premium under a constant yield method that reflects compounding based on the
interval between payments on the Regular Certificates. This election, once made,
applies to all obligations held by the taxpayer at the beginning of the first
taxable year to which such section applies and to all taxable debt obligations
thereafter acquired and is binding on such taxpayer in all subsequent years. The
Conference Committee Report to the 1986 Act indicates a Congressional intent
that the same rules that apply to the accrual of market discount on installment
obligations will also apply to amortizing bond premium under Code Section 171 on
installment obligations such as the Regular Certificates, although it is unclear
whether the alternatives to the constant interest method described above under
"Market Discount" are available. Except as otherwise provided in Treasury
regulations yet to be issued amortizable bond premium will be treated as an
offset to interest income on a Regular Certificate rather than as a separate
deduction item. Purchasers who pay a premium for their Regular Certificates
should consult their tax advisors regarding the election to amortize premium and
the method to be employed.
Sale or Exchange of Regular Certificates. If a Regular
Certificateholder sells or exchanges a Regular Certificate, the Regular
Certificateholder will recognize gain or loss equal to the difference, if any,
between the amount received and his adjusted basis in the Regular Certificate.
The adjusted basis of a Regular Certificate generally will equal the cost of the
Regular Certificate to the seller, increased by any original issue discount or
market discount previously included in the seller's gross income with respect to
the Regular Certificate and reduced by amounts included in the stated redemption
price at maturity of the Regular Certificate that were previously received by
the seller and by any amortized premium.
Except as described above with respect to market discount, and except
as provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate as
a capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Certificate has been held for the long-term
capital gain holding period (currently more than one year). Gain from the
disposition of a Regular Certificate that might otherwise be capital gain will
be treated as ordinary income to the extent that such gain does not exceed the
excess, if any, of (i) the amount that would have been includible in the gross
income of the holder if his yield on such Regular Certificate were 110% of the
applicable Federal rate under Code Section 1274(d) as of the date of purchase
over (ii) the amount of income actually
46
<PAGE>
includible in the gross income of such holder with respect to the Regular
Certificate. In addition, gain or loss recognized from the sale of a Regular
Certificate by certain banks or thrift institutions will be treated as ordinary
income or loss pursuant to Code Section 582(c). The maximum tax rate for
individuals on the excess of net long-term capital gain over net short-term
capital loss is 28%.
Taxation of Residual Certificates
Taxation of REMIC Income. Generally, the "daily portions" of REMIC
taxable income or net loss will be includible as ordinary income or loss in
determining the federal taxable income of holders of Residual Certificates
("Residual Certificateholders") and will not be taxed separately to the REMIC
Pool. The daily portions of REMIC taxable income or net loss of a Residual
Certificateholder are determined by allocating the REMIC Pool's taxable income
or net loss for each calendar quarter ratably to each day in such quarter and by
allocating such daily portion among the Residual Certificateholders in
proportion to their respective holdings of Residual Certificates in the REMIC
Pool on such day. REMIC taxable income is generally determined in the same
manner as the taxable income of an individual using a calendar year and the
accrual method of accounting, except that (i) the limitation on deductibility of
investment interest expense and expenses for the production of income do not
apply, (ii) all bad loans will be deductible as business bad debts and (iii) the
limitation on the deductibility of interest and expenses related to tax-exempt
income will apply. REMIC taxable income generally means the REMIC Pool's gross
income, including interest, original issue discount income and market discount
income, if any, on the Mortgage Assets, plus income on reinvestment of cashflows
and reserve assets, minus deductions, including interest and original issue
discount expense on the Regular Certificates, servicing fees on the Mortgage
Assets and other administrative expenses of the REMIC Pool, amortization of
premium, if any, with respect to the Mortgage Assets, and any tax imposed on the
REMIC's income from foreclosure property. The requirement that Residual
Certificateholders report their pro rata share of taxable income or net loss of
the REMIC Pool will continue until there are no Certificates of any class of the
related series outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the Mortgage Assets,
on the one hand, and the timing of deductions for interest (including original
issue discount) on the Regular Certificates, on the other hand. Because of the
way REMIC taxable income is calculated, a Residual Certificateholder may
recognize "phantom" income (i.e., income recognized for tax purposes in excess
of income as determined under financial accounting or economic principles) which
will be matched in later years by a corresponding tax loss or reduction in
taxable income, but which could lower the yield to Residual Certificateholders
due to the lower present value of such future loss or reduction. For example, if
an interest in the Mortgage Assets is acquired by the REMIC Pool at a discount,
and one or more of such Mortgage Assets is prepaid, the Residual
Certificateholder may recognize taxable income without being entitled to receive
a corresponding amount of cash because (i) the prepayment may be used in whole
or in part to make distributions in reduction of principal on the Regular
Certificates and (ii) the discount income on the Mortgage Loan which is
includible in the REMIC's taxable income may exceed the discount deduction
allowed to the REMIC upon such distributions on the Regular Certificates. When
there is more than one class of Regular Certificates that distribute principal
sequentially, this mismatching of income and deductions is particularly likely
to occur in the early years following issuance of the Regular Certificates when
distributions in reduction of principal are being made in respect of earlier
maturing classes of Certificates to the extent that such classes are not issued
with substantial discount. If taxable income attributable to such a mismatching
is realized in general, losses would be allowed in later years as distributions
on the later classes of Regular Certificates are made. Taxable income may also
be greater in earlier years than in later years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding
principal amount of such a series of Regular Certificates, may increase over
time as distributions in reduction of principal are made on the lower yielding
classes of Regular Certificates, where interest income with respect to any given
Mortgage Loan will remain constant over time as a percentage of the outstanding
principal amount of that loan. Consequently, Residual Certificateholders must
have sufficient other sources of cash to pay any federal, state or local income
taxes due as a result of such mismatching or unrelated deductions against which
to offset such income. Prospective investors should be aware, however, that a
portion of such income may be ineligible for offset by such investor's unrelated
deductions. See the discussion of "excess inclusions" below under "Limitations
on Offset or Exemption of REMIC Income; Excess Inclusions." The timing
47
<PAGE>
of such mismatching of income and deductions described in this paragraph, if
present with respect to a series of Certificates, may have a significant adverse
effect upon the Residual Certificateholders after-tax rate of return. In
addition, a Residual Certificateholder's taxable income during certain periods
may exceed the income reflected by such Certificateholder for such periods in
accordance with generally accepted accounting principles. Investors should
consult their own advisors concerning the proper tax and accounting treatment of
their investment in Residual Certificates.
Basis and Losses. The amount of any net loss of the REMIC Pool that may
be taken into account by the Residual Certificateholder is limited to the
adjusted basis of the Residual Certificate as of the close of the quarter (or
time of disposition of the Residual Certificate if earlier), determined without
taking into account the net loss for the quarter. The initial adjusted basis of
a purchaser of a Residual Certificate is the amount paid for such Residual
Certificate. Such adjusted basis will be increased by the amount of taxable
income of the REMIC Pool reportable by the Residual Certificateholder and
decreased by the amount of loss of the REMIC Pool reportable by the Residual
Certificateholder. A cash distribution from the REMIC Pool also will reduce such
adjusted basis (but not below zero). Any loss that is disallowed on account of
this limitation may be carried over indefinitely with respect to the Residual
Certificateholder as to whom such loss was disallowed and may be used by such
Residual Certificateholder only to offset any income generated by the same REMIC
Pool. Residual Certificateholders should consult their tax advisors about other
limitations on the deductibility of net losses that may apply to them.
A Residual Certificateholder will not be permitted to amortize directly
the cost of its Residual Certificate as an offset to its share of the taxable
income of the related REMIC Pool. However, such taxable income will not include
cash received by the REMIC Pool that represents a recovery of the REMIC Pool's
basis in its assets. Such recovery of basis by the REMIC Pool will have the
effect of amortization of the issue price of the Residual Certificates over
their life. However, in view of the possible acceleration of the income of
Residual Certificateholders described above under "Taxation of REMIC Income,"
the period of time over which such issue price is effectively amortized may be
longer than the economic life of the Residual Certificates.
If a Residual Certificate has a negative value, it is not clear whether
its issue price would be considered to be zero or such negative amount for
purposes of determining the REMIC Pool's basis in its assets. The REMIC
Regulations do not address whether residual interests could have a negative
basis and a negative issue price. The Depositor does not intend to treat a class
of Residual Certificates as having a value of less than zero for purposes of
determining the bases of the related REMIC Pool in its assets.
Further, to the extent that the initial adjusted basis of Residual
Certificateholder (other than an original holder) in the Residual Certificate is
greater than the corresponding portion of the REMIC Pool's basis in the Mortgage
Assets, the Residual Certificateholder will not recover a portion of such basis
until termination of the REMIC Pool unless Treasury regulations yet to be issued
provide for periodic adjustments to the REMIC income otherwise reportable by
such holder. The REMIC Regulations do not so provide. See "Treatment of Certain
Items of REMIC Income and Expense - Market Discount" below regarding the basis
of Mortgage Assets to the REMIC Pool and "Sale or Exchange of Residual
Certificates" below regarding possible treatment of a loss upon termination of
the REMIC Pool as a capital loss.
Mark to Market Rules
Prospective purchasers of a Residual Certificate should be aware that
on December 18, 1993, the Internal Revenue Service released temporary
regulations (the "Temporary 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 of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Temporary Regulations provide that for purposes of this
mark-to-market requirement, a "negative value" Residual Certificate is not
treated as a security and thus may not be marked to market. In general, a
Residual Certificate has negative value if, as of the date a taxpayer acquires
the Residual Certificate, the present value of the tax liabilities associated
with holding the Residual Certificate exceeds the sum of (i) the present value
of the expected future distributions on the Residual Certificate, and (ii) the
present value of the anticipated tax savings associated with holding the
Residual Certificate as the REMIC generates losses. The amounts and present
48
<PAGE>
values of the anticipated tax liabilities, expected future distributions and
anticipated tax savings are all to be determined using (i) the prepayment and
reinvestment assumptions adopted under Section 1272(a)(6), or that would have
been adopted had the REMIC's regular interests been issued with original issue
discount, (ii) any required or permitted clean up calls, or required qualified
liquidation, provided for in the REMIC's organizational documents and (iii) a
discount rate equal to the "applicable Federal rate" instrument issued on the
date of acquisition of the Residual Certificate ending on or after December 31,
1993. Prospective purchasers of a Residual Certificate should consult their tax
advisors regarding the possible application of the Temporary Regulations.
Treatment of Certain Items of REMIC Income and Expense
Original Issue Discount. Generally, the REMIC Pool's deductions for
original issue discount will be determined in the same manner as original issue
discount income on Regular Certificates as described above under "Taxation of
Regular Certificates - Original Issue Discount" and "Variable Rate Regular
Certificates," without regard to the de minimis rule described therein.
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Assets if, in general, the basis of the REMIC Pool in such
Mortgage Assets is exceeded by their unpaid principal balances. The REMIC Pool's
basis in such Mortgage Assets is generally the fair market value of the Mortgage
Assets immediately after the transfer thereof to the REMIC Pool. The REMIC
Regulations provide that such basis is equal in the aggregate to the issue
prices of all regular and residual interests in the REMIC Pool. In respect of
Mortgage Assets that have market discount to which Code Section 1276 applies,
the accrued portion of such market discount would be recognized currently by the
REMIC as an item of ordinary income. Market discount income generally should
accrue in the manner described above under "Taxation of Regular Certificates -
Market Discount." However, the rules of Code Section 1276 concerning market
discount income will not apply in the case of Mortgage Assets originated on or
prior to July 18, 1984, if any. With respect to such Mortgage Assets market
discount is generally includible in REMIC taxable income or ordinary gross
income pro rata as principal payments are received. Under another interpretation
of the Code and relevant legislative history, market discount on such Mortgage
Assets might be required to be recognized currently by the REMIC, in the same
manner that market discount would be recognized with respect to Mortgage Assets
originated after July 18, 1984. Under that method, a REMIC would tend to
recognize market discount more rapidly than it would otherwise. In either case,
the deduction of a portion of the interest expense on the Regular Certificates
allocable to such discount may be deferred until such discount is included in
income, and any gain on the sale or exchange thereof will be treated as ordinary
income to the extent of the deferred interest deductible at that time.
Premium. Generally, if the basis of the REMIC Pool in the Mortgage
Assets exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Assets at a premium equal to the
amount of such excess. As stated above,the REMIC Pool's basis in the Mortgage
Assets is the fair market value of the Mortgage Assets, based on the aggregate
of the issue prices of the regular and residual interests in the REMIC Pool
immediately after the transfer thereof to the REMIC Pool. In a manner analogous
to the discussion above under "Taxation of Regular Certificates - Premium," a
person that holds a Mortgage Loan as a capital asset under Code Section 1221 may
elect under Code Section 171 to amortize premium on Mortgage Assets originated
after September 27, 1985 under a constant yield method. Amortizable bond premium
will be treated as an offset to interest income on the Mortgage Assets, rather
than as a separate deduction item. Because substantially all the mortgagors with
respect to the Mortgage Assets are expected to be individuals, Code Section 171
will not be available. Premium on Mortgage Assets may be deductible in
accordance with a reasonable method regularly employed by the holder thereof.
The allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Internal Revenue Service may argue
that such premium should be allocated in a different manner, such as allocating
such premium entirely to the final payment of principal.
49
<PAGE>
Limitations on Offset or Exemption of REMIC Income; Excess Inclusions.
A portion of the income allocable to a Residual Certificate (referred to in the
Code as an "excess inclusion") for any calendar quarter, with an exception
discussed below for certain thrift institutions, will be subject to federal
income tax in all events. Thus, for example, an excess inclusion (i) cannot,
except as described below, be offset by any unrelated losses or loss carryovers
of a Residual Certificateholder, (ii) will be treated as "unrelated business
taxable income" within the meaning of Code Section 512 if the Residual
Certificateholder is a pension fund or any other organization that is subject to
tax only on its unrelated business taxable income and (iii) is not eligible for
any reduction in the rate of withholding tax in the case of a Residual
Certificateholder that is a foreign investor, as further discussed in "Taxation
of Certain Foreign Investors - Residual Certificates" below. Except as discussed
below with respect to excess inclusions from Residual Certificates without
"significant value," this general rule does not apply to thrift institutions to
which Code Section 593 applies. For this purpose a thrift institution and its
qualified subsidiary are considered a single corporation. A qualified subsidiary
is one all the stock of which, and substantially all the debt of which, is held
by the thrift institution and which is organized and operating exclusively in
connection with the organization and operation of one or more REMICs. Except in
the case of a thrift institution (including qualified subsidiaries) members of
an affiliated group are treated as one corporation for purposes of applying the
limitation on offset of excess inclusion income.
Except as discussed in the following paragraph, with respect to excess
inclusions from Residual Certificates without "significant value," for any
Residual Certificateholder, the excess inclusion for any calendar quarter is the
excess, if any, of (i) the income of such Residual Certificateholder for that
calendar quarter from its Residual Certificate over (ii) the sum of the "daily
accruals" (as defined below) for all days during the calendar quarter on which
the Residual Certificateholder holds such Residual Certificate. For this
purpose, the daily accruals with respect to a Residual Certificate are
determined by allocating to each day in the calendar quarter its ratable portion
of the product of the "adjusted issue price" (as defined below) of the Residual
Certificate at the beginning of the calendar quarter and 120 percent of the
"Federal long-term rate" in effect at the time the Residual Certificate is
issued. For this purposes the "adjusted issue price" of a Residual Certificate
at the beginning of any calendar quarter equals the issue price of the Residual
Certificate (adjusted for contributions), increased by the amount of daily
accruals for all prior quarters, and decreased (but not below zero) by the
aggregate amount of payments made on the Residual Certificate before the
beginning of such quarter. The Federal long-term 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.
The Code provides that to the extent provided in regulations, as an
exception to the general rule described above, the entire amount of income
accruing on a Residual Certificate will be treated as an excess inclusion if the
Residual Certificates in the aggregate are considered not to have "significant
value." The Treasury Department has not yet provided regulations in this respect
and the REMIC Regulations did not adopt this rule. However, the exception from
the excess inclusion rules applicable to thrift institutions does not apply if
the Residual Certificates do not have significant value. Under the REMIC
Regulations, the Residual Certificates will have significant value if: (i) the
aggregate of the issue prices of the Residual Certificates is at least two
percent of the aggregate issue prices of all Regular Certificates and Residual
Certificates in the REMIC and (ii) the anticipated weighted average life of the
Residual Certificates is at least 20 percent of the REMIC's anticipated weighted
average life based on the prepayment and reinvestment assumptions used in
pricing the transaction and any recognized or permitted clean up calls or any
required qualified liquidation. Although not entirely clear, the REMIC
Regulations indicate that the significant value determination is made only on
the Startup Day. The anticipated weighted average life of a Residual Certificate
with a principal balance and a market rate of interest is computed by
multiplying the amount of each expected principal payment by the number of years
(or portions thereof) from the Startup Day, adding these sums and dividing by
the total principal expected to be paid on such Residual Certificate based on
the relevant prepayment assumption and expected reinvestment income. The
anticipated weighted average life of a Residual Certificate with either no
specified principal balance or a principal balance and rights to interest
payments disproportionate to such principal balance, would be computed under the
formula described above but would include all payments expected on the Residual
Certificate instead of only the principal payments. The anticipated weighted
average life of a REMIC is a weighted average of the anticipated weighted
average lives of all classes of interest in the REMIC.
50
<PAGE>
Under Treasury regulations to be promulgated, a portion of the
dividends paid by a REIT which owns a Residual Certificate are to be designated
as excess inclusions in an amount corresponding to the Residual Certificate's
allocable share of the excess inclusions. Similar rules apply in the case of
regulated investment companies, common trust funds and cooperatives. Thus,
investors in such entities which own a Residual Certificate will be subject to
the limitations on excess inclusions described above. The REMIC Regulations do
not provide guidance on this issue.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If legal title or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal corporate income tax rate. The REMIC Regulations provide that
the anticipated excess inclusion are based on actual prepayment experience to
the date of the transfer and projected payments based on the Prepayment
Assumption. The present value discount rate equals the applicable Federal rate
under Code Section 1274(d) that would apply to a debt instrument that was issued
on the date the Disqualified Organization acquired the Residual Certificate and
whose term ended on the close of the last quarter in which excess inclusion was
expected to accrue with respect to the Residual Certificate. Such a tax
generally would be imposed on the transferor of the Residual Certificate, except
that where such transfer is through an agent (including a broker, nominee, or
other middleman) for a Disqualified Organization, the tax would instead be
imposed on such agent. However, a transferor of a Residual Certificate would in
no event be liable for such tax with respect to a transfer if the transferee
furnishes to the transferor an affidavit that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may be
waived by the Treasury Department if the Disqualified Organization promptly
disposes of the Residual Certificate and the transferor pays income tax at the
highest corporate rate on the excess inclusion for the period the Residual
Certificate is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that (i) states
under penalty of perjury that it is not a Disqualified Organization or (ii)
furnishes a social security number and states under penalties of perjury that
the social security number is that of the transferee, provided that during the
period such person is the record holder of the Residual Certificate, the
Pass-Through Entity does not have actual knowledge that such affidavit is false.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511 and (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations yet to be issued, any person holding an interest in a Pass- Through
Entity as a nominee for another will, with respect to such interest, be treated
as a Pass-Through Entity.
The Agreement with respect to a series of Certificates will provide
that neither legal title nor beneficial interest in a Residual Certificate may
be transferred or registered unless (i) the proposed transferee provides to the
Depositor and the Trustee an affidavit to the effect that such transferee is not
a Disqualified Organization, is not
51
<PAGE>
purchasing such Residual Certificates on behalf of a Disqualified Organization
(i.e., as a broker, nominee or middleman thereof) and is not an entity that
holds REMIC residual securities as nominee to facilitate the clearance and
settlement of such securities through electronic book-entry changes in accounts
of participating organizations and (ii) the transferor provides a statement in
writing to the Depositor and the Trustee that it has no actual knowledge that
such affidavit is false. Moreover, the Agreement will provide that any attempted
or purported transfer in violation of these transfer restrictions will be null
and void and will vest no rights in any purported transferee. Each Residual
Certificate with respect to a series will have a legend referring to such
restrictions on transfer, and each Residual Certificateholder will be deemed to
have agreed, as a condition of ownership thereof, to any amendments to the
related Agreement required under the Code or applicable Treasury regulations to
effectuate the foregoing restrictions. Information necessary to compute an
applicable excise tax must be furnished to the Internal Revenue Service and to
the requesting party within 60 days of the request, and the Depositor or the
Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. Under the REMIC Regulations certain
transfers of Residual Certificates are disregarded, in which case the transferor
continues to be treated as the owner of the Residual Certificates and thus
continues to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the Final REMIC Regulations, a transfer of a Noneconomic
Residual Interest (defined below) to a Residual Certificateholder (other than a
Residual Certificateholder who is not a U.S. Person, as defined below under
"Foreign Investors") is disregarded for all federal income tax purposes unless
no significant purpose of the transfer is to impede the assessment or collection
of tax. A residual interest in a REMIC (including a residual interest with a
positive value at issuance) is a "Noneconomic Residual Interest" unless, at the
time of the transfer, (i) the present value of the expected future distributions
on the residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest federal corporate income tax rate
in effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the REMIC
at or after the time at which taxes accrue on the anticipated excess inclusions
in an amount sufficient to satisfy the accrued taxes. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "Disqualified Organizations." A significant purpose to impede
the assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferor would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. Under the REMIC Regulations, a transferor is
presumed not to have improper knowledge if (i) the transferor conducted, at the
time of the transfer, a reasonable investigation of the financial condition of
the transferee and, as a result of the investigation, the transferor found that
the transferee had historically paid its debts as they came due and found no
significant evidence to indicate that the transferor will not continue to pay
its debts as they come due in the future; and (ii) the transferee represents to
the transferor that it understands that, as the holder of the Noneconomic
Residual Interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the residual interest and that the transferee intends to
pay taxes associated with holding of residual interest as they become due. The
Agreement will require the transferee of a Residual Certificate to state as part
of the affidavit described above under the heading "Disqualified Organizations"
that such transferee (i) has historically paid its debts as they come due, (ii)
intends to continue to pay its debts as they come due in the future, (iii)
understands that, as the holder of a Noneconomic Residual Interest, it may incur
tax liabilities in excess of any cash flows generated by the Residual
Certificate, and (iv) intends to pay any and all taxes associated with holding
the Residual Certificate as they become due. The transferor must have no reason
to believe that such statement is untrue.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that, for each excess inclusion, (i) the REMIC Pool will
distribute to the transferee residual interest holder an amount that will equal
at least 30% of the excess inclusions and (ii) that each such amount will be
distributed at or after the time at which the excess inclusion accrues and not
later than the close of the calendar year following the calendar year of
accrual. If the non-U.S. Person transfers the Residual Certificate back to a
U.S. Person, the transfer will
52
<PAGE>
be disregarded and the foreign transferor will continue to be treated as the
owner unless arrangements are made so that the transfer does not have the effect
of allowing the transferor to avoid tax on accrued excess inclusions.
The Prospectus Supplement relating to a series of Certificates may
provide that a Residual Certificate may not be purchased by or transferred to
any person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
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 that is
subject to U.S. federal income tax regardless of the source of its income.
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Certificateholder will recognize gain or loss equal to the excess, if any, of
the amount realized over the adjusted basis (as described above under "Taxation
of Residual Certificates - Basis and Losses") of such Residual Certificateholder
in such Residual Certificate at the time of the sale or exchange. In addition to
reporting the taxable income of the REMIC Pool, a Residual Certificateholder
will have taxable income to the extent that any cash distribution to him from
the REMIC Pool exceeds such adjusted basis on that Payment Date. Such income
will be treated as gain from the sale or exchange of the Residual Certificate.
It is possible that the termination of the REMIC Pool may be treated as a sale
or exchange of a Residual Certificateholder's Residual Certificate, in which
case, if the Residual Certificateholder has an adjusted basis in his Residual
Certificate remaining when his interest in the REMIC Pool terminates, and if he
holds such Residual Certificate as a capital asset under Code Section 1221, then
he will recognize a capital loss at that time in the amount of such remaining
adjusted basis.
The Conference Committee Report to the 1986 Act provides that, except
as provided in Treasury regulations yet to be issued the wash sale rules of Code
Section 1091 will apply to disposition of Residual Certificates. Consequently,
losses on dispositions of Residual Certificates will be disallowed where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any residual interest in
any REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a Residual Certificate.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions. Net income from certain transactions by the
REMIC Pool, called prohibited transactions, will not be part of the calculation
of income or loss includible in the federal income tax returns of Residual
Certificateholders, but rather will be taxed directly to the REMIC Pool at a
100% rate. Prohibited transactions generally include (i) the disposition of a
qualified mortgage other than for (a) substitution within two years of the
Startup Day for a defective (including a defaulted) obligation (or repurchase in
lieu of substitution of a defective (including a defaulted) obligation at any
time) or for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c) bankruptcy
or insolvency of the REMIC Pool or (d) a qualified (complete) liquidation, (ii)
the receipt of income from assets that are not the type of mortgages or
investments that the REMIC Pool is permitted to hold, (iii) the receipt of
compensation for services or (iv) the receipt of gain from disposition of cash
flow investments other than pursuant to a qualified liquidation. Notwithstanding
(i) and (iv), it is not a prohibited transaction to sell REMIC Pool property to
prevent a default on Regular Certificates as a result of a default on qualified
mortgages or to facilitate a clean-up call (generally, an optional termination
to save administrative costs when no more than a small percentage of the
Certificates is outstanding). The REMIC Regulations indicate that the
modification of a Mortgage Loan generally will not be treated as a disposition
if it is occasioned by a default or reasonably foreseeable default, an
assumption of the Mortgage Loan, the waiver of a due-on-sale or encumbrance
clause or the conversion of an interest rate by a mortgagor pursuant to the
terms of a convertible adjustable rate Mortgage Loan. The REMIC Regulations also
provide that the modification of mortgage loans underlying Mortgage-Backed
Securities will not be treated as a modification of the Mortgage-Backed
Securities, provided that the trust including the was not created to avoid
prohibited transaction rules.
53
<PAGE>
Contributions to the REMIC Pool After the Startup Day. In general, the
REMIC Pool will be subject to a tax at a 100% rate on the value of any property
contributed to the REMIC Pool after the Startup Day. Exceptions are provided for
cash contributions to the REMIC Pool (i) during the three months following the
Startup Day, (ii) made to a qualified reserve fund by a Residual
Certificateholder, (iii) in the nature of a guarantee, (iv) made to facilitate a
qualified liquidation or clean-up call and (v) as otherwise permitted in
Treasury regulations yet to be issued.
Net Income from Foreclosure Property. The REMIC Pool will be 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. Generally, property acquired by the REMIC Pool through
foreclosure or deed in lieu of foreclosure would be treated as "foreclosure
property" for a period of two years, with possible extensions. Net income from
foreclosure property generally means (i) gain from the sale of a foreclosure
property that is inventory property and (ii) gross income from foreclosure
property other than qualifying rents and other qualifying income for a real
estate investment trust.
Liquidation of the REMIC Pool
If a REMIC Pool and the Trustee adopt a plan of complete liquidation,
within the meaning of Code Section 860F(a)(4)(A)(i) and sell all of the REMIC
Pool's assets (other than cash) within a 90-day period beginning on the date of
the adoption of the plan of liquidation, the REMIC Pool will recognize no gain
or loss on the sale of its assets, provided that the REMIC Pool credits or
distributes in liquidation all of the sale proceeds plus its cash (other than
amounts retained to meet claims against the REMIC Pool) to holders of Regular
Certificates and Residual Certificateholders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file federal income tax returns for federal income tax
purposes in a manner similar to a partnership. The form for such income tax
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. The Trustee will be required to sign the REMIC Pool's returns. Treasury
regulations provide that, except where there is a single Residual
Certificateholder for an entire taxable year, the REMIC Pool generally will be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination by the Internal Revenue Service of any
adjustments to, among other things, items of REMIC income, gain, loss, deduction
or credit in a unified administrative proceeding. The Depositor or other
designated Residual Certificateholders will be obligated to act as "tax matters
person," as defined in applicable Treasury regulations, with respect to the
REMIC Pool. If the Code or applicable Treasury regulations do not permit the
Depositor to act as tax matters person in its capacity as agent of the Residual
Certificateholders, the Residual Certificateholder chosen by the Residual
Certificateholders or such other person specified pursuant to Treasury
regulations will be required to act as tax matters person.
Treasury regulations provide that a holder of a Residual Certificate is
not required to treat items on its return consistently with their treatment on
the REMIC Pool's return if a holder owns 100% of the Residual Certificates for
the entire calendar year. Otherwise, each holder of a Residual Certificate is
required to treat items on its return consistently with their treatment on the
REMIC Pool's return, unless the holder of a Residual Certificate either files a
statement identifying the inconsistency or establishes that the inconsistency
resulted from incorrect information received from the REMIC Pool. The Service
may assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC Pool
level.
Limitations on Deduction of Certain Expenses
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the
54
<PAGE>
excess, if any, of adjusted gross income over $100,000, adjusted yearly for
inflation ($50,000, adjusted yearly for inflation, in the case of a married
individual filing a separate return), or (ii) 80% of the amount of itemized
deductions otherwise allowable for such year. In the case of a REMIC Pool, such
deductions may include deductions under Code Section 212 for servicing fees and
all administrative and other expenses relating to the REMIC Pool or any similar
expenses allocated to the REMIC Pool with respect to a regular interest it holds
in another REMIC. Such investors who hold REMIC Certificates either directly or
indirectly through certain pass-through entities may have their pro rata share
of such expenses allocated to them as additional gross income, but may be
subject to such limitation on deductions. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and may
cause such investors to be subject to significant additional tax liability.
Treasury regulations provide that the additional gross income and corresponding
amount of expenses generally are to be allocated entirely to the holders of
Residual Certificates in the case of a REMIC Pool that would not qualify as a
fixed investment trust in the absence of a REMIC election. However, such
additional gross income and limitation on deductions will apply to the allocable
portion of such expenses to holders of Regular Certificates, as well as holders
of Residual Certificates, where such Regular Certificates are issued in a manner
that is similar to pass-through certificates in a fixed investment trust. In
general, such allocable portion will be determined based on the ratio that a
REMIC Certificateholder's income, determined on a daily basis, bears to the
income of all holders of Regular Certificates and Residual Certificates with
respect to a REMIC Pool. As a result, individuals, estates or trusts holding
REMIC Certificates (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC, or certain other pass-through entities
described in the foregoing Treasury regulations) may have taxable income in
excess of the interest income at the pass-through rate on Regular Certificates
that are issued in a single class or otherwise consistently with fixed
investment trust status or in excess of cash distributions for the related
period on Residual Certificates.
Taxation of Certain Foreign Investors
Regular Certificates. Interest, including original issue discount,
distributable to Regular Certificateholders who are nonresident aliens, foreign
corporations, or other Non-U.S. Persons (as defined below), will be considered
"portfolio interest" and therefore, generally will not be subject to 30% United
States withholding tax, provided that such Non-U.S. Person (i) is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B) or a
controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the Trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Sections 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the Regular Certificate is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless reduced
or eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Certificate is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning a Regular
Certificate. The term "Non-U.S. Person" means any person who is not a U.S.
Person.
Residual Certificates. The Conference Committee Report to the 1986 Act
indicates that amounts paid to Residual Certificateholders who are Non-U.S.
Persons are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Treasury regulations provide that amounts
distributed to Residual Certificateholders qualify as "portfolio interest,"
subject to the conditions described in "Regular Certificates" above, but only to
the extent that (i) the Mortgage Assets were issued after July 18, 1984 and (ii)
the Trust fund or segregated pool of assets therein (as to which a separate
REMIC election will be made), to which the Residual Certificate relates,
consists of obligations issued in "registered form" within the meaning of Code
Section 163(f)(1). Generally, Mortgage Assets will not be, but regular interests
in another REMIC Pool will be, considered obligations issued in registered form.
Furthermore, a Residual Certificateholder will not be entitled to any exemption
from the 30% withholding tax (or lower treaty rate) to the extent of that
portion of REMIC taxable income that constitutes an "excess inclusion." See
"Taxation of Residual Certificates - Limitations on Offset or Exemption of REMIC
Income; Excess Inclusions." If the amounts paid to Residual Certificateholders
who are Non-U.S. Persons are effectively connected with the conduct of a trade
or business within the United States by such Non-U.S. Persons, 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
Non-U.S. Persons will
55
<PAGE>
be subject to United States federal income tax at regular rates. If 30% (or
lower treaty rate) withholding is applicable, such amounts generally will be
taken into account for purposes of withholding only when paid or otherwise
distributed (or when the Residual Certificate is disposed of) under rules
similar to withholding upon disposition of debt instruments that have original
issue discount. See "Tax-Related Restrictions on Transfer of Residual
Certificates - Foreign Investors" above concerning the disregard of certain
transfers having "tax avoidance potential." Investors who are Non-U.S. Persons
should consult their own tax advisors regarding the specific tax consequences to
them of owning Residual Certificates.
Backup Withholding
Distributions made on the Regular Certificates, and proceeds from the
sale of the Regular Certificates to or through certain brokers, may be subject
to a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and, under
certain circumstances, principal distributions) unless the Regular
Certificateholder complies with certain reporting and/or certification
procedures, including the provision of its taxpayer identification number to the
Trustee, its agent or the broker who effected the sale of the Regular
Certificate, or such Certificateholder is otherwise an exempt recipient under
applicable provisions of the Code. Any amounts to be withheld from distribution
on the Regular Certificates would be refunded by the Internal Revenue Service or
allowed as a credit against the Regular Certificateholder's federal income tax
liability.
Reporting Requirements
Reports of accrued interest and original issue discount will be made
annually to the Internal Revenue Service and to individuals, estates, non-exempt
and non-charitable trusts, and partnerships who are either holders of record of
Regular Certificates or beneficial owners who own Regular Certificates through a
broker or middleman as nominee. All brokers, nominees and all other non-exempt
holders of record of Regular Certificates (including corporations, non-calendar
year taxpayers, securities or commodities dealers, real estate investment
trusts, investment companies, common trust funds, thrift institutions and
charitable trusts) may request such information for any calendar quarter by
telephone or in writing by contacting the person designated in Internal Revenue
Service Publication 938 with respect to a particular series of Regular
Certificates. Holders through nominees must request such information from the
nominee. Treasury regulations provide that information necessary to compute the
accrual of any market discount on the Regular Certificates must be furnished for
calendar years beginning after 1990.
The Internal Revenue Service's Form 1066 has an accompanying Schedule
Q, Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation. Treasury regulations require that Schedule Q be furnished by
the REMIC Pool to each Residual Certificateholder by the end of the month
following the close of each calendar quarter (41 days after the end of a quarter
under proposed Treasury regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the Internal Revenue Service concerning
Code Section 67 expenses (see "Limitations on Deduction of Certain Expenses"
above) allocable to such holders. Furthermore, under such regulations,
information must be furnished quarterly to Residual Certificateholders,
furnished annually to holders of Regular Certificates, and filed annually with
the Internal Revenue Service concerning the percentage of the REMIC Pool's
assets meeting the qualified asset tests described above under "Federal Income
Tax Consequences for REMIC Certificates," above."
56
<PAGE>
Federal Income Tax Consequences for Certificates as to Which No REMIC Election
Is Made
Arter & Hadden, special counsel to the Depositor, is of the opinion
that if a Trust does not elect REMIC status and is not treated as a partnership,
the tax consequences to the Owners will be as described below.
Standard Certificates
General. If no election is made to treat a Trust (or a segregated pool
of assets therein) with respect to a series of Certificates as a REMIC, the
Trust may be classified as a grantor trust under subparagraph E, Part 1 of
subchapter J of the Code and not as a partnership or an association taxable as a
corporation. Where there is no fixed retained yield with respect to the Mortgage
Assets underlying the Certificates of a series, and where such Certificates are
not designated as Stripped Certificates, as described below under "Stripped
Certificates" or as Partnership Interests described under "Taxation of
Securities Classified as Partnership Interests," the holder of each such
"Standard Certificate" in such series will be treated as the owner of a pro rata
undivided interest in the ordinary income and corpus portions of the Trust
represented by his Certificate and will be considered the beneficial owner of a
pro rata undivided interest in each of the Mortgage Assets, subject to the
discussion below under "Recharacterization of Servicing Fees." Accordingly, the
holder of a Certificate (a "Certificateholder") of a particular series will be
required to report on its federal income tax return its pro rata share of the
entire income from the Mortgage Assets, original issue discount (if any),
prepayment fees, assumption fees, and late payment charges received by or on
behalf of the Trust, in accordance with such Certificateholder's method of
accounting. A Certificateholder generally will be able to deduct its share of
servicing fees and all administrative and other expenses of the Trust in
accordance with his method of accounting, provided that such amounts are
reasonable compensation for services rendered to that Trust. However, investors
who are individuals, estates or trusts who own Certificates, either directly or
indirectly through certain pass-through entities, will be subject to limitation
with respect to certain itemized deductions described in Code Section 67,
including deductions under Code Section 212 for servicing fees and all such
administrative and other expenses of the Trust, to the extent that such
deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the lesser of (i) 3% of the excess, if any, of adjusted gross
income over $100,000, adjusted yearly for inflation ($50,000, adjusted yearly
for inflation, in the case of a married individual filing a separate return), or
(ii) 80% of the amount of itemized deductions otherwise allowable for such year.
As a result such investors holding Certificates, directly or indirectly through
a pass-through entity, may have aggregate taxable income in excess of the
aggregate amount of cash received on such Certificates with respect to interest
at the pass-through rate on such Certificates or discount thereon. In addition,
such expenses are not deductible at all for purposes of computing the
alternative minimum tax and may cause such investors to be subject to
significant additional tax liability. Moreover, where there is fixed retained
yield with respect to the Mortgage Assets underlying a series of Certificates or
where the servicing fees are in excess of reasonable servicing compensation, the
transaction will be subject to the application of the "stripped bond" and
"stripped coupon" rules of the Code, as described below under "Stripped
Certificates" and "Premium and Discount - Recharacterization of Servicing Fees,"
respectively.
Tax Status. Subject to the discussion below, Arter & Hadden, special
counsel to the Depositor, is of the opinion that:
1. A Standard Certificate owned by a "domestic building and
loan association" within the meaning of Code Section 7701(a)(19) will
be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v),
provided that the real property securing the Mortgage Assets
represented by that Certificate is of the type described in such
section.
2. A Standard Certificate owned by a financial institution
described in Code Section 593(a) will be considered to represent
"qualifying real property loans" within the meaning of Code Section
592(d)(1), provided that the real property securing the Mortgage Assets
represented by that Certificate is of the type described in such
section.
57
<PAGE>
3. A Standard Certificate owned by a real estate investment
trust will be considered to represent "real estate assets" within the
meaning of Code Section 856(C) (5) (A) to the extent that the assets of
the related Trust consist of qualified assets, and interest income on
such assets will he considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section
856(c)(3)(B).
4. A Standard Certificate owned by a REMIC will be considered
to represent an "obligation (including any participation or certificate
of beneficial ownership therein) which is principally secured by an
interest in real property" within the meaning of Code Section
860G(a)(3)(A) to the extent that the assets of the related Trust
consist of "qualified mortgages" within the meaning of Code Section
860G(a)(3).
An issue arises as to whether buy-down Mortgage Assets may be
characterized in their entirety under the Code provisions cited in the
immediately preceding paragraph. Code Section 593(d)(l)(C) provides that the
term "qualifying real property loan" does not include a loan "to the extent
secured by a deposit in or share of the taxpayer." The application of this
provision to a buy-down fund with respect to a buy-down Mortgage Loan is
uncertain, but may require that a taxpayer's investment in a buy-down Mortgage
Loan be reduced by the buy-down fund. As to the treatment of buy-down Mortgage
Assets as "qualifying real property loans" under Code Section 593(d)(i) if the
exception of Code Section 593(d)(1)(C) is inapplicable, as "loans . . . secured
"by an interest in real property" under Code Section 7701(a)(19)(C)(v), as "real
estate assets" under Code Section 856(c)(5)(A), and as "obligation[s]
principally secured by an interest in real property" under Code Section
860G(a)(3)(A), there is indirect authority supporting treatment of an investment
in a buy-down Mortgage Loan as entirely secured by real property if the fair
market value of the real property securing the loan exceeds the principal amount
of the loan at the time of issuance or acquisition, as the case may be. There is
no assurance that the treatment described above is proper. Accordingly,
Certificateholders are urged to consult their own tax advisors concerning the
effects of such arrangements on the characterization of such Certificateholder's
investment for federal income tax purposes.
Premium and Discount
Certificateholders are advised to consult with their tax advisors as to
the federal income tax treatment of premium and discount arising either upon
initial acquisition of Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a
Certificate will be determined generally as described above under " - Taxation
of Regular Certificates - Premium."
Original Issue Discount. The Internal Revenue Service has stated in
published rulings that, in circumstances similar to those described herein, the
original issue discount rules will be applicable to a Certificateholder's
interest in those Mortgage Assets as to which the conditions for the application
of those sections are met. Rules regarding periodic inclusion of original issue
discount income are applicable to mortgages of corporations originated after May
27, 1969, mortgages of noncorporate mortgagors (other than individuals)
originated after July l, 1982, and mortgages of individuals originated after
March 2, 1984. Such original issue discount could arise by the charging of
points by the originator of the mortgages in an amount greater than a statutory
de minimis exception, to the extent that the points are not currently deductible
under applicable Code provisions or are not for services provided by the lender.
It is generally not anticipated that adjustable rate Mortgage Assets will be
treated as issued with original issue discount. However, the application of the
OID Regulations to adjustable rate mortgage loans with incentive interest rates
or annual or lifetime interest rate caps may result in original issue discount.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant yield method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
However, Code Section 1272 provide for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued original issue
discount, less prior payments of principal. Accordingly, if such Mortgage Assets
acquired by a Certificateholder are purchased at a price equal to the then
unpaid principal amount of such Mortgage Assets, no original issue discount
attributable to the difference between
58
<PAGE>
the issue price and the original principal amount of such Mortgage Assets (i.e.,
points) will be includible by such holder.
Market Discount. Certificateholders also will be subject to the market
discount rules to the extent that the conditions for application of those
sections are met. Market discount on the Mortgage Assets will be determined and
will be reported as ordinary income generally in the manner described above
under " - Taxation of Regular Certificates - Market Discount."
Recharacterization of Servicing Fees. If the servicing fees paid to
Servicers were deemed to exceed reasonable servicing compensation, the amount of
such excess would be nondeductible under Code Section 162 or 212. In this
regard,there are no authoritative guidelines for federal income tax purposes as
to either the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions or whether, in the
case of the Certificates, the reasonableness of servicing compensation should be
determined on a weighted average or loan-by-loan basis. If a loan-by-loan basis
is appropriate, the likelihood that such amount would exceed reasonable
servicing compensation as to some of the Mortgage Assets would be increased.
Recently issued Internal Revenue Service guidance indicates that a servicing fee
in excess of reasonable compensation ("excess servicing") will cause the
Mortgage Assets to be treated under the "stripped bond" rules. Such guidance
provides safe harbors for servicing deemed to be reasonable and requires
taxpayers to demonstrate that the value of servicing fees in excess of such
amounts is not greater than the value of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
servicer that receives excess servicing fees would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage Assets.
Under the rules of Code Section 1286, the separation of the right to receive
some or all of the interest payments on an obligation from the right to receive
some or all of the principal payments on the obligation would result in
treatment of such Mortgage Assets as "stripped coupons" and "stripped bonds."
While Certificateholders would still be treated as owners of beneficial
interests in a grantor trust for federal income tax purposes, the corpus of such
trust could be viewed as excluding the portion of the Mortgage Assets the
ownership of which is attributed to a servicer, or as including such portion as
a second class of equitable interest. Applicable Treasury regulations treat such
an arrangement as a fixed investment trust, since the multiple classes of trust
interests should be treated as merely facilitating direct investments in the
trust assets and the existence of multiple classes of ownership interests is
incidental to that purpose. In general, such a recharacterization should not
have any significant effect upon the timing or amount of income reported by a
Certificateholder, except that the income reported by a cash method holder may
be slightly accelerated. See "Stripped Certificates" below for a further
description of the federal income tax treatment of stripped bonds and stripped
coupons.
In the alternative, the amount, if any, by which the servicing fees
paid to the servicers are deemed to exceed reasonable compensation for servicing
could be treated as deferred payments of purchase price by the
Certificateholders to purchase an undivided interest in the Mortgage Assets. In
such event, the present value of such additional payments might be included in
the Certificateholder's basis in such undivided interests for purposes of
determining whether the Certificate was acquired at a discount, at par, or at a
premium. Under this alternative, Certificateholders may also be entitled to a
deduction for unstated interest with respect to each deferred payment. The
Internal Revenue Service may take the position that the specific statutory
provisions of Code Section 1286 described above override the alternative
described in this paragraph. Certificateholders are advised to consult their tax
advisors as to the proper treatment of the amounts paid to the servicers as set
forth herein as servicing compensation or under either of the alternatives set
forth above.
Sale or Exchange of Certificates. Upon sale or exchange of a
Certificate, a Certificateholder will recognize gain or loss equal to the
difference between the amount realized on the sale and its aggregate adjusted
basis in the Mortgage Assets and other assets represented by the Certificate. In
general, the aggregate adjusted basis will equal the Certificateholder's cost
for the Certificate, increased by the amount of any income previously reported
with respect to the Certificate and decreased by the amount of any losses
previously reported with respect to the Certificate and the amount of any
distributions received thereon. Except as provided above with respect to market
discount on any Mortgage Assets, and except for certain financial institutions
subject to the provisions of Code Section 582(c), any such gain or loss would be
capital gain or loss if the Certificate was held as a capital asset.
59
<PAGE>
Stripped Certificates
General. Pursuant to Code Section 1286, the separation of ownership of
the right to receive some or all of the principal payments on an obligation from
ownership of the right to receive some or all of the interest payments results
in the creation of "stripped bonds" with respect to principal payments and
"stripped coupons" with respect to interest payments. For purposes of this
discussion, Certificates that are subject to those rules will be referred to as
"Stripped Certificates." The Certificates will be subject to those rules if (i)
the Depositor or any of its affiliates retains (for its own account or for
purposes of resale), in the form of fixed retained yield or otherwise, an
ownership interest in a portion of the payments on the Mortgage Assets, (ii) the
Depositor, any of its affiliates or a servicer is treated as having an ownership
interest in the Mortgage Assets to the extent it is paid (or retains) servicing
compensation in an amount greater than reasonable consideration for servicing
the Mortgage Assets (see "Standard Certificates - Recharacterization of the
Servicing Fees" above) and (iii) a class of Certificates are issued in two or
more classes or subclasses representing the right to non pro rata percentages of
the interest and principal payments on the Mortgage Assets.
In general, a holder of a Stripped Certificate (a "Stripped
Certificateholder") will be considered to own "stripped bonds" with respect to
its pro rata share of all or a portion of the principal payments on each
Mortgage Loan and/or "stripped coupons" with respect to its pro rata share of
all or a portion of the interest payments on each Mortgage Loan, including the
Stripped Certificate's allocable share of the servicing fees paid, to the extent
that such fees represent reasonable compensation for services rendered. See
discussion above under "Standard Certificates - Recharacterization of Servicing
Fees." For this purpose the servicing fees will be allocated to the Stripped
Certificates in proportion to the respective offering price of each class (or
subclass) of Stripped Certificates. The holder of a Stripped Certificate
generally will be entitled to a deduction each year in respect of the servicing
fees, as described above under " - Federal Income Tax Consequences for
Certificates as to Which No REMIC Election is Made - Standard Certificates -
General," subject to the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally
as a new obligation issued (i) on the date that the stripped interest is
purchased and (ii) at a price equal to its purchase price or, if more than one
stripped interest is purchased, the share of the purchase price allocable to
such stripped interest. Each stripped interest generally will have original
issue discount equal to the excess of its stated redemption price at maturity
(or, in the case of a stripped coupon, the amount payable on the due date of
such coupon) over its issue price. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects at
this time, particularly where such Stripped Certificates are issued with respect
to a Trust containing variable-rate Mortgage Assets, the Depositor has been
advised by counsel that (i) the Trust will be treated as a grantor trust under
subpart E, Part 1 of subchapter J of the Code and not as an association taxable
as a corporation, and (ii) each Stripped Certificate should be treated as a
single installment obligation for purposes of calculating original issue
discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286 and the regulations thereunder, Code
Sections 1272 through 1275, and the OID Regulations. While under Code Section
1286 computations with respect to Stripped Certificates arguably should be made
in one of the ways described below, the OID Regulations state, in general, that
all debt instruments issued in connection with the same transaction must be
treated as a single debt instrument. The Trustee will make and report all
computations described below using this aggregate approach, unless substantial
legal authority requires otherwise.
Furthermore, the regulations under Code Section 1286 support the
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is originated for purposes of calculating any original issue discount.
The preamble to such regulations state that such regulations are premised on the
assumption that an aggregation approach is appropriate in determining whether
original issue discount on a stripped bond or stripped coupon is de minimis. In
addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount (as described below), at a de
minimis original issue discount, or presumably, at a premium. The preamble to
such regulations also provide that such regulations are premised on the
assumption that generally the interest component of such a Stripped Certificate
would be treated as stated interest under the original issue discount rules.
Further, the regulations provide that the purchaser of such a Stripped
Certificate may be required to account for any discount as market discount
rather than original issue discount if either (i) the initial discount with
respect to the Strip
60
<PAGE>
Certificate was treated as zero under the de minimis rule or (ii) no more than
100 basis points in excess of reasonable servicing is stripped off the related
Mortgage Assets. Any such market discount would be reportable as described above
under "Federal Income Tax Consequences for REMIC Certificates - Taxation of
Regular Certificates - Market Discount," without regard to the de minimis rule
therein.
Status of Stripped Certificates. No specific legal authority exists as
to whether the character of the Stripped Certificates, for federal income tax
purposes, will be the same as that of the Mortgage Assets. Although the issue is
not free from doubt, counsel has advised the Depositor that Stripped
Certificates owned by applicable holders should be considered to represent
"qualifying real property loans" within the meaning or Code Section 593(d)(1),
"real estate assets" within the meaning of Code Section 856(c)(A),
"obligations(s) . . . principally secured by an interest in real property"
within the meaning of Code Section 860G(a)(3)(A), and "loans . . . secured by an
interest in real property" within the meaning of Code Section 7701(a)(19)(C)(v),
and interest (including original issue discount) income attributable to Stripped
Certificates should be considered to represent "interest on obligations secured
by mortgages on real property" within the meaning or Code Section 856(c)(3)(B),
provided that in each case the Mortgage Assets and interest on such Mortgage
Assets qualify for such treatment. The application of such Code provisions to
buy-down Mortgage Assets is uncertain. See " - Federal Income Tax Consequences
for Certificates as to Which No REMIC Election is Made" and " - Standard
Certificates - Tax Status" above.
Original Issue Discount. Except as described above under " - General,"
each Stripped Certificate will be considered to have been issued (i) on the date
that the stripped interest is purchased and (ii) at a price equal to its
purchase price or, if more than one stripped interest is purchased, the share of
the purchase price allocable to such stripped interest. Each stripped interest
generally will have original issue discount equal to the excess of its stated
redemption price at maturity (or, in the case of a stripped coupon, the amount
payable on the due date of such coupon) over its issue price. Original issue
discount with respect to a Stripped Certificate must be included in ordinary
income as it accrues, in accordance with a constant yield method that takes into
account the compounding of interest, which may be prior to the receipt of the
cash attributable to such income. Counsel has advised the Depositor that the
amount of original issue discount required to be included in the income of a
Stripped Certificateholder in any taxable year likely will be computed generally
as described above under "Federal Income Tax Consequences for REMIC Certificates
- - Taxation of Regular Certificates - Original Issue Discount" and " - Variable
Rate Regular Certificates." However, with the apparent exception of a Stripped
Certificate issued with de minimis original issue discount, as described above
under " - General," the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof, and the stated redemption price at
maturity will include the aggregate amount of the payments to be made on the
Stripped Certificate to such Stripped Certificateholder, presumably under the
Prepayment Assumption, other than amounts treated as qualified stated interest.
If the Mortgage Assets prepay at a rate either faster or slower than
that under the Prepayment Assumption, a Stripped Certificateholder's recognition
of original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each Mortgage
Loan represented by such Stripped Certificateholder's Stripped Certificate.
While the matter is not free from doubt, the holder of a Stripped Certificate
should be entitled in the year that it becomes certain (assuming no further
prepayments) that the holder will not recover a portion of its adjusted basis in
such Stripped Certificate to recognize an ordinary loss equal to such portion of
unrecoverable basis.
As an alternative to the method described above, the fact that some of
or all the interest payments with respect to the Stripped Certificates will not
be made if the Mortgage Assets are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the proposed
regulations issued under Code Section 1274 that address the treatment of
contingent payments. If the rules of those proposed regulations apply, treatment
of a Stripped Certificate under such rules depends on whether the aggregate
amount of principal payments, if any, to be made on the Stripped Certificate is
less than or greater than its issue price. If the aggregate principal payments
are greater than or equal to the issue price, the principal payments would be
treated as a separate installment obligation issued at a price equal to the
purchase price for the Stripped Certificate. In such case, original issue
discount would be calculated and accrued under the method described above
without consideration of the interest payments with respect to the Stripped
Certificate. Such payments of interest would be includible in the Stripped
Certificateholder's gross income in the taxable year in which the amounts become
fixed.
61
<PAGE>
If the aggregate amount of principal payments to be made on the Stripped
Certificate is less than its issue price, each payment of principal would be
treated as a return of basis. Each payment of interest would be treated as
includible in gross income to the extent of the applicable Federal rate under
Code Section 1274(d), as applied to the adjusted basis of the Stripped
Certificate, while amounts received in excess of the applicable Federal rate, as
applied to the adjusted basis of the Stripped Certificate, would be
characterized as a return of basis until the total amount of interest payments
treated as a return of basis equalled the excess of the purchase price over the
aggregate stated principal payments. Any additional interest payments thereafter
would be treated as ordinary income. While not free from doubt uncertainty as to
the payment of interest arising as a result of the possibility of prepayment of
the Mortgage Assets should not cause the rules under the proposed contingent
payment regulations to apply to interest with respect to the Stripped
Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a
Stripped Certificate prior to its maturity will result in gain or loss equal to
the difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Federal Income Tax Consequences for REMIC Certificates - Taxation
of Regular Certificates - Sale or Exchange of Regular Certificates." To the
extent that a subsequent purchaser's purchase price is exceeded by the remaining
payments on the Stripped Certificates, such subsequent purchaser will be
required for federal income tax purposes to accrue and report such excess as if
it were original issue discount in the manner described above. It is not clear
for this purpose whether the assumed prepayment rate that is to be used in the
case of a Stripped Certificateholder other than by original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on the
circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is currently
unclear whether for federal income tax purposes such classes of Stripped
Certificates should be treated separately or aggregated for purposes of the
rules described above.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
Reporting Requirements and Backup Withholding
The Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as the Trustee deems to be necessary or desirable to enable such
Certificateholders to prepare their federal income tax returns. Such information
will include the amount of original issue discount accrued on Certificates held
by persons other than Certificateholders exempted from the reporting
requirements. The amounts required to be reported by the Trustee may not be
equal to the proper amount of original issue discount required to be reported as
taxable income by a Certificateholder, other than an original Certificateholder.
The Trustee will also file such original issue discount information with the
Internal Revenue Service. If a Certificateholder fails to supply an accurate
taxpayer identification number or if the Secretary of the Treasury determines
that a Certificateholder has not reported all interest and dividend income
required to be shown on his federal income tax return, 31% backup withholding
may be required in respect of any reportable payments, as described above under
" - Backup Withholding."
Taxation of Certain Foreign Investors
To the extent that a Certificate evidences ownership in Mortgage Assets
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442,
which apply to nonresident aliens, foreign corporations, or other Non-U.S.
Persons generally will be subject to 30% United States withholding tax, or such
lower rate as may be provided for interest by an applicable tax treaty. Accrued
original issue discount or market discount recognized by the Certificateholder
on the sale or exchange of such a Certificate also will be subject to federal
income tax at the same rate.
62
<PAGE>
Treasury regulations provide that interest or original issue discount
paid by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Assets issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements described above under " -
Taxation of Certain Foreign Investors - Regular Certificates."
Taxation of Securities Classified as Partnership Interests
Certain Trusts may be treated as partnerships for Federal income tax
purposes. In such event, the Trusts may issue Certificates characterized as
"Partnership Interests" as discussed in the related Prospectus Supplement. With
respect to such series of Partnership Interests, Arter & Hadden, special counsel
to the Depositor, is of the opinion that (unless otherwise limited in the
related Prospectus Supplement) the Trust will be characterized as a partnership
and not an association taxable as a corporation for federal income tax purposes,
which will also cover any material federal income tax consequences applicable to
the Owners.
PLAN OF DISTRIBUTION
Certificates are being offered hereby in series through one or more
underwriters or groups of underwriters (the "Underwriters"). The Prospectus
Supplement will set forth the terms of offering of the series of Certificates,
including the public offering or purchase price of each class of Certificates of
such series being offered thereby or the method by which such price will be
determined and the net proceeds to the Depositor from the sale of each such
class. Such Certificates will be acquired by the Underwriters for their own
account or may be offered by the Underwriters on a best efforts basis. The
Underwriters may resell such Certificates from time to time in one or more
transactions including negotiated transactions, at fixed public offering prices
or at varying prices to be determined at the time of sale or at the time of
commitment therefor. The managing Underwriter or Underwriters with respect to
the offer and sale of a particular series of Certificates will be set forth on
the cover of the Prospectus Supplement relating to such series and the members
of the underwriting syndicate, if any, will be named in such Prospectus
Supplement
In connection with the sale of the Certificates, Underwriters may
receive compensation from the Depositor or from purchasers of the Certificates
in the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Certificates may be deemed to be
underwriters in connection with such Certificates, and any discounts or
commissions received by them from the Depositor and any profit on the resale of
Certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended. The Prospectus Supplement will
describe any such compensation paid by the Depositor.
It is anticipated that the underwriting agreement pertaining to the
sale of any series of Certificates will provide that the obligations of the
Underwriters will be subject to certain conditions precedent, that the
Underwriters will be obligated to purchase all such Certificates if any are
purchased and that the Depositor will indemnify the Underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Depositor by Arter & Hadden,
Washington, D.C. Certain legal matters relating to insolvency issues and certain
federal income tax matters concerning the Certificates will be passed upon for
the Depositor by Arter & Hadden.
FINANCIAL INFORMATION
A Trust will be formed with respect to each series of Certificates. No
Trust will have any assets or obligations prior to the issuance of the related
series of Certificates. No Trust will engage in any activities other
63
<PAGE>
than those described herein or in the Prospectus Supplement. Accordingly, no
financial statement with respect to any Trust is included in this Prospectus or
will be included in the Prospectus Supplement.
The Depositor has determined that its financial statements are not
material to the offering made hereby.
A Prospectus Supplement and the related Form 8-K (which will be
incorporated by reference to the Registration Statement) may contain financial
statements of the related Credit Enhancer, if any.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
64
<PAGE>
APPENDIX A
INDEX TO LOCATION OF PRINCIPAL DEFINED TERMS
Page
1986 Act...............................................................42
Agreement...............................................................1
Applicable Accounting Standards........................................27
Balloon Loans...........................................................6
Beneficial Owners.......................................................4
BIF....................................................................28
Book Entry Certificates.................................................4
Certificate Account....................................................11
Certificate Interest Rate..............................................10
Certificate Principal Balance...........................................9
Certificate Register....................................................9
Certificate Registrar...................................................9
Certificateholder......................................................57
Certificates............................................................1
Clearing Agency.........................................................4
Clearing Agency Participants............................................4
Code....................................................................4
Companion Certificates.................................................10
Compound Interest Certificates.........................................10
Cooperative Loans......................................................13
Cooperatives............................................................1
Credit Enhancement......................................................4
Credit Enhancer.........................................................8
Custodial Account......................................................21
Cut-Off Date...........................................................10
Defective Mortgage Loan................................................27
Delivery Date...........................................................8
Deposit Date...........................................................27
Depositor...............................................................1
Disqualified Organization..............................................51
Distribution Date......................................................11
DOL....................................................................39
Eligible Investments...................................................28
ERISA...................................................................4
Events of Default......................................................30
FDIC...................................................................21
FHLMC...................................................................2
Financial Guaranty Insurance Policy....................................16
Financial Guaranty Insurer.............................................16
FNMA....................................................................2
Garn-St. Germain Act...................................................36
GNMA....................................................................2
Insurance Paying Agent.................................................16
Insurance Proceeds.....................................................21
Insured Payment........................................................16
Interest Accrual Period................................................11
Liquidation Proceeds...................................................21
Loan-to-Value Ratio....................................................14
Master Servicer.........................................................1
MBS.....................................................................1
MBS Agreement..........................................................15
MBS Issuer.............................................................15
MBS Servicer...........................................................15
MBS Trustee............................................................15
Monthly Advance........................................................21
Mortgage Assets.........................................................1
Mortgage Loans..........................................................1
Mortgage Notes.........................................................13
Mortgage Pool Insurance Policy.........................................18
Mortgage Rates.........................................................14
Mortgage-Backed Securities..............................................1
Mortgaged Properties...................................................13
Mortgages..............................................................13
Mortgagors.............................................................20
NCUA...................................................................21
Non-Priority Certificates..............................................10
Non-U.S. Person........................................................55
Noneconomic Residual Interest..........................................52
Nonrecoverable Advance.................................................21
Notional Principal Balance.............................................11
OBRA...................................................................40
OID Regulations........................................................40
Original Value.........................................................14
OTS....................................................................36
Owners.................................................................11
Partnership Interests..................................................63
Pass-Through Entity....................................................51
Pass-Through Rate.......................................................3
Plans..................................................................38
Policy Statement.......................................................38
Pool Insurer...........................................................18
Pre-Funding Account.....................................................3
Pre-Funding Agreement...................................................3
Prepayment Assumption..................................................43
Principal Balance......................................................14
Principal Prepayments..................................................12
Priority Certificates..................................................10
PTE 83-1...............................................................39
Record Date............................................................11
Regular Certificateholder..............................................42
Regular Certificates...................................................40
REIT...................................................................41
Relief Act..............................................................8
REMIC...................................................................4
REMIC Certificates.....................................................40
REMIC Pool.............................................................40
REMIC Regulations......................................................40
Remittance Date........................................................21
Remittance Rate........................................................21
Reserve Fund...........................................................20
Residual Certificateholders............................................47
Residual Certificates..................................................40
Retail Class Certificate...............................................42
SAIF...................................................................28
Scheduled Amortization Certificates....................................10
Seller..................................................................1
Senior Certificates....................................................16
Servicer................................................................1
SMMEA...................................................................5
Special Allocation Certificates........................................10
Special Hazard Insurance Policy........................................18
Special Hazard Insurer.................................................19
Standard Certificate...................................................57
Stripped Certificateholder.............................................60
Stripped Certificates..................................................60
Subordinated Certificates..............................................16
Thrift Institution.....................................................41
TMP....................................................................41
Trust...................................................................1
Trustee.................................................................1
U.S. Person............................................................53
UCC....................................................................34
Underwriters...........................................................63
A-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Certificates, other than underwriting
discounts and commissions.*
Filing Fee for Registration Statement..................... $344.83
Legal Fees and Expenses*.................................. **
Accounting Fees and Expenses*............................. **
Trustee's Fees and Expenses (including counsel fees)*..... **
Printing and Engraving Fees*.............................. **
Blue Sky Fees and Expenses*............................... **
Rating Agency Fees*....................................... **
Miscellaneous*............................................ **
Total............................................... $
- ---------------------
* Estimated in accordance with Item 511 of Regulation S-K.
** To be filed by Amendment.
Item 15. Indemnification of Directors and Officers.
The form of Underwriting Agreement to be filed as Exhibit 1.1 hereto,
will provide for indemnification by each Underwriter of any officer, director or
controlling person of the Registrant who becomes subject to liability arising
out of an untrue or alleged untrue statement of a material fact contained in
this Registration Statement, the Prospectus filed herewith or any Preliminary
Prospectus, related Prospectus Supplement or related Preliminary Prospectus
Supplement, or omission or alleged omission, that was made in reliance on
written information provided to the Registrant by such Underwriter.
The Certificate of Incorporation and Bylaws for the Registrant
(Exhibits 3.1 and 3.2) provide for indemnification of directors and officers to
the full extent permitted by Delaware law. Section 145 of the Delaware General
Corporation Law provides, in substance, that Delaware corporations shall have
the power, under specified circumstances, to indemnify their directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees or
agents, against expenses incurred in any such action, suit or proceeding.
The Bylaws also provide that the Registrant may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any corporate
agent against any liability which may be asserted against him.
Item 16. Exhibits.
1.1 * -- Form of Underwriting Agreement.
3.1 * -- Certificate of Incorporation of IMC Securities Inc.
II-i
<PAGE>
3.2 * -- Bylaws of IMC Securities Inc..
4.1 * -- Form of Pooling and Servicing Agreement.
5.1 * -- Opinion of Arter & Hadden regarding the legality of the
Certificates.
8.1 * -- Opinion of Arter & Hadden regarding tax matters.
10.1 ** -- Representative Form(s) of Mortgage Note(s).
10.2 ** -- Representative Form of Mortgage.
23.1 * -- Consent of Arter & Hadden (included as part of Exhibit 5.1
and 8.1).
24.1 * -- Powers of Attorney.
24.3 ** -- Consent of Independent Auditor of Certificate Insurer.
- -----------------
*Filed herewith.
**To be filed by amendment.
II-ii
<PAGE>
Item 17. Undertakings
A. Undertaking in Respect of Indemnification. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
B. Undertaking pursuant to Rule 415.
---------------------------------
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any acts or events arising
after the effective date of this Registration Statement (or the more
recent post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in this Registration Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a 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 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-iii
<PAGE>
C. Undertaking pursuant to Rule 430A.
---------------------------------
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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)(l) or (4) or 497(h) under the Securities Act 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, 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.
[Remainder of Page Intentionally Left Blank]
II-iv
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant hereby 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 Tampa, State of Florida, on the 30th day of May,
1996.
IMC SECURITIES INC.
By: /s/George Nicholas
-----------------------------------
George Nicholas
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below hereby authorizes George
Nicholas and Thomas Middleton and each of them, to file one or more amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes as any of such persons deems appropriate, and
each such person individually and in the capacity stated below, hereby appoints
each of such persons as attorney-in-fact to execute in his name and on his
behalf any such amendments to the Registration Statement.
Signature Title Date
/s/George Nicholas
- ----------------------
George Nicholas Chief Executive Officer and Director May 30, 1996
/s/Thomas Middleton Chief Financial Officer and Director May 30, 1996
- ----------------------
Thomas Middleton
/s/Timothy Griffin Director May 30, 1996
- ----------------------
Timothy Griffin
/s/Mitchell W. Legler Director May 30, 1996
- ----------------------
Mitchell W. Legler
/s/Charles Hedrick Director May 30, 1996
- ----------------------
Charles Hedrick
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
EXHIBITS
To
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
IMC SECURITIES, INC.
(Exact Name of registrant as specified in charter)
================================================================================
<PAGE>
EXHIBIT INDEX
-------------
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
- ------ ----------------------- ----------------
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of IMC
Securities, Inc.
3.2 Bylaws of IMC Securities, Inc.
4.1 Form of Pooling and Servicing Agreement
5.1 Opinion of Arter & Hadden regarding the
legality of the Certificates
8.1 Opinion of Arter & Hadden regarding tax
matters
23.1 Consent of Arter & Hadden (included as part
of Exhibit 5.1 and 8.1)
24.1 Powers of Attorney (included on signature
page)
<PAGE>
$-----------
IMC HOME EQUITY LOAN TRUST 199_-_
Home Equity Loan Pass-Through Certificates,
Series 199_-_
UNDERWRITING AGREEMENT
----------------------
[Date]
[Underwriter]
As Representative of the Several Underwriters
[Address]
Dear Ladies and Gentlemen:
IMC Securities, Inc. (the "Depositor"), a Delaware corporation, has
authorized the issuance and sale of Home Equity Loan Pass-Through Certificates,
Series 199_-_, Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6,
Class A-7 and Class A-8 (the "Offered Certificates") and the Class S and the
Class R Certificates (the "Subordinated Certificates," and collectively with the
Offered Certificates, the "Certificates"), evidencing interests in a pool of
fixed and adjustable rate home equity loans (the "Home Equity Loans"). The Class
A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class A-7
Certificates are collectively referred to as the "Fixed Rate Certificates." The
Home Equity Loans are secured primarily by first and second deeds of trust or
mortgages on one- to four-family residential properties.
Only the Offered Certificates are being purchased by the Underwriters
named in Schedule A hereto, and the Underwriters are purchasing, severally, only
the Offered Certificates set forth opposite their names in Schedule A, except
that the amounts purchased by the Underwriters may change in accordance with
Section X of this Agreement. [Name of Underwriter] is acting as representative
of the Several Underwriters and in such capacity is hereinafter referred to as
the "Representative."
The Certificates will be issued under a pooling and servicing agreement
(the "Pooling and Servicing Agreement"), dated as of ____ 1, 199_ among the
Depositor, Industry Mortgage Company, L.P. as seller and as servicer (in such
capacity, the "Servicer" or the "Seller," as the case may be) and
_________________________ as trustee (the "Trustee"). The Certificates will
evidence fractional undivided interests in the trust (the "Trust"). The assets
of the Trust will initially include, among other things, a pool of fixed and
adjustable rate home equity loans having a Cut-Off Date (as defined herein) of
___ __, 199_ (the "Home Equity Loans"), and such amounts as may be held by the
Trustee in any accounts held by the Trustee for the Trust. The pool of Home
Equity Loans will be divided into two groups (each, a "Group"), with all fixed
rate Home Equity Loans assigned to the "Fixed Rate Group" and all adjustable
rate Home Equity Loans assigned to the "Adjustable Rate Group." The Offered
Certificates will also have the
<PAGE>
benefit of a Certificate Insurance Policy (the "Certificate Insurance Policy")
issued by [Insurer], a New York stock insurance company (the "Certificate
Insurer"). The Certificate Insurance Policy will be issued pursuant to the
insurance agreement (the "Insurance Agreement") dated as of ____ _, 199_ among
the Certificate Insurer, the Seller, the Servicer and the Trustee. A form of the
Pooling and Servicing Agreement has been filed as an exhibit to the Registration
Statement (hereinafter defined).
The Certificates are more fully described in a Registration Statement
which the Depositor has furnished to the Underwriters. Capitalized terms used
but not defined herein shall have the meanings given to them in the Pooling and
Servicing Agreement.
Pursuant to Section 3.05 of the Pooling and Servicing Agreement and
concurrently with the execution thereof, the Seller will transfer to the
Depositor all of its right, title and interest in and to the unpaid principal
balances of the Home Equity Loans as of the Cut-Off Date and the collateral
securing each Home Equity Loan.
SECTION I. Representations and Warranties of the Depositor. The
Depositor represents and warrants to, and agrees with the Underwriters that:
A. A Registration Statement on Form S-3 (No. 33-_____), has (i) been
prepared by the Depositor in conformity with the requirements of the Securities
Act of 1933 (the "Securities Act") and the rules and regulations (the "Rules and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies of
such Registration Statement have been delivered by the Depositor to the
Underwriters. As used in this Agreement, "Effective Time" means the date and the
time as of which such Registration Statement, or the most recent post-effective
amendment thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the Effective Time; "Registration Statement" means such
registration statement, at the Effective Time, including any documents
incorporated by reference therein at such time; "Basic Prospectus" means such
final prospectus dated _____ __, 199_; and "Prospectus Supplement" means the
final prospectus supplement relating to the Offered Certificates, to be filed
with the Commission pursuant to paragraphs (2), (3) or (5) of Rule 424(b) of the
Rules and Regulations. "Prospectus" means the Basic Prospectus together with the
Prospectus Supplement. Reference made herein to the Prospectus shall be deemed
to refer to and include any documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the Securities Act, as of the date of the
Prospectus and any reference to any amendment or supplement to the Prospectus
shall be deemed to refer to and include any document filed under the Securities
Exchange Act of 1934 (the "Exchange Act") after the date of the Prospectus, and
incorporated by reference in the Prospectus and any reference to any amendment
to the Registration Statement shall be deemed to include any report of the
Depositor filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order preventing or
suspending the use of the Prospectus. There are no contracts or documents of the
Depositor which are required to be filed as exhibits to the Registration
Statement pursuant to the Securities Act or the Rules and Regulations which have
not been so filed or incorporated by reference therein on or prior to the
Effective Date of the
2
<PAGE>
Registration Statement other than such documents or materials, if any, as any
Underwriter delivers to the Depositor pursuant to Section VIII D hereof for
filing on Form 8-K. The conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.
To the extent that any Underwriter has provided to the Company
Computational Materials that such Underwriter has provided to a prospective
investor, the Company will file or cause to be filed with the Commission a
report on Form 8-K containing such Computational Materials, as soon as
reasonably practicable after the date of this Agreement, but in any event, not
later than the date on which the Prospectus is filed with the Commission
pursuant to Rule 424 of the Rules and Regulations.
B. The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all respects to the requirements of the Securities
Act and the Rules and Regulations. The Registration Statement, as of the
Effective Date thereof and of any amendment thereto, did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus as of its date, and as amended or supplemented as of the Closing Date
does not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided
that no representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance upon and
in conformity with written information furnished to the Depositor in writing by
the Underwriters expressly for use therein.
C. The documents incorporated by reference in the Prospectus, when they
became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when such
documents become effective or are filed with the Commission, as the case may be,
will conform in all material respects to the requirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided that no representation
is made as to documents deemed to be incorporated by reference in the Prospectus
as the result of filing a Form 8-K at the request of the Underwriters except to
the extent such documents reflect information furnished by the Depositor to the
Underwriters for the purpose of preparing such documents.
D. Since the respective dates as of which information is given in the
Prospectus, there has not been any material adverse change in the general
affairs, management, financial
3
<PAGE>
condition, or results of operations of the Depositor, otherwise than as set
forth or contemplated in the Prospectus as supplemented or amended as of the
Closing Date.
E. The Depositor has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the conduct of its
business so requires such standing. The Depositor has all power and authority
necessary to own or hold its properties, to conduct the business in which it is
engaged and to enter into and perform its obligations under this Agreement, the
Pooling and Servicing Agreement and the Insurance Agreement and to cause the
Certificates to be issued.
F. There are no actions, proceedings or investigations pending with
respect to which the Depositor has received service of process before or
threatened by any court, administrative agency or other tribunal to which the
Depositor is a party or of which any of its properties is the subject (a) which
if determined adversely to the Depositor would have a material adverse effect on
the business or financial condition of the Depositor, (b) asserting the
invalidity of this Agreement, the Pooling and Servicing Agreement, the Insurance
Agreement or the Certificates (c) seeking to prevent the issuance of the
Certificates or the consummation by the Depositor of any of the transactions
contemplated by the Pooling and Servicing Agreement, the Insurance Agreement or
this Agreement, as the case may be, or (d) which might materially and adversely
affect the performance by the Depositor of its obligations under, or the
validity or enforceability of, the Pooling and Servicing Agreement, this
Agreement, and the Insurance Agreement or the Certificates.
G. This Agreement has been, and the Pooling and Servicing Agreement and
the Insurance Agreement when executed and delivered as contemplated hereby and
thereby will have been, duly authorized, executed and delivered by the
Depositor, and this Agreement constitutes, and the Pooling and Servicing
Agreement and the Insurance Agreement when executed and delivered as
contemplated herein will constitute, legal, valid and binding instruments
enforceable against the Depositor in accordance with their respective terms,
subject as to enforceability to (x) applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights
generally, (y) general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law), and (z) with respect to rights
of indemnity under this Agreement and the Insurance Agreement, limitations of
public policy under applicable securities laws.
H. The execution, delivery and performance of this Agreement, the
Pooling and Servicing Agreement and the Insurance Agreement by the Depositor and
the consummation of the transactions contemplated hereby and thereby, and the
issuance and delivery of the Certificates do not and will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Depositor is a party, by
which the Depositor is bound or to which any of the properties or assets of the
Depositor or any of its subsidiaries is subject, which breach or violation would
have a material adverse effect on the business, operations or financial
condition of the Depositor or its ability to perform its obligations under this
Agreement, the Pooling and Servicing Agreement and the Insurance
4
<PAGE>
Agreement, nor will such actions result in any violation of the provisions of
the articles of incorporation or by-laws of the Depositor or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Depositor or any of its properties or assets, which breach
or violation would have a material adverse effect on the business, operations or
financial condition of the Depositor or its ability to perform its obligations
under this Agreement, the Pooling and Servicing Agreement and the Insurance
Agreement.
I. The Depositor has no reason to know that _____________________ are
not independent public accountants with respect to the Depositor as required by
the Securities Act and the Rules and Regulations.
J. The execution of the Certificates by the Depositor and the direction
by the Depositor to the Trustee to authenticate, issue and deliver the
Certificates has been duly authorized by the Depositor, and, assuming the
Trustee has been duly authorized to do so, when executed by the Depositor, and
authenticated, issued and delivered by the Trustee in accordance with the
Pooling and Servicing Agreement, the Certificates will be validly issued and
outstanding and will be entitled to the benefits provided by the Pooling and
Servicing Agreement.
K. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance of the Certificates and the sale of the
Offered Certificates to the Underwriters, or the consummation by the Depositor
of the other transactions contemplated by this Agreement, the Pooling and
Servicing Agreement and the Insurance Agreement, except such consents,
approvals, authorizations, registrations or qualifications as may be required
under State securities or Blue Sky laws in connection with the purchase and
distribution of the Offered Certificates by the Underwriters or as have been
obtained.
L. The Depositor possesses all material licenses, certificates,
authorities or permits issued by the appropriate State, Federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted by
it and as described in the Prospectus, and the Depositor has not received notice
of any proceedings relating to the revocation or modification of any such
license, certificate, authority or permit which if decided adversely to the
Depositor would, singly or in the aggregate, materially and adversely affect the
conduct of its business, operations or financial condition.
M. At the time of execution and delivery of the Pooling and Servicing
Agreement, the Depositor will: (i) have good title to the Home Equity Loans
conveyed by the Seller, free and clear of any lien, mortgage, pledge, charge,
encumbrance, adverse claim or other security interest (collectively, "Liens");
(ii) not have assigned to any person any of its right or title in the Home
Equity Loans in the Pooling and Servicing Agreement or in the Certificates being
issued pursuant thereto; and (iii) have the power and authority to sell its
interest in the Home Equity Loans to the Trustee and to sell the Offered
Certificates to the Underwriters. Upon execution and delivery of the Pooling and
Servicing Agreement by the Trustee, the Trustee will have acquired beneficial
ownership of all of the Depositor's right, title and interest in and to the
5
<PAGE>
Home Equity Loans. Upon delivery to the Underwriters of the Offered
Certificates, the Underwriters will have good title to the Offered Certificates,
free of any Liens.
N. Reserved.
O. As of the Cut-Off Date, each of the Home Equity Loans will meet
the eligibility criteria described in the Prospectus and will conform to the
descriptions thereof contained in the Prospectus.
P. Reserved.
Q. Neither the Depositor nor the Trust created by the Pooling and
Servicing Agreement is an "investment company" within the meaning of such term
under the Investment Company Act of 1940 (the "1940 Act") and the rules and
regulations of the Commission thereunder.
R. At the Closing Date, the Offered Certificates and the Pooling and
Servicing Agreement will conform in all material respects to the descriptions
thereof contained in the Prospectus.
S. At the Closing Date, the Offered Certificates shall have been rated
in the highest rating category by at least two nationally recognized rating
agencies.
T. Any taxes, fees and other governmental charges in connection with
the execution, delivery and issuance of this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement and the Certificates have been paid
or will be paid at or prior to the Closing Date.
U. At the Closing Date, each of the representations and warranties of
the Depositor set forth in the Pooling and Servicing Agreement and the Insurance
Agreement will be true and correct in all material respects.
Any certificate signed by an officer of the Depositor and delivered to
the Representative or counsel for the Representative in connection with an
offering of the Offered Certificates shall be deemed, and shall state that it
is, a representation and warranty as to the matters covered thereby to each
person to whom the representations and warranties in this Section I are made.
SECTION II. Purchase and Sale. The commitment of the Underwriters to
purchase the Offered Certificates pursuant to this Agreement shall be deemed to
have been made on the basis of the representations and warranties herein
contained and shall be subject to the terms and conditions herein set forth. The
Depositor agrees to instruct the Trustee to issue the Offered Certificates and
agrees to sell to the Underwriters, and the Underwriters agree (except as
provided in Sections X and XI hereof) to purchase from the Depositor, the
aggregate initial principal amounts or percentage interests of the Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, and Class A-8
Certificates set forth opposite their names on Schedule A, at the purchase price
or prices set forth on Schedule.
6
<PAGE>
SECTION III. Delivery and Payment. Delivery of and payment for the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 Class A-7, and
Class A-8 Certificates shall be made at the offices of ___________________ or at
such other place as shall be agreed upon by the Representative and the Depositor
at 10:00 A.M. New York City time on ____ __, 199_ or at such other time or date
as shall be agreed upon in writing by the Representative and the Depositor (such
date being referred to as the "Closing Date"). Payment shall be made to the
Depositor by wire transfer of same day funds payable to the account of the
Depositor. Delivery of the Offered Certificates shall be made to the
Representative for the accounts of the Underwriters against payment of the
purchase price thereof. The Certificates shall be in such authorized
denominations and registered in such names as the Representative may request in
writing at least two business days prior to the Closing Date. The Offered
Certificates will be made available for examination by the Representative no
later than 2:00 p.m. New York City time on the first business day prior to the
Closing Date.
SECTION IV. Offering by the Underwriters. It is understood that,
subject to the terms and conditions hereof, the Underwriters propose to offer
the Offered Certificates for sale to the public as set forth in the Prospectus.
SECTION V. Covenants of the Depositor. The Depositor agrees as follows:
A. To prepare the Prospectus in a form approved by the Underwriters and
to file such Prospectus pursuant to Rule 424(b) under the Securities Act not
later than the Commission's close of business on the second business day
following the availability of the Prospectus to the Underwriters; to make no
further amendment or any supplement to the Registration Statement or to the
Prospectus prior to the Closing Date except as permitted herein; to advise the
Underwriters, promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes effective
prior to the Closing Date or any supplement to the Prospectus or any amended
Prospectus has been filed prior to the Closing Date and to furnish the
Underwriters with copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the Depositor
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and, for so long as the
delivery of a prospectus is required in connection with the offering or sale of
the Offered Certificates; to promptly advise the Underwriters of its receipt of
notice of the issuance by the Commission of any stop order or of: (i) any order
preventing or suspending the use of the Prospectus; (ii) the suspension of the
qualification of the Offered Certificates for offering or sale in any
jurisdiction; (iii) the initiation of or threat of any proceeding for any such
purpose; or (iv) any request by the Commission for the amending or supplementing
of the Registration Statement or the Prospectus or for additional information.
In the event of the issuance of any stop order or of any order preventing or
suspending the use of the Prospectus or suspending any such qualification, the
Depositor promptly shall use its best efforts to obtain the withdrawal of such
order by the Commission.
B. To furnish promptly to the Underwriters and to counsel for the
Underwriters a signed copy of the Registration Statement as originally filed
with the Commission, and of each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith.
7
<PAGE>
C. To deliver promptly to the Underwriters such number of the following
documents as the Underwriters shall reasonably request: (i) conformed copies of
the Registration Statement as originally filed with the Commission and each
amendment thereto (in each case including exhibits); (ii) the Prospectus and any
amended or supplemented Prospectus; and (iii) any document incorporated by
reference in the Prospectus (including exhibits thereto). If the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the Effective Time in connection with the offering or sale of the Offered
Certificates, and if at such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such same period to amend or
supplement the Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, the Depositor shall notify the Underwriters
and, upon any Underwriters' request, shall file such document and prepare and
furnish without charge to the Underwriters and to any dealer in securities as
many copies as the Underwriters may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which corrects such
statement or omission or effects such compliance, and in case the Underwriters
are required to deliver a Prospectus in connection with sales of any of the
Offered Certificates at any time nine months or more after the Effective Time,
upon the request of the Underwriters but at their expense, the Depositor shall
prepare and deliver to the Underwriters as many copies as the Underwriters may
reasonably request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Securities Act.
D. To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Depositor or the Underwriters, be required by
the Securities Act or requested by the Commission.
E. To furnish the Underwriters and counsel for the Underwriters, prior
to filing with the Commission, and to obtain the consent of the Underwriters for
the filing of the following documents relating to the Certificates: (i) any
Post-Effective Amendment to the Registration Statement or supplement to the
Prospectus, or document incorporated by reference in the Prospectus, or (ii)
Prospectus pursuant to Rule 424 of the Rules and Regulations.
F. To make generally available to holders of the Offered Certificates
as soon as practicable, but in any event not later than 90 days after the close
of the period covered thereby, a statement of earnings of the Trust (which need
not be audited) complying with Section 11(a) of the Securities Act and the Rules
and Regulations (including, at the option of the Depositor, Rule 158) and
covering a period of at least twelve consecutive months beginning not later than
the first day of the first fiscal quarter following the Closing Date.
G. To use its best efforts, in cooperation with the Underwriters, to
qualify the Offered Certificates for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States or
elsewhere as the Underwriters may designate, and maintain or cause to be
maintained such qualifications in effect for as long as may be required
8
<PAGE>
for the distribution of the Offered Certificates. The Depositor will file or
cause the filing of such statements and reports as may be required by the laws
of each jurisdiction in which the Offered Certificates have been so qualified.
H. Reserved.
--------
I. So long as the Offered Certificates shall be outstanding the
Depositor shall cause the Trustee, pursuant to the Pooling and Servicing
Agreement, to deliver to the Underwriters as soon as such statements are
furnished to the Trustee: (i) the annual statement as to compliance delivered to
the Trustee pursuant to Section 8.16 of the Pooling and Servicing Agreement;
(ii) the annual statement of a firm of independent public accountants furnished
to the Trustee pursuant to Section 8.17 of the Pooling and Servicing Agreement;
(iii) the monthly servicing report furnished to the Trustee pursuant to Section
7.08 of the Pooling and Servicing Agreement; and (iv) the monthly reports
furnished to the Certificateholders pursuant to Section 7.09 of the Pooling and
Servicing Agreement.
J. To apply the net proceeds from the sale of the Offered Certificates
in the manner set forth in the Prospectus.
SECTION VI. Conditions to the Underwriters' Obligations. The
obligations of the Underwriters hereunder to purchase the Offered Certificates
pursuant to the Agreement are subject to: (i) the accuracy on and as of the
Closing Date of the representations and warranties on the part of the Depositor
herein contained; (ii) the performance by the Depositor of all of its
obligations hereunder; and (iii) the following conditions as of the Closing
Date:
A. The Underwriters shall have received confirmation of the
effectiveness of the Registration Statement. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission. Any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus shall
have been complied with.
B. The Underwriters shall not have discovered and disclosed to the
Depositor on or prior to the Closing Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue statement
of a fact or omits to state a fact which, in the opinion of ___________________,
counsel for the Underwriters, is material and is required to be stated therein
or is necessary to make the statements therein not misleading.
C. All corporate proceedings and other legal matters relating to the
authorization, form and validity of this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement, the Certificates, the Registration Statement
and the Prospectus, and all other legal matters relating to this Agreement and
the transactions contemplated hereby shall be satisfactory in all respects to
counsel for the Underwriters, and the Depositor shall have furnished to such
counsel all documents and information that they may reasonably request to enable
them to pass upon such matters.
9
<PAGE>
D. Arter & Hadden shall have furnished to the Underwriters their
written opinion, as counsel to the Depositor, addressed to the Underwriters and
dated the Closing Date, in form and substance satisfactory to the Underwriters,
to the effect that:
1. The conditions to the use by the Depositor of a registration
statement on Form S-3 under the Securities Act, as set forth in the General
Instructions to Form S-3, have been satisfied with respect to the Registration
Statement and the Prospectus.
2. The Registration Statement and any amendments thereto have become
effective under the 1933 Act; to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been issued
and not withdrawn and no proceedings for that purpose have been instituted or
threatened and not terminated; and the Registration Statement, the Prospectus
and each amendment or supplement thereto, as of their respective effective or
issue dates (other than the financial and statistical information contained
therein, as to which such counsel need express no opinion), complied as to form
in all material respects with the applicable requirements of the 1933 Act and
the rules and regulations thereunder.
3. To the best of such counsel's knowledge, there are no material
contracts, indentures or other documents of a character required to be described
or referred to in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement other than those described or referred to
therein or filed or incorporated by reference as exhibits thereto.
4. The statements set forth in the Basic Prospectus under the captions
"Description of The Certificates" and "The Pooling and Servicing Agreement" and
in the Prospectus Supplement under the captions "Description of The Class A
Certificates" and "The Pooling and Servicing Agreement," to the extent such
statements purport to summarize certain provisions of the Certificates or of the
Pooling and Servicing Agreement, are fair and accurate in all material respects.
5. The statements set forth in the Prospectus and the Prospectus
Supplement under the captions "ERISA Considerations" and "Certain Federal Income
Tax Considerations" to the extent that they constitute matters of federal law,
provide a fair and accurate summary of such law or conclusions.
6. The Pooling and Servicing Agreement conforms in all material
respects to the description thereof contained in the Prospectus and is not
required to be qualified under the Trust Indenture Act of 1939, as amended, and
the Trust is not required to be registered under the Investment Company Act of
1940, as amended.
7. Neither the Depositor nor the Trust is an "investment company" or
under the "control" of an "investment company" as such terms are defined in the
1940 Act.
8. Assuming that (a) the Trustee causes certain assets of the Trust
Estate, as the Trustee has covenanted to do in the Pooling and Servicing
Agreement, to be treated as a "real
10
<PAGE>
estate mortgage investment conduit" ("REMIC"), as such term is defined in the
Internal Revenue Code of 1986, as amended (the "Code"), and (b) the parties to
the Pooling and Servicing Agreement comply with the terms thereof, the
Lower-Tier REMIC and the Upper-Tier REMIC will each be treated as a REMIC, the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, and
Class A-8 Certificates will be treated as the "regular interests" in the
Upper-Tier REMIC and the Upper-Tier REMIC Residual Class will be treated as the
sole "residual interest" in the Upper-Tier REMIC. The Lower-Tier Interests A-1,
A-2, A-3, A-4, A-5, A-6, A-7, A-8 and the Lower-Tier B-1IO Interest and
Lower-Tier B-2 Interest will be treated as the "regular interests" in the
Lower-Tier REMIC and the Class R Certificates will be treated as the sole
"residual interest" in the Lower-Tier REMIC. The Trust is not subject to tax
upon its income or assets by any taxing authority of the State of New York.
9. Assuming that the Class A-8 Certificates are rated at the time of
issuance in one of the two highest rating categories by a nationally recognized
statistical rating organization, each such Class A-8 Certificate at such time
will be a "mortgage related security" as such term is defined in Section
3(a)(41) of the Securities Exchange Act of 1934, as amended.
10. To the best of such counsel's knowledge, there are no actions,
proceedings or investigations pending that would adversely affect the status of
the Lower-Tier REMIC or the Upper-Tier REMIC as a REMIC.
11. As a consequence of the qualification of the Lower-Tier REMIC and
the Upper-Tier REMIC as a REMIC, the Offered Certificates will be treated as
"qualifying real property loans" under Section 593(d) of the Code, "regular ...
interest(s) in a REMIC" under Section 7701(a)(19)(C) of the Code and "real
estate assets" under Section 856(c) of the Code in the same proportion that the
assets in the Trust consist of qualifying assets under such Sections. In
addition, as a consequence of the qualification of the Lower-Tier REMIC and the
Upper-Tier REMIC as a REMIC, interest on the Offered Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c) of the Code to the extent that such Offered Certificates are
treated as "real estate assets" under Section 856(c) of the Code.
12. The Certificates will, when issued, conform to the description
thereof contained in the Prospectus.
Such counsel shall also have furnished to the Underwriters a written statement,
addressed to the Underwriters and dated the Closing Date, in form and substance
satisfactory to the Underwriters to the effect that nothing has come to the
attention of such counsel which lead them to believe that: (a) the Registration
Statement, at the time such Registration Statement became effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (except as to financial or statistical data contained in the
Registration Statement); (b) the Prospectus, as of its date and as of the
Closing Date, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except as to
statements set forth in the Prospectus Supplement under the Captions
11
<PAGE>
"Credit Enhancement" and "The Certificate Insurer"); or (c) any document
incorporated by reference in the Prospectus or any further amendment or
supplement to any such incorporated document made by the Depositor prior to the
Closing Date (other than any document filed at the request of an Underwriter to
the extent such document relates to Computational Materials) contained, as of
the time it became effective or was filed with the Commission, as the case may
be, an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
E. The Underwriters shall have received the favorable opinion, dated
the Closing Date, of Arter & Hadden, special counsel to the Depositor, addressed
to the Depositor and satisfactory to the Certificate Insurer, Standard & Poor's
Ratings Services, Moody's Investors Service and the Underwriters, with respect
to certain matters relating to the transfer of the Home Equity Loans to the
Depositor and from the Depositor to the Trust, and such counsel shall have
consented to reliance on such opinion by the Certificate Insurer, Standard &
Poor's Ratings Services, Moody's Investors Service and the Underwriters as
though such opinion had been addressed to each such party.
F. Arter & Hadden, shall have furnished to the Underwriters their
written opinion, as counsel to the Seller and Servicer, addressed to the
Underwriters and the Depositor and dated the Closing Date, in form and substance
satisfactory to the Underwriters, to the effect that:
1. The Seller is validly existing in good standing as a limited
partnership under the laws of the State of Delaware.
2. The Seller has full power and authority to serve in the capacity of
seller and servicer of the Home Equity Loans as contemplated in the Pooling and
Servicing Agreement and to transfer the Home Equity Loans to the Depositor as
contemplated in the Pooling and Servicing Agreement.
3. The Pooling and Servicing Agreement and the Insurance Agreement have
been duly authorized, executed and delivered by the Seller, and, assuming the
due authorization, execution and delivery of such agreements by the other
parties thereto, constitute the legal, valid and binding agreements of the
Seller, enforceable against the Seller in accordance with their terms, subject
as to enforceability to (x) bankruptcy, insolvency, reorganization, moratorium,
receivership or other similar laws now or hereafter in effect relating to
creditors' rights generally and (y) the qualification that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion, with respect to such
remedies, of the court before which any proceedings with respect thereto may be
brought.
4. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body having
jurisdiction over the Seller is required for the consummation by the Seller of
the transactions contemplated by the Pooling and Servicing Agreement and the
Insurance Agreement, except such consents, approvals, authorizations,
registrations and qualifications as have been obtained.
12
<PAGE>
5. Neither the transfer of the Home Equity Loans to the Depositor, nor
the execution, delivery or performance by the Seller of the Pooling and
Servicing Agreement or the Insurance Agreement and the transactions contemplated
thereby (A) conflict with or result in a breach of, or constitute a default
under, (i) any term or provision of the Certificate of Incorporation or By-Laws
of the Seller; (ii) any term or provision of any material agreement, deed of
trust, mortgage loan agreement, contract, instrument or indenture, or other
agreement to which the Seller is a party or is bound or to which any of the
property or assets of the Seller or any of its subsidiaries is subject; (iii) to
the best of such firm's knowledge without independent investigation any order,
judgment, writ, injunction or decree of any court or governmental authority
having jurisdiction over the Seller; or (iv) any law, rule or regulation,
applicable to the Seller; or (B) to the best of such firm's knowledge without
independent investigation, results in the creation or imposition of any lien,
charge or encumbrance upon the Trust Estate or upon the Certificates.
6. The execution of the Pooling and Servicing Agreement is sufficient
to convey all of the Seller's right, title and interest in the Home Equity Loans
to the Depositor and following the consummation of the transaction contemplated
by Section 3.05 of the Pooling and Servicing Agreement, the transfer of the Home
Equity Loans by the Seller to the Depositor is a sale thereof.
7. There are, to the best of such counsel's knowledge without
independent investigation, no actions, proceedings or investigations pending
with respect to which the Seller has received service of process or threatened
against the Seller before any court, administrative agency or other tribunal (a)
asserting the invalidity of the Pooling and Servicing Agreement, the
Underwriting Agreement, the Insurance Agreement or the Certificates, (b) seeking
to prevent the consummation of any of the transactions contemplated by the
Pooling and Servicing Agreement or (c) which would materially and adversely
affect the performance by the Seller of its obligations under, or the validity
or enforceability of, the Pooling and Servicing Agreement, the Underwriting
Agreement, or the Insurance Agreement.
G. Arter & Hadden, counsel for the Depositor, shall have furnished to
the Underwriters his written opinion, addressed to the Underwriters and dated
the Closing Date, in form and substance satisfactory to the Underwriters, to the
effect that:
1. The Depositor has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is in
good standing as a foreign corporation in each jurisdiction in which its
ownership or lease of property or the conduct of its business so requires such
standing. The Depositor has all power and authority necessary to own or hold its
properties and to conduct the business in which it is engaged and to enter into
and perform its obligations under this Agreement, the Pooling and Servicing
Agreement and the Insurance Agreement, and to cause the Certificates to be
issued.
2. The Depositor is not in violation of its articles of incorporation
or by-laws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which
the Depositor is a party or by which it or its properties may be bound,
13
<PAGE>
which default might result in any material adverse changes in the financial
condition, earnings, affairs or business of the Depositor or which might
materially and adversely affect the properties or assets, taken as a whole, of
the Depositor.
3. This Agreement, the Pooling and Servicing Agreement, the
Indemnification Agreement and the Insurance Agreement have been duly authorized,
executed and delivered by the Depositor and, assuming the due authorization,
execution and delivery of such agreements by the other parties thereto, such
agreements constitute valid and binding obligations, enforceable against the
Depositor in accordance with their respective terms, subject as to
enforceability to (x) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally, (y) general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law) and (z) with respect to rights of
indemnity under this Agreement and the Insurance Agreement, limitations of
public policy under applicable securities laws.
4. The execution, delivery and performance of this Agreement, the
Pooling and Servicing Agreement and the Insurance Agreement by the Depositor,
the consummation of the transactions contemplated hereby and thereby, and the
issuance and delivery of the Certificates do not and will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Depositor is a party or
by which the Depositor is bound or to which any of the property or assets of the
Depositor or any of its subsidiaries is subject, which breach or violation would
have a material adverse effect on the business, operations or financial
condition of the Depositor or its ability to perform its obligations under this
Agreement, the Pooling and Servicing Agreement and the Insurance Agreement, nor
will such actions result in a violation of the provisions of the articles of
incorporation or by-laws of the Depositor or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Depositor or any of its properties or assets, which breach or violation
would have a material adverse effect on the business, operations or financial
condition of the Depositor or its ability to perform its obligations under this
Agreement, the Pooling and Servicing Agreement and the Insurance Agreement.
5. The execution of the Certificates by the Depositor and the
direction by the Depositor to the Trustee to issue, authenticate and deliver the
Certificates has been duly authorized by the Depositor and, assuming that the
Trustee has been duly authorized to do so, when executed by the Depositor and
authenticated and delivered by the Trustee in accordance with the Pooling and
Servicing Agreement, the Certificates will be validly issued and outstanding and
will be entitled to the benefits of the Pooling and Servicing Agreement.
6. No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance of the Certificates, and the sale of the
Offered Certificates to the Underwriters, or the consummation by the Depositor
of the other transactions contemplated by this Agreement, the Pooling and
Servicing Agreement and the Insurance Agreement, except such consents,
approvals, authorizations, registrations or qualifications as may be required
under the 1933 Act
14
<PAGE>
or State securities or Blue Sky laws in connection with the purchase and
distribution of the Offered Certificates by the Underwriters or as have been
previously obtained.
7. There are not, to the best of his knowledge without independent
investigation, any actions, proceedings or investigations pending with respect
to which the Depositor has received service of process before or threatened by
any court, administrative agency or other tribunal to which the Depositor is a
party or of which any of its properties is the subject: (a) which if determined
adversely to the Depositor would have a material adverse effect on the business,
results of operations or financial condition of the Depositor; (b) asserting the
invalidity of the Pooling and Servicing Agreement, the Insurance Agreement or
the Certificates; (c) seeking to prevent the issuance of the Certificates or the
consummation by the Depositor of any of the transactions contemplated by the
Pooling and Servicing Agreement, the Insurance Agreement or this Agreement, as
the case may be; or (d) which might materially and adversely affect the
performance by the Depositor of its obligations under, or the validity or
enforceability of, the Pooling and Servicing Agreement, the Insurance Agreement,
this Agreement or the Certificates.
8. The Certificates have been duly and validly authorized and issued
and, immediately prior to the sale of the Offered Certificates to the
Underwriters, such Certificates are owned by the Depositor, free and clear of
all Liens.
H. The Underwriters shall have received the favorable opinion of
counsel to the Trustee, dated the Closing Date, addressed to the Underwriters
and in form and scope satisfactory to counsel to the Underwriters, to the effect
that:
1. The Trustee is a banking corporation duly incorporated and validly
existing under the law of the State of New York.
2. The Trustee has the full corporate trust power to execute, deliver
and perform its obligations under the Pooling and Servicing Agreement.
3. The execution and delivery by the Trustee of the Pooling and
Servicing Agreement and the performance by the Trustee of its obligations under
the Pooling and Servicing Agreement have been duly authorized by all necessary
corporate action of the Trustee.
4. The Pooling and Servicing Agreement is a valid and legally binding
obligation of the Trustee enforceable against the Trustee.
5. The execution and delivery by the Trustee of the Pooling and
Servicing Agreement do not (a) violate the Organization Certificate of the
Trustee or the By-laws of the Trustee, (b) to such counsel's knowledge, violate
any judgment, decree or order of any New York or United States federal court or
other New York or United States federal governmental authority by which the
Trustee is bound or (c) assuming the non-existence of any judgment, decree or
order of any court or other governmental authority that would be violated by
such execution and delivery, violate any New York or United States federal
statute, rule or regulation or require any consent, approval or authorization of
any New York or United States federal court or other New York or United States
federal governmental authority.
15
<PAGE>
6. The Certificates have been duly authenticated, executed and
delivered by the Trustee.
7. If the Trustee were acting as Servicer under the Pooling and
Servicing Agreement as of the date of such opinion, the Trustee would have the
full corporate trust power to perform the obligations of the Servicer under the
Pooling and Servicing Agreement; and
8. To the best of such counsel's knowledge, there are no actions,
proceedings or investigations pending or threatened against or affecting the
Trustee before or by any court, arbitrator, administrative agency or other
governmental authority which, if decided adversely to the Trustee, would
materially and adversely affect the ability of the Trustee to carry out the
transactions contemplated in the Pooling and Servicing Agreement.
I. The Underwriters shall have received the favorable opinion or
opinions, dated the Closing Date, of counsel for the Underwriters, with respect
to the issue and sale of the Offered Certificates, the Registration Statement,
this Agreement, the Prospectus and such other related matters as the
Underwriters may reasonably require.
J. The Underwriters shall have received the favorable opinion dated the
Closing Date, __________, counsel for of the Certificate Insurer in form and
scope satisfactory to counsel for the Underwriters, substantially to the effect
that:
1. The Certificate Insurer is a stock insurance corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of New York. The Certificate Insurer is validly licensed and authorized to issue
the Certificate Insurance Policy and perform its obligations under the Insurance
Agreement in accordance with the terms thereof, under the laws of the State of
New York;
2. The Certificate Insurer has the corporate power to execute and
deliver, and to take all action required of it under, the Insurance Agreement
and the Certificate Insurance Policy;
3. The execution, delivery and performance by the Certificate Insurer
of the Certificate Insurance Policy and Insurance Agreement do not require the
consent or approval of, the giving of notice to, the prior registration with, or
the taking of any other action in respect of any state or other governmental
agency or authority which has not previously been obtained or effected;
4. The Certificate Insurance Policy and Insurance Agreement have been
duly authorized, executed and delivered by the Certificate Insurer and
constitute the legal, valid and binding agreement of the Certificate Insurer,
enforceable against the Certificate Insurer in accordance with their terms
subject, as to enforcement, to (x) bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally, including, without limitation, laws relating to
fraudulent transfers or conveyances, preferential transfers and equitable
subordination, presently or from time to time in effect and general principles
of equity (regardless of whether such enforcement is considered in a proceeding
in equity or at law), as such laws may be applied in any such proceeding with
16
<PAGE>
respect to the Certificate Insurer and (y) the qualification that the remedy of
specific performance and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceedings with respect thereto may be brought;
5. To the extent the Certificate Insurance Policy constitutes a
security within the meaning of Section 2(1) of the Securities Act, it is a
security that is exempt from the registration requirements of the Act.
6. The information set forth under the caption "THE CERTIFICATE
INSURER" in the Prospectus Supplement, insofar as such information constitutes a
description of the Certificate Insurance Policy, accurately summarizes the
Certificate Insurance Policy.
K. The Depositor and the Seller shall each have furnished to the
Underwriters a certificate, dated the Closing Date and signed by the Chairman of
the Board, the President or a Vice President of the Depositor and the Seller,
respectively, stating as it relates to each:
1. The representations and warranties of the Depositor in this
Agreement are true and correct as of the Closing Date; and the Depositor has
complied with all agreements contained herein which are to have been complied
with on or prior to the Closing Date;
2. The information contained in the Prospectus relating to the Seller
and the Mortgage Loans is true and accurate in all material respects and nothing
has come to his or her attention that would lead such officer to believe that
the Registration Statement or the Prospectus includes any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein not misleading;
3. There has been no amendment or other document filed affecting the
Certificate of Incorporation or bylaws of the Depositor since ___ __, 199_ or
the Certificate of Incorporation or bylaws of the Seller since _______ __, 199_
and no such amendment has been authorized. No event has occurred since ____ __,
199_ which has affected the good standing of the Depositor or the Seller under
the laws of the State of Delaware; and
4. There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Depositor or the Seller from _____ __, 199_.
L. The Trustee shall have furnished to the Underwriters a certificate
of the Trustee, signed by one or more duly authorized officers of the Trustee,
dated the Closing Date, as to the due authorization, execution and delivery of
the Pooling and Servicing Agreement by the Trustee and the acceptance by the
Trustee of the trusts created thereby and the due execution, authentication and
delivery of the Certificates by the Trustee thereunder and such other matters as
the Representative shall reasonably request.
M. The Certificate Insurance Policy and the Insurance Agreement shall
have been issued by the Certificate Insurer and shall have been duly
authenticated by an authorized agent of the Certificate Insurer, if so required
under applicable state law or regulations.
17
<PAGE>
N. The Offered Certificates shall have been rated "AAA" by Standard &
Poor's and "Aaa" by Moody's Investors Service.
O. The Depositor shall have furnished to the Underwriters such further
information, certificates and documents as the Underwriters may reasonably have
requested not less than three full business days prior to the Closing Date.
P. Prior to the Closing Date, counsel for the Underwriters shall have
been furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the
Certificates as herein contemplated and related proceedings or in order to
evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions, herein contained, and
all proceedings taken by the Depositor in connection with the issuance and sale
of the Certificates as herein contemplated shall be satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
Q. Subsequent to the execution and delivery of this Agreement none of
the following shall have occurred: (i) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or the over-the counter
market shall have been suspended or minimum prices shall have been established
on either of such exchanges or such market by the Commission, by such exchange
or by any other regulatory body or governmental authority having jurisdiction;
(ii) a banking moratorium shall have been declared by Federal or state
authorities; (iii) the United States shall have become engaged in hostilities,
there shall have been an escalation of hostilities involving the United States
or there shall have been a declaration of a national emergency or war by the
United States; or (iv) there shall have occurred such a material adverse change
in general economic, political or financial conditions (or the effect of
international conditions on the financial markets of the United States shall be
such) as to make it in each of the instances set forth in clauses (i), (ii),
(iii) and (iv) herein, in the reasonable judgment of the Underwriters,
impractical or inadvisable to proceed with the public offering or delivery of
the Certificates on the terms and in the manner contemplated in the Prospectus.
If any condition specified in this Section VI shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriters by notice to the Depositor at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section VII.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
SECTION VII. Payment of Expenses. The Depositor agrees to pay: (a) the
costs incident to the authorization, issuance, sale and delivery of the
Certificates and any taxes payable in connection therewith; (b) the costs
incident to the preparation, printing and filing under the Securities Act of the
Registration Statement and any amendments and exhibits thereto; (c) the costs of
distributing the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), the Prospectus and
18
<PAGE>
any amendment or supplement to the Prospectus or any document incorporated by
reference therein, all as provided in this Agreement; (d) the costs of
reproducing and distributing this Agreement; (e) the fees and expenses of
qualifying the Certificates under the securities laws of the several
jurisdictions as provided in Section V(G) hereof and of preparing, printing and
distributing a Blue Sky Memorandum and a Legal Investment Survey (including
related fees and expenses of counsel to the Representative); (f) any fees
charged by securities rating services for rating the Offered Certificates; and
(g) all other costs and expenses incidental to the performance of the
obligations of the Depositor (including costs and expenses of counsel to the
Depositor); provided that, except as provided in this Section VII, the
Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Offered Certificates which
they may sell and the expenses of advertising any offering of the Offered
Certificates made by the Underwriters, and the Underwriters shall pay the cost
of any accountant's comfort letters relating to any Computational Materials (as
defined herein).
If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section VI or Section XI, the Depositor shall cause the
Underwriters to be reimbursed for all reasonable out-of-pocket expenses,
including fees and disbursements of ________________, counsel for the
Underwriters.
SECTION VIII. Indemnification and Contribution. A. The Depositor agrees
to indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and sales of the
Offered Certificates), to which such Underwriter or any such controlling person
may become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereof or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iii)
any untrue statement or alleged untrue statement of a material fact contained in
the Prospectus, or any amendment thereof or supplement thereto, or (iv) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and shall reimburse
such Underwriter and each such controlling person promptly upon demand for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Depositor shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in the Prospectus, or any
amendment thereof or supplement thereto, or the Registration Statement, or any
amendment thereof or supplement thereto, in reliance upon and in conformity with
written information furnished to the Depositor by or on behalf of such
Underwriter specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Depositor may otherwise have
to any Underwriter or any controlling person of any such Underwriter.
19
<PAGE>
B. Each Underwriter severally agrees to indemnify and hold harmless the
Depositor, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Depositor
within the meaning of Section 15 of the Securities Act against any and all loss,
claim, damage or liability, or any action in respect thereof, to which the
Depositor or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereof or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iii)
any untrue statement or alleged untrue statement of a material fact contained in
the Prospectus, or any amendment thereof or supplement thereto, or (iv) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Depositor by or on behalf of such Underwriter
specifically for inclusion therein, and shall reimburse the Depositor and any
such director, officer or controlling person for any legal or other expenses
reasonably incurred by the Depositor or any director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to the Depositor or any such director,
officer or controlling person.
C. Promptly after receipt by any indemnified party under this Section
VIII of notice of any claim or the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section VIII, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section VIII except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify any indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under this Section
VIII.
If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, except to the extent
provided in the next following paragraph, the indemnifying party shall not be
liable to the indemnified party under this Section VIII for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
Any indemnified party shall have the right to employ separate counsel
in any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at
20
<PAGE>
the expense of such indemnified party unless: (i) the employment thereof has
been specifically authorized by the indemnifying party in writing; (ii) such
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party to employ separate counsel;
or (iii) the indemnifying party has failed to assume the defense of such action
and employ counsel reasonably satisfactory to the indemnified party, in which
case, if such indemnified party notifies the indemnifying party in writing that
it elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to one local counsel per jurisdiction) at any time for all such
indemnified parties, which firm shall be designated in writing by the related
Underwriter, if the indemnified parties under this Section VIII consist of one
or more Underwriters or any of its or their controlling persons, or the
Depositor, if the indemnified parties under this Section VIII consist of the
Depositor or any of the Depositor's directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section VIII(A) and (B), shall use its best efforts to cooperate
with the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
Notwithstanding the foregoing paragraph, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement.
D. Each Underwriter agrees to provide the Depositor no later than two
Business Days prior to the day on which the Prospectus Supplement is required to
be filed pursuant to Rule 424 with a copy of any Computational Materials
(defined below) produced by such Underwriter for filing with the Commission on
Form 8-K.
E. Each Underwriter severally agrees, assuming all Seller Provided
Information is accurate and complete in all material respects, to indemnify and
hold harmless the Depositor, each of the Depositor's officers and directors and
each person who controls the Depositor within the meaning of Section 15 of the
Securities Act against any and all losses, claims, damages or liabilities, joint
or several, to which they may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof)
21
<PAGE>
arise out of or are based upon any untrue statement of a material fact contained
in the Computational Materials provided by such Underwriter, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
agrees to reimburse each such indemnified party for any legal or other expenses
reasonably incurred by him, her or it in connection with investigating or
defending or preparing to defend any such loss, claim, damage, liability or
action as such expenses are incurred. The obligations of an Underwriter under
this Section VIII (E) shall be in addition to any liability which such
Underwriter may otherwise have.
The procedures set forth in Section VIII (C) shall be equally
applicable to this Section VIII (E).
F. If the indemnification provided for in this Section VIII shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section VIII (A), (B) or (E) in respect of any loss, claim, damage
or liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Depositor on the one hand and the Underwriters on the other from
the offering of the relevant class of Offered Certificates or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law or if
the indemnified party failed to give the notice required under Section VIII (C),
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Depositor on
the one hand and the related Underwriter on the other with respect to the
statements or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations.
The relative benefits of an Underwriter and the Depositor shall be
deemed to be in such proportion as the total net proceeds from the offering
(before deducting expenses) received by the Depositor bear to the total
underwriting discounts and commissions received by the related Underwriter from
time to time in negotiated sales of the related Offered Certificates.
The relative fault of an Underwriter and the Depositor shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Depositor or by such Underwriter, the intent of
the parties and their relative knowledge, access to information and opportunity
to correct or prevent such statement or omission and other equitable
considerations.
The Depositor and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section VIII (F) were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purposes) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section
VIII (F) shall be deemed to include, for purposes of this Section VIII (F), any
legal or other expenses reasonably incurred
22
<PAGE>
by such indemnified party in connection with investigating or defending any such
action or claim.
For purposes of this Section VIII, in no case shall any Underwriter
(except with respect to any document (other than the Computational Materials)
incorporated by reference into the Registration Statement or Prospectus at the
request of such Underwriter and except as may be provided in any agreement among
the Underwriters relating to the offering of the Offered Certificates) be
responsible for any amount in excess of the amount by which (x) the amount
received by such Underwriter in connection with its sale of the Offered
Certificates exceeds (y) the amount paid by such Underwriter to the Depositor
for the Offered Certificates hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of
fraudulent misrepresentation.
G. For purposes of this Section VIII, as to each Underwriter the term
"Computational Materials" means such portion, if any, of the information
delivered to the Depositor by such Underwriter pursuant to Section VIII(D) for
filing with the Commission on Form 8-K as:
(i) is not contained in the Prospectus without taking into account
information incorporated therein by reference; and
(ii) does not constitute Seller-Provided Information.
"Seller-Provided Information" means any computer tape (or other information)
furnished to any Underwriter by the Seller concerning the assets comprising the
Trust.
H. The Underwriters confirm that the information set forth in the last
paragraph on the cover page of the Prospectus Supplement and the Computational
Materials are correct and constitute the only information furnished in writing
to the Depositor by or on behalf of any Underwriter specifically for inclusion
in the Registration Statement and the Prospectus.
SECTION IX. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Depositor submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Underwriters or controlling
persons thereof, or by or on behalf of the Depositor, and shall survive delivery
of any Offered Certificates to the Underwriters.
SECTION X. Default by One or More of the Underwriters. If one or more
of the Underwriters participating in the public offering of the Offered
Certificates shall fail at the Closing Date to purchase the Offered Certificates
which it is (or they are) obligated to purchase hereunder (the "Defaulted
Certificates"), then the non-defaulting Underwriters shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Certificates in such amounts as may be agreed
upon and upon the terms herein set forth. If,
23
<PAGE>
however, the Underwriters have not completed such arrangements within such
24-hour period, then:
(i) if the aggregate principal amount of Defaulted Certificates does
not exceed 10% of the aggregate principal amount of the Offered Certificates to
be purchased pursuant to this Agreement, the non-defaulting Underwriters named
in this Agreement shall be obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder bear to the
underwriting obligations of all such non-defaulting Underwriters, or
(ii) if the aggregate principal amount of Defaulted Certificates
exceeds 10% of the aggregate principal amount of the Offered Certificates to be
purchased pursuant to this Agreement, this Agreement shall terminate, without
any liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section X shall relieve any defaulting
Underwriter from the liability with respect to any default of such Underwriter
under this Agreement.
In the event of a default by any Underwriter as set forth in this
Section X, each of the Underwriters and the Depositors shall have the right to
postpone the Closing Date for a period not exceeding five Business Days in order
that any required changes in the Registration Statement or Prospectus or in any
other documents or arrangements may be effected.
SECTION XI. Termination of Agreement. The Underwriters may terminate
this Agreement immediately upon notice to the Depositor, at any time at or prior
to the Closing Date if any of the events or conditions described in Section VI
(Q) of this Agreement shall occur and be continuing. In the event of any such
termination, the covenant set forth in Section V (G), the provisions of Section
VII, the indemnity agreement set forth in Section VIII, and the provisions of
Sections IX and XIV shall remain in effect.
SECTION XII. Notices. All statements, requests, notices and agreements
hereunder shall be in writing, and:
A. if to the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission to ___________________________________________________,
Attention: (Fax: ____________); and
B. if to the Depositor, shall be delivered or sent by mail, telex or
facsimile transmission to care of IMC Securities, Inc., 3450 Birchwood Park
Drive, Tampa Florida 33618 (Fax: 813-935-0277).
SECTION XIII. Persons Entitled to the Benefit of this Agreement. This
Agreement shall inure to the benefit of and be binding upon the Underwriters and
the Depositor, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
the representations, warranties, indemnities and agreements contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any of the Underwriters within the meaning of Section 15 of
the
24
<PAGE>
Securities Act, and for the benefit of directors of the Depositor, officers of
the Depositor who have signed the Registration Statement and any person
controlling the Depositor within the meaning of Section 15 of the Securities
Act. Nothing in this Agreement is intended or shall be construed to give any
person, other than the persons referred to in this Section XIII, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
SECTION XIV. Survival. The respective indemnities, representations,
warranties and agreements of the Depositor and the Underwriters contained in
this Agreement, or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Certificates and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them.
SECTION XV. Definition of the Term "Business Day". For purposes of this
Agreement, "Business Day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
SECTION XVI. Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the conflict of law rules
thereof.
The parties hereto hereby submit to the jurisdiction of the United
States District Court for the Southern District of New York and any court in the
State of New York located in the City and County of New York, and appellate
court from any thereof, in any action, suit or proceeding brought against it or
in connection with this Agreement or any of the related documents or the
transactions contemplated hereunder or for recognition or enforcement of any
judgment, and the parties hereto hereby agree that all claims in respect of any
such action or proceeding may be heard or determined in New York State court or,
to the extent permitted by law, in such federal court.
The parties hereto hereby irrevocably waive, to the fullest extent
permitted by law, any and all rights to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.
SECTION XVII. Counterparts. This Agreement may be executed in
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
SECTION XVIII. Headings. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
25
<PAGE>
If the foregoing correctly sets forth the agreement between the
Depositor and the Underwriters, please indicate your acceptance in the space
provided for the purpose below.
Very truly yours,
IMC SECURITIES, INC.
By:
-------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as
of the date first above written:
[Underwriter]
Acting on its own behalf and as
Representative of the Several
Underwriters referred to in the
foregoing Agreement
By:
----------------------------------
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C> <C> <C>
Class of Certificates Initial Principal Dollar Amount of
Name of Purchased by the Certificates Purchased by Purchase Price to
Underwriter Underwriters Underwriters Underwriters
- ----------- ------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class of Certificates Initial Principal Dollar Amount of
Name of Purchased by the Certificates Purchased by Purchase Price to
Underwriter Underwriters Underwriters Underwriters
- ----------- ------------ ------------ ------------
</TABLE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
IMC SECURITIES, INC.
1. The name of the corporation is IMC Securities, Inc. (the
"Corporation").
2. The address of the Corporation's registered office in the
State of Delaware is Corporation Service Company, 1013 Centre Road, in the City
of Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is Corporation Service Company.
3. The limited purposes of the Corporation are to:
(a) acquire, own, hold, sell, transfer, assign, pledge,
finance, refinance and otherwise deal with (i) loans
secured by first or junior lien mortgages, deeds of
trust or similar liens on residential, commercial or
mixed commercial and residential properties or shares
issued by private non- profit housing corporations or
(ii) any participation interest in or security based
on or backed by any of the foregoing (the loans
described in clause (a)(i) and the participation
interests described in clause (a)(ii), collectively,
"Mortgage Loans");
(b) authorize and issue one or more series (each, a
"Series") of pass-through securities ("Certificates")
pursuant to pooling and servicing agreements or trust
agreements (each, an "Agreement"), each of which
Series (i) represents ownership interests in Mortgage
Loans, related property and/or collections in respect
thereof, and (ii) may be structured to contain one or
more classes of Certificates, each class having the
characteristics specified in the related Agreement,
and to acquire, own, hold, sell, transfer, assign,
1
<PAGE>
pledge, finance or refinance one or more Certificates
or classes of Certificates of any Series; and
(c) engage in any acts and activities and exercise any
powers permitted to corporations under the laws of
the State of Delaware which are incidental to, or
connected with, the foregoing, and necessary,
suitable or convenient to accomplish any of the
foregoing.
4. The total number of shares of stock which the Corporation
shall have authority to issue is One Thousand (1,000) and the par value of each
of such shares is One Dollar ($1.00) amounting in the aggregate to One Thousand
Dollars ($1,000.00).
5. The name and mailing address of the sole incorporator of
the Corporation is as follows:
NAME MAILING ADDRESS
---- ---------------
Todd D. Snyder c/o Arter & Hadden
1801 K Street, N.W.
Washington, DC 20006
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers
conferred by statute, the board of directors of the Corporation is expressly
authorized:
(a) to make, alter or repeal the by-laws of the
corporation;
(b) to authorize and cause to be executed mortgages and
liens upon the real and personal property of the
Corporation;
(c) to set apart out of any of the funds of the
Corporation available for dividends a reserve or
reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created;
2
<PAGE>
(d) by a majority of the whole board, to designate one or
more committees, each committee to consist of one or
more of the directors of the Corporation. The board
may designate one or more directors as alternate
members of any committee, who may replace any absent
or disqualified member at any meeting of the
committee. The by-laws may provide that in the
absence or disqualification of a member of a
committee, the member or members thereof present at
any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may
unanimously appoint another member of the board of
directors to act at the meeting in the place of any
such absent or disqualified member. Any such
committee, to the extent provided in the resolution
of the board of directors, or in the by-laws of the
Corporation, shall have and may exercise all the
powers and authority of the board of directors in the
management of the business and affairs of the
Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may
require it; but no such committee shall have the
power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement
of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and
assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a
dissolution, or amending the by-laws of the
Corporation; and, unless the resolution or by-laws
expressly so provide, no such committee shall have
the power or authority to declare a dividend or to
authorize the issuance of stock; and
3
<PAGE>
(e) when and as authorized by the stockholders in
accordance with law, to sell, lease or exchange all
or substantially all of the property and assets of
the Corporation, including its goodwill and its
corporate franchises, upon such terms and conditions
and for such consideration, which may consist in
whole or in part of money or property including
shares of stock in, and/or other securities of, any
other corporation or corporations, as its board of
directors shall deem expedient and for the best
interests of the Corporation.
8. Notwithstanding any other provision of law which otherwise
so empowers the Corporation, the Corporation shall not perform any act in
contravention of any of the following (unless the Corporation shall have
received an opinion of counsel that such acts are consistent with the objectives
stated in Article 3 hereof):
(a) engage in any joint activity or transaction of any
kind with or for the benefit of any Related Company
(as defined herein), including loans to or from any
Related Company, any guarantee of the indebtedness of
any Related Company, or holding out its assets as
being available for any Related Company, or any
pledge of assets for the benefit of any Related
Company, except for (i) purchasing management
services and leasing office space or equipment, in
each case only to the extent necessary for the
conduct of the Corporation's business, (ii)
purchasing subordinate interests in a Series or in
any Mortgage Loans, or purchasing interests in any
Mortgage Loans, created or serviced by one or more
Related Companies for fair and reasonable
consideration, (iii) payment of lawful dividends and
capital distributions to its shareholder or
shareholders and
4
<PAGE>
(iv) arranging for letters of credits to be provided
by banks with which such Related Company maintains
banking relationships. A "Related Company" means the
shareholder or shareholders of this Corporation or
any entity other than this Corporation now or
hereafter controlled directly or indirectly by, or
under direct or indirect common control with, the
shareholders of this Corporation;
(b) create, incur, assume or in any manner become liable
in respect of any indebtedness other than (i)
accounts payable and expense accruals incurred in the
ordinary course of business and which are incident to
the business purpose of the Corporation as stated in
Article 3 above, but excluding any liability in
respect of the unpaid purchase price of any
subordinate interest, (ii) indebtedness without
recourse to the Corporation other than to the extent
of any security interest in one or more residual or
subordinate interests and (iii) indebtedness relating
to the letters of credits described in (a)(iv) above;
(c) commingle its funds with the funds of any Related
Company.
9. Notwithstanding any other provision of this Certificate of
Incorporation or of the by-laws of the Corporation, the unanimous consent of the
Board of Directors shall be required to:
(a) amend, alter, change or repeal any provision of the
Certificate of Incorporation of the Corporation;
(b) dissolve, liquidate, consolidate, merge or sell all
or substantially all of the assets of the
Corporation;
5
<PAGE>
(c) engage in any business activity other than in
furtherance of the purposes of the Corporation set
forth in Section 3 hereof; or
(d) institute proceedings to have itself adjudicated
bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against it,
or seek or consent to the entry of any order for
relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial
part of its property, or seek liquidation, winding
up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or make any
general assignment for the benefit of creditors, or
take any corporate action in furtherance of any of
the actions set forth above in this paragraph.
10. Notwithstanding any other provision of this Certificate of
Incorporation or of the by-laws of the Corporation, the Corporation shall:
(a) maintain books, records and financial statements
separate from any other person or entity;
(b) conduct its own business in its own name;
(c) pay its own liabilities out of its own funds;
(d) maintain an arms length relationship with any Related
Company;
(e) cause the salaries of its employees to be paid solely
from the Corporation's own funds;
(f) allocate fairly and reasonably any overhead or other
expenses shared with Related Company; and
(g) hold itself out as a separate entity.
6
<PAGE>
11. Notwithstanding any other provision of this Certificate of
Incorporation or of the by-laws of the Corporation, so long as any Certificates
are outstanding which are rated by a nationally recognized rating agency ("Rated
Certificates"), the Corporation shall not:
(a) institute proceedings to have itself adjudicated a
bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against it,
or seek or consent to the entry of any order for
relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial
part of its property, or seek liquidation, winding
up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or make any
general assignment for the benefit of creditors, or
take any corporate action in furtherance of any of
the actions set forth above in this paragraph; or
(b) amend, alter, change or repeal any provision of the
Certificate of Incorporation of the Corporation.
12. Elections of directors need not be by written ballot
unless the by-laws of the Corporation shall so provide.
Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the by-laws of the Corporation.
13. The Corporation reserves the right to alter, amend, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter
7
<PAGE>
prescribed by statute, subject to the requirements of Sections 9(a) or 11(b)
hereof, and all rights conferred upon stockholders herein are granted subject to
this reservation.
14. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation or law, (iii) under Section 174 of the Delaware Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
15. At all times at least one director of the Corporation
shall not be an employee or director of the Corporation or an employer or
director of any Related Company.
THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a Corporation pursuant to the General
Corporation Law of the State of Delaware, does make this Certificate, hereby
declaring and certifying that this is his act and deed and the facts herein
stated are true, and accordingly has hereunto set his hand this 9th day of
November, 1994.
/s/ Todd D. Snyder
----------------------------
Todd D. Snyder, Incorporator
8
<PAGE>
BYLAWS
of
IMC SECURITIES, INC.
(a Delaware corporation)
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware and the name of its registered agent shall be The Corporation Trust
Company.
Section 1.2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 2.1. Annual Meetings. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held at such place within or
without the State of Delaware, and at such hour of the day as the Board of
Directors shall determine, commencing with the year 1995, on the second Tuesday
in May in each year (or if such date shall be a legal holiday the Board of
Directors may, in its discretion, fix the date for such meeting on the next
succeeding day) or as otherwise directed by the Board of Directors.
Section 2.2. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by order of the President, the Chief
Executive Officer or such otherwise designated officer, and shall be called by
the President or Secretary at the request in writing of a majority of the Board
of Directors, the whole Executive Committee or stockholders holding together at
least one-fifth of all shares of the Corporation entitled to vote at the
meeting. Special meetings of the stockholders shall be held at such place within
or without the State of Delaware, on such date, and at such time as may be
designated by the person or persons calling the meeting.
Section 2.3. Notice of Meetings. Written notice of every meeting of
stockholders, stating the time, place and purposes thereof, shall be given
personally or by mail at least ten (10), but not more than sixty (60), days
(except as otherwise provided by law) before the date of such meeting to each
person who appears on the stock transfer books of the Corporation as
1
<PAGE>
a stockholder and who is entitled to vote at such meeting. If such notice is
mailed, it shall be directed to such stockholder at his address as it appears on
the stock transfer books of the Corporation.
Section 2.4. Quorum. At any meeting of the stockholders the holders of
a majority of the shares of the Corporation entitled to vote at such meeting,
present in person or represented by proxy, shall constitute a quorum for all
purposes, except where otherwise provided by law or in the Certificate of
Incorporation. A quorum, once established, shall not be broken by the withdrawal
of enough votes to leave less than a quorum and the votes present may continue
to transact business until adjournment, provided that any action (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 2.5. Adjournments. If at any meeting of stockholders a quorum
shall fail to attend in person or by proxy, the holders of a majority of the
shares present in person or by proxy and entitled to vote at such meeting may
adjourn the meeting from time to time until a quorum shall attend, and thereupon
any business may be transacted which might have been transacted at the meeting
as originally called. Notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, provided, however, that if the adjournment is for more than thirty (30)
days or if after the adjournment a new record date is fixed, notice of the
adjourned date shall be given.
Section 2.6. Organization. The Chairman of the Board, if one is
elected, and in his absence the President or the Chief Executive Officer, and in
their absence any Executive Vice President, shall call meetings of the
stockholders to order and shall act as chairman thereof. The Secretary or an
Assistant Secretary of the Corporation shall act as secretary at all meetings of
the stockholders when present, and, in the absence of both, the presiding
officer may appoint any person to act as secretary. The chairman of any meeting
of stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as he may deem appropriate in his discretion.
Section 2.7. Voting. At each meeting of the stockholders, each holder
of the shares of Common Stock shall be entitled to one vote on such matter for
each such share and may exercise such voting right either in person or by proxy
appointed by an instrument in writing subscribed by such stockholder or his duly
authorized attorney. No such proxy shall be voted or acted upon after three (3)
years from its date unless the proxy provides for a longer period. Voting need
not be by ballot. All elections of directors shall be decided by a plurality
vote and all questions decided and actions authorized by a majority vote, except
as otherwise required by law. A stockholder whose shares are pledged shall be
entitled to vote such shares, unless in the transfer by the pledgor on the books
of the Corporation, he has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent the stock and vote
thereon.
Section 2.8. Inspectors. At any meeting of stockholders, inspectors of
election may be appointed by the presiding officer of the meeting for the
purpose of opening and closing the polls, receiving and taking charge of the
proxies, and receiving and counting the ballots or the vote of stockholders
otherwise given. The inspectors shall be appointed by the presiding officer
2
<PAGE>
of the meeting, shall be sworn to faithfully perform their duties, and shall in
writing certify to the returns. No candidate for election as director shall be
appointed or act as inspector.
Section 2.9. Stockholder List. At least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of such stockholder,
shall be prepared and held open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours for said ten (10)
days either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section 2.10. Informal Action. Any action that may be taken at any
annual or special meeting of the stockholders of the Corporation, may be taken
without a meeting, without prior notice, and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, provided that a consent must
bear the date of each stockholder's signature and no consent will be effective
unless written consents received by a sufficient number of stockholders to take
the contemplated action are delivered to the Corporation within sixty days of
the date that the earliest consent is delivered to the Corporation. Prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing. In the event that the action which is consented to is such
as would have required the filing of a certificate under any section of Delaware
law, if such action had been voted on by stockholders at a meeting thereof, the
certificate filed under such other section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
consent and that written notice have been given in accordance with Section 228
of the General Corporation Law of the State of Delaware.
ARTICLE III
Directors
Section 3.1. Functions and Number. The property, business and affairs
of the Corporation shall be managed and controlled by a board of directors, who
need not be stockholders, citizens of the United States or residents of the
State of Delaware. The number of members which shall constitute the Board of
Directors shall be determined by resolution of the Board of Directors or by the
stockholders at an annual or special meeting held for that purpose, but no
decrease in the Board of Directors shall have the effect of shortening the term
of an incumbent director. The first Board of Directors shall consist of three
(3) members, such number to constitute the first whole Board of Directors. The
use of the phrase "whole Board" herein refers to the total number of directors
which the Corporation would have if there were no vacancies. Except as otherwise
provided by law or in these Bylaws or in the Certificate of Incorporation, the
directors shall be elected by the stockholders entitled to vote at the annual
3
<PAGE>
meeting of stockholders of the Corporation, and shall be elected to serve until
the next annual meeting of stockholders and until their successors shall be
elected and shall qualify.
Section 3.2. Removal. Any director may be removed, with or without
cause, by the affirmative vote of the holders of a majority of the then
outstanding shares of Common Stock.
Section 3.3. Vacancies. Unless otherwise provided in the Certificate of
Incorporation or in these Bylaws, vacancies among the directors, whether caused
by resignation, death, disqualification, removal, an increase in the authorized
number of directors or otherwise, may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Section 3.4. Place of Meeting. The directors may hold their meetings
and may have one or more offices and keep the books of the Corporation (except
as otherwise may at any time be provided by law) at such place or places within
or without the State of Delaware as the Board may from time to time determine.
Section 3.5. Annual Meeting. The newly elected Board may meet for the
purpose of organization, the election of officers and the transaction of other
business, at such time and place within or without the State of Delaware as
shall be fixed as provided in Section 3.7 of this Article for special meetings
of the Board of Directors.
Section 3.6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and place within or without the State of
Delaware as the Board of Directors shall from time to time by resolution
determine and no notice of such regular meetings shall be required.
Section 3.7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the direction of the President, the
Chief Executive Officer or such otherwise designated officer or of one-third of
the directors then in office. The Secretary or some other officer or director of
the Corporation shall give notice to each director of the time and place of each
special meeting by mailing the same at least forty-eight (48) hours before the
meeting or by telexing, telegraphing or telephoning the same not later than the
day before the meeting, at the residence address of each director or at his
usual place of business. Any director may waive notice of any meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting; except where a director attends a meeting for the purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. Special meetings of the Board shall be held at such place
within or without the State of Delaware as shall be specified in the call for
the meeting. Unless expressly required by statute, by the Certificate of
Incorporation or by the Bylaws, neither the business to be transacted at, nor
the purpose of, any special meeting of the Board of Directors need be specified
in the notice of a meeting.
Section 3.8. Quorum. Except as otherwise provided by law or in the
Certificate of Incorporation, a majority of the directors in office shall
constitute a quorum for the transaction of business. A majority of those present
at the time and place of any regular or special meeting, if less than a quorum
be present, may adjourn from time to time without notice, until a quorum
4
<PAGE>
be had. The act of a majority of directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise provided by law or in the Certificate of Incorporation.
Section 3.9. Compensation. The Board of Directors shall have the
authority to fix by resolution the compensation of directors.
Section 3.10. Organization. At all meetings of the Board of Directors,
the Chairman of the Board if one is elected, or in his absence the President or
the Chief Executive Officer, or in their absence the Executive Vice President if
he is a member of the Board, shall preside. The Secretary or some other
designated officer or an Assistant Secretary of the Corporation shall act as
secretary at all meetings of the Board of Directors when present, and, in the
absence of both, the presiding officer may appoint any person to act as
secretary.
Section 3.11. Telephone Meetings. Any member of the Board of Directors
may participate in any meeting of such Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in any meeting pursuant to
this provision shall constitute presence in person at such meeting.
Section 3.12. Informal Action. Any action required or permitted to be
taken at any meeting of the Board of Directors, or any committee thereof, may be
taken without a meeting if all the members of the Board consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board.
ARTICLE IV
Committees
Section 4.1 Executive Committee. The Board of Directors, by a
resolution passed by a vote of a majority of the whole Board, may appoint an
Executive Committee of one or more directors, which to the extent permitted by
law and in said resolution shall, during the intervals between the meetings of
the Board of Directors, in all cases where special directions shall not have
been given by the Board, have and exercise the powers of the Board of Directors,
including those powers enumerated in these Bylaws which are not specifically
reserved to the Board of Directors, in the management of the property, business
and affairs of the Corporation; provided, however, that the Executive Committee
shall not have any power or authority to amend the Certificate of Incorporation,
to adopt any agreement of merger or consolidation, to recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, to recommend to the stockholders a
dissolution of the Corporation or a revocation of dissolution, to amend the
Bylaws of the Corporation, to declare a dividend, to authorize the issuance of
stock or to adopt a certificate of ownership and merger. The Executive Committee
shall have power to authorize the seal of the Corporation to be affixed to all
papers which may require it. The Board of Directors shall appoint the Chairman
of the Executive Committee. The members of the Executive Committee shall receive
such compensation and fees as from time to time may be fixed by the Board of
Directors.
5
<PAGE>
Section 4.2 Alternates and Vacancies. The Board of Directors may
designate one or more directors as alternate members of the Executive Committee
who may replace any absent or disqualified member at any meeting of the
Executive Committee. In the absence or disqualification of a member of the
Executive Committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. All other
vacancies in the Executive Committee shall be filled by the Board of Directors
in the same manner as original appointments to such Committee.
Section 4.3 Committees to Report to Board. The Executive Committee
shall keep regular minutes of its proceedings and all action by the Executive
Committee shall be reported to the Board of Directors at its meeting next
succeeding such action.
Section 4.4 Procedure. The Executive Committee shall fix its own rules
of procedure, and shall meet where and as provided by such rules or by
resolution of the Board of Directors. The presence of a majority of the then
appointed number of each committee created pursuant to this Article IV shall
constitute a quorum and in every case an affirmative vote by a majority of the
members of the committee present and not disqualified from voting shall be the
act of the committee.
Section 4.5 Other Committees. From time to time the Board of Directors
by a resolution adopted by a majority of the whole Board may appoint any other
committee or committees for any purpose or purposes, to the extent lawful, which
shall have such powers as shall be determined and specified by the Board of
Directors in the resolution of appointment.
Section 4.6 Termination of Committee Membership. In the event any
person shall cease to be a director of the Corporation, such person shall
simultaneously therewith cease to be a member of any committee appointed by the
Board of Directors, or any subcommittee thereof.
ARTICLE V
Officers
Section 5.1. Executive Officers. The executive officers of the
Corporation may consist of a Chairman of the Board, a President, a Chief
Executive Officer, a Chief Operating Officer, one or more Executive Vice
Presidents, one or more Vice Presidents, a Treasurer and a Secretary, all of
whom shall be elected annually by the Board of Directors. Unless otherwise
provided in the resolution of election, each officer shall hold office until the
next annual election of directors and until his successor shall have been
qualified. Any number of such offices may be held by the same person.
Section 5.2. Subordinate Officers. The Board of Directors may appoint
one or more Assistant Secretaries, one or more Assistant Treasurers and such
other subordinate officers and agents as it may deem necessary or advisable, for
such term as the Board of Directors shall fix
6
<PAGE>
in such appointment, who shall have such authority and perform such duties as
may from time to time be prescribed by the Board.
Section 5.3. Compensation. The Board of Directors shall have the power
to fix the compensation of all officers, agents and employees of the
Corporation, which power, as to other than elected officers, may be delegated as
the Board of Directors shall determine.
Section 5.4. Removal. All officers, agents and employees of the
Corporation shall be subject to removal, with or without cause, at any time by
affirmative vote of the majority of the whole Board of Directors whenever, in
the judgment of the Board of Directors, the best interests of the Corporation
will be served thereby. The power to remove agents and employees, other than
officers or agents elected or appointed by the Board of Directors, may be
delegated as the Board of Directors shall determine. Any officer may resign at
any time by giving written notice to the Corporation. Any such resignation shall
take effect on the date of the receipt of such notice or at any later time
specified therein, and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5.5. Chairman of the Board. If a Chairman of the Board is
elected, he shall be chosen from among the members of the Board of Directors and
shall preside at all meetings of the directors and the stockholders of the
Corporation. The Chairman of the Board shall sign all certificates of stock and,
in general, have supervisory power over the President and all other officers of
the Corporation.
Section 5.6. The President. The President shall perform generally all
the duties usually performed by presidents in similar corporations, and such
other duties as may from time to time be required of him by the Board of
Directors.
Section 5.7. The Chief Executive Officer. The Chief Executive Officer
shall have general and active management of the business of the Corporation. He
may sign any instruments or contracts to be made or executed by the Corporation,
unless otherwise specially provided for by resolution of the Board of Directors.
He shall see that all resolutions of the Board of Directors are carried into
effect, subject, however, to the right of the directors to delegate any specific
powers to any other officer or officers of the Corporation. He shall have the
power to appoint and remove subordinate officers, agents and employees, except
those elected or appointed by the Board of Directors.
Section 5.8. The Chief Operating Officer. The Chief Operating Officer
shall have the general powers and duties of supervision and management of the
Corporation. He may sign any instruments or contracts to be made or executed by
the Corporation, unless otherwise specially provided for by resolution of the
Board of Directors.
Section 5.9. Executive Vice Presidents and Vice Presidents. Each
Executive Vice President and Vice President shall perform such duties and shall
have such authority as from time to time may be assigned to him by the Board of
Directors, the Chief Executive Officer or the President.
7
<PAGE>
Section 5.10. The Treasurer. The Treasurer (if appointed) or such other
employee delegated such duties shall have the general care and custody of all
the funds and securities of the Corporation which may come into his hands and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositaries as from time to time may be designated by the Board of Directors or
by an officer or officers authorized by the Board of Directors to make such
designation, and the Treasurer or other employee shall pay out and dispose of
the same under the direction of the Board of Directors. He shall have general
charge of all securities of the Corporation and shall in general perform all
duties incident to the position of Treasurer.
Section 5.11. The Secretary. The Secretary (if appointed) or such other
employee delegated such duties shall keep the minutes of all proceedings of the
Board of Directors and the minutes of all meetings of the stockholders and also,
unless otherwise directed by such committee, the minutes of each standing
committee, in books provided for that purpose, of which he shall be the
custodian; he shall attend to the giving and serving of all notices for the
Corporation; he shall have charge of the seal of the Corporation, of the stock
certificate books and such other books and papers as the Board of Directors may
direct; and he shall in general perform all the duties incident to the office of
Secretary and such other duties as may be assigned to him by the Board of
Directors.
Section 5.12. Vacancies. All vacancies among the officers for any cause
shall be filled only by the Board of Directors.
Section 5.13. Bonding. The Board of Directors shall have power to
require any officer or employee of the Corporation to give bond for the faithful
discharge of his duties in such form and with such surety or sureties as the
Board of Directors may deem advisable.
ARTICLE VI
Stock
Section 6.1. Form and Execution of Certificates. The shares of stock of
the Corporation shall be represented by certificates in such form as shall be
approved by the Board of Directors; provided that the Board of Directors of the
Corporation may provide by resolution that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation; and, notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and every holder of uncertificated shares shall be entitled to a
certificate or certificates representing his shares upon delivery of a written
request therefor to the Secretary of the Corporation. The certificates shall be
signed by the Chairman of the Board or the Chief Executive Officer or the
President or Executive Vice President, and by the Treasurer or the Secretary or
an Assistant Treasurer or Assistant Secretary, except that where any such
certificates shall be countersigned by a transfer agent and by a registrar, the
signatures of any of the officers above specified, and the seal of the
Corporation upon such certificates, may be facsimiles, engraved or printed. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such
8
<PAGE>
officer, transfer agent or registrar at the date of its issue. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in the case of a
lost, stolen, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and with such indemnity, if any, to the Corporation as
the Board of Directors may prescribe. Certificates may be issued representing
fractional shares of stock.
Section. 6.2 Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representatives to advertise the same in such manner
as it shall require or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate or certificates alleged to have been stolen or
destroyed, or both.
Section 6.3 Transfers. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the Corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Corporation of the
transfer agent.
Section 6.4. Regulations. The Board of Directors may make such rules
and regulations consistent with any governing statute as it may deem expedient
concerning the issue, transfer and registration of certificates of stock and
concerning certificates of stock issued, transferred or registered in lieu or
replacement of any lost, stolen, destroyed or mutilated certificates of stock.
Section 6.5. Fixing of Record Date. For the purpose of determining the
stockholders entitled to notice of, and to vote at, any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a date as the record date for any such
determination of stockholders, and all persons who are stockholders of record on
the date so fixed, and no others, shall be entitled to notice of, and to vote
at, such meeting or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock or to take any other
lawful action, as the case may be. Such record date shall not be more than sixty
(60) days nor less than ten (10) days before the date of any such meeting, nor
more than sixty (60) days prior to any other action, provided that any record
date established by the Board of Directors may not precede the date of the
resolution
9
<PAGE>
establishing the record date. The record date for determining stockholders
entitled to consent to corporate actions in writing shall not be more than ten
(10) days after the date upon which the resolution fixing the record date was
adopted. If no record date is established prior to an action undertaken by
consent, the record date shall be, if no action of the Board of Directors is
required, the first date on which a signed written consent setting forth the
action taken is delivered to the corporation. If action by the Board of
Directors is required, the record date shall be the close of business on the day
the board adopts the resolution taking the prior action.
Section 6.6. Transfer Agent and Registrar. The Board of Directors may
appoint a transfer agent or transfer agents and a registrar or registrars for
any or all classes of the capital stock of the Corporation, and may require
stock certificates of any or all classes to bear the signature of either or
both.
ARTICLE VII
Dividends
Section 7.1. Declaration. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 7.2. Reserve. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE VIII
Fiscal Year
Section 8.1. Seal. The seal of the Corporation, if one is adopted,
shall be circular in form and contain the name of the Corporation, the year of
its organization, and the words "CORPORATE SEAL, DELAWARE", which seal shall be
in charge of the Secretary to be used as directed by the Board of Directors.
Section 8.2. Books. The books of the Corporation may be kept (subject
to any provision contained in the statutes) outside the State of Delaware at the
offices of the Corporation in Tampa, Florida, or at such other place or places
as may be designated from time to time by the Board of Directors.
10
<PAGE>
Section 8.3. Fiscal Year. The fiscal year of the Corporation shall be
the calendar year unless otherwise fixed by resolution of the Board of
Directors.
Section 8.4. Amendment. These By-Laws may be altered, amended or
repealed at any regular meeting of the Board of Directors without prior notice,
or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal be contained in the notice of such special
meeting.
ARTICLE IX
Waiver of Notice
Section 9.1. Waiver of Notice. Any person may waive any notice required
to be given by law, in the Certificate of Incorporation or under these Bylaws by
attendance in person, or by proxy if a stockholder, at any meeting, except when
such person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, or by a writing signed by the person or
persons entitled to said notice, whether before or after the time stated in said
notice, which waiver shall be deemed equivalent to such notice. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee appointed by the Board
of Directors need be specified in any written waiver of notice.
ARTICLE X
Checks, Notes, Drafts, Contracts, Voting of Securities, Etc.
Section 10.1. Checks, Notes, Drafts, Etc. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
Section 10.2. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation, to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
Section 10.3 Provision Regarding Conflicts of Interests. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
11
<PAGE>
(a) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 10.4. Voting of Securities Owned by the Corporation. Subject
always to the specific directions of the Board of Directors, any share or shares
of stock or other securities issued by any other entity and owned or controlled
by the Corporation may be voted, whether by written consent as set forth
hereinbelow or at any meeting of such other corporation, by the President or the
Chief Executive Officer of the Corporation, or in their absence, by any
Executive Vice President of the Corporation who may be present at such meeting
or available to sign such written consent. Whenever in the judgment of the
President or the Chief Executive Officer, or in their absence, of any Executive
Vice President, it shall be desirable for the Corporation to execute a proxy or
give a consent with respect to any share or shares of stock or other securities
issued by any other entity and owned by the Corporation, such proxy or consent
shall be executed in the name of the Corporation by the President or the Chief
Executive Officer or one of the Executive Vice Presidents of the Corporation
without necessity of any authorization by the Board of Directors. Any person or
persons so designated as the proxy or proxies of the Corporation shall have full
right, power and authority to vote the share or shares of stock or other
securities issued by such other entity and owned by the Corporation.
ARTICLE XI
Indemnification
Section 11.1. Indemnification Agreement. Any and all terms, conditions,
covenants and provisions regarding the indemnification of directors, officers,
employees or agents of the Corporation are set forth in the provisions of an
indemnification agreement executed by such director, officer, employee or agent
of the Corporation, a sample of which is marked Exhibit "A," attached hereto and
made a part hereof.
12
<PAGE>
Section 11.2. Indemnification Not Exclusive. The provisions regarding
indemnification contained in this Article XI or any indemnification agreement,
if any, shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under the Certificate of Incorporation,
any agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 11.3. Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans) against any liability
assessed against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article XI or
an indemnification agreement, if any.
13
<PAGE>
POOLING AND SERVICING AGREEMENT
Relating to
IMC HOME EQUITY LOAN TRUST 199___
Among
IMC SECURITIES, INC.
as Depositor,
INDUSTRY MORTGAGE COMPANY, L.P.,
as Seller,
INDUSTRY MORTGAGE COMPANY, L.P.,
as Servicer
and
---------------
as Trustee
Dated as of __________ 1, 199__
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
CONVEYANCE...................................................................................................... 1
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION...................................... 2
Section 1.01 Definitions................................................................. 2
-----------
Section 1.02 Use of Words and Phrases.................................................... 36
------------------------
Section 1.03 Captions; Table of Contents................................................. 36
---------------------------
Section 1.04 Opinions.................................................................... 36
--------
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST................................. 37
Section 2.01 Establishment of the Trust.................................................. 37
--------------------------
Section 2.02 Office...................................................................... 37
------
Section 2.03 Purposes and Powers......................................................... 37
-------------------
Section 2.04 Appointment of the Trustee; Declaration of Trust............................ 37
------------------------------------------------
Section 2.05 Expenses of the Trust....................................................... 37
---------------------
Section 2.06 Ownership of the Trust...................................................... 37
----------------------
Section 2.07 Situs of the Trust.......................................................... 38
------------------
Section 2.08 Miscellaneous REMIC Provisions.............................................. 38
------------------------------
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE SERVICER AND THE SELLER;
COVENANT OF SELLER TO CONVEY HOME EQUITY LOANS................................ 40
Section 3.01 Representations and Warranties of the Depositor............................. 40
-----------------------------------------------
Section 3.02 Representations and Warranties of the Servicer.............................. 42
----------------------------------------------
Section 3.03 Representations and Warranties of the Seller................................ 44
--------------------------------------------
Section 3.04 Covenants of Seller to Take Certain Actions with Respect to the Home
--------------------------------------------------------------------
Equity Loans in Certain Situations.......................................... 46
Section 3.05 Conveyance of the Initial Home Equity Loans and Qualified Replacement
---------------------------------------------------------------------
Mortgages................................................................... 53
---------
Section 3.06 Acceptance by Trustee; Certain Substitutions of Home Equity Loans;
------------------------------------------------------------------
Certification by Trustee.................................................... 57
------------------------
Section 3.07 Conveyance of the Subsequent Home Equity Loans.............................. 58
----------------------------------------------
Section 3.08 Custodian................................................................... 60
---------
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES...................................... 61
Section 4.01 Issuance of Certificates.................................................... 61
------------------------
Section 4.02 Sale of Certificates........................................................ 61
--------------------
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS.................................... 62
Section 5.01 Terms....................................................................... 62
-----
i
<PAGE>
Section 5.02 Forms....................................................................... 62
-----
Section 5.03 Execution, Authentication and Delivery...................................... 62
--------------------------------------
Section 5.04 Registration and Transfer of Certificates................................... 63
-----------------------------------------
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates........................... 65
-------------------------------------------------
Section 5.06 Persons Deemed Owners....................................................... 65
---------------------
Section 5.07 Cancellation................................................................ 66
------------
Section 5.08 Limitation on Transfer of Ownership Rights.................................. 66
------------------------------------------
Section 5.09 Assignment of Rights........................................................ 67
--------------------
ARTICLE VI
COVENANTS.................................................. 68
Section 6.01 Distributions............................................................... 68
-------------
Section 6.02 Money for Distributions to be Held in Trust; Withholding.................... 68
--------------------------------------------------------
Section 6.03 Protection of Trust Estate.................................................. 69
--------------------------
Section 6.04 Performance of Obligations.................................................. 70
--------------------------
Section 6.05 Negative Covenants.......................................................... 70
------------------
Section 6.06 No Other Powers............................................................. 70
---------------
Section 6.07 Limitation of Suits......................................................... 70
-------------------
Section 6.08 Unconditional Rights of Owners to Receive Distributions..................... 71
-------------------------------------------------------
Section 6.09 Rights and Remedies Cumulative.............................................. 71
------------------------------
Section 6.10 Delay or Omission Not Waiver................................................ 72
----------------------------
Section 6.11 Control by Owners........................................................... 72
-----------------
Section 6.12 Indemnification by the Seller............................................... 72
-----------------------------
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES..................................... 73
Section 7.01 Collection of Money......................................................... 73
-------------------
Section 7.02 Establishment of Accounts................................................... 73
-------------------------
Section 7.03 Flow of Funds............................................................... 74
-------------
Section 7.04 Pre-Funding Account and Capitalized Interest Account........................ 77
----------------------------------------------------
Section 7.05 Investment of Accounts...................................................... 78
----------------------
Section 7.06 Payment of Trust Expenses................................................... 79
-------------------------
Section 7.07 Eligible Investments........................................................ 79
--------------------
Section 7.08 Accounting and Directions by Trustee........................................ 80
------------------------------------
Section 7.09 Reports by Trustee to Owners and Certificate Insurer........................ 81
----------------------------------------------------
Section 7.10 Reports by Trustee. ....................................................... 83
------------------
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF HOME EQUITY LOANS............................................. 85
Section 8.01 Servicer and Sub-Servicers.................................................. 85
--------------------------
Section 8.02 Collection of Certain Home Equity Loan Payments............................. 86
-----------------------------------------------
Section 8.03 Sub-Servicing Agreements Between Servicer and Sub-Servicers................. 86
-----------------------------------------------------------
Section 8.04 Successor Sub-Servicers..................................................... 87
-----------------------
Section 8.05 Liability of Servicer; Indemnification...................................... 87
--------------------------------------
Section 8.06 No Contractual Relationship Between Sub-Servicer, Trustee or the
----------------------------------------------------------------
Owners...................................................................... 87
Section 8.07 Assumption or Termination of Sub-Servicing Agreement by Trustee............. 88
---------------------------------------------------------------
ii
<PAGE>
Section 8.08 Principal and Interest Account.............................................. 88
------------------------------
Section 8.09 Delinquency Advances and Servicing Advances................................. 90
-------------------------------------------
Section 8.10 Compensating Interest; Repurchase of Home Equity Loans...................... 90
------------------------------------------------------
Section 8.11 Maintenance of Insurance.................................................... 91
------------------------
Section 8.12 Due-on-Sale Clauses; Assumption and Substitution Agreements................. 92
-----------------------------------------------------------
Section 8.13 Realization Upon Defaulted Home Equity Loans; Workout of Home
-------------------------------------------------------------
Equity Loans................................................................ 92
Section 8.14 Trustee to Cooperate; Release of Files...................................... 94
--------------------------------------
Section 8.15 Servicing Compensation...................................................... 95
----------------------
Section 8.16 Annual Statement as to Compliance........................................... 95
---------------------------------
Section 8.17 Annual Independent Certified Public Accountants' Reports.................... 95
--------------------------------------------------------
Section 8.18 Access to Certain Documentation and Information Regarding the Home
------------------------------------------------------------------
Equity Loans................................................................ 95
------------
Section 8.19 Assignment of Agreement..................................................... 96
-----------------------
Section 8.20 Removal of Servicer; Retention of Servicer; Resignation of Servicer......... 96
-------------------------------------------------------------------
Section 8.21 Inspections by Certificate Insurer; Errors and Omissions Insurance.......... 99
------------------------------------------------------------------
Section 8.22 Additional Servicing Responsibilities for Second Mortgage Loans.............100
---------------------------------------------------------------
ARTICLE IX
TERMINATION OF TRUST.............................................101
Section 9.01 Termination of Trust........................................................101
--------------------
Section 9.02 Termination Upon Option of Owners of Class R Certificates...................101
---------------------------------------------------------
Section 9.03 Termination Upon Loss of REMIC Status.......................................102
-------------------------------------
Section 9.04 Disposition of Proceeds.....................................................104
-----------------------
ARTICLE X
THE TRUSTEE.................................................105
Section 10.01 Certain Duties and Responsibilities.........................................105
-----------------------------------
Section 10.02 Removal of Trustee for Cause................................................107
----------------------------
Section 10.03 Certain Rights of the Trustee...............................................108
-----------------------------
Section 10.04 Not Responsible for Recitals or Issuance of Certificates....................109
--------------------------------------------------------
Section 10.05 May Hold Certificates.......................................................109
---------------------
Section 10.06 Money Held in Trust.........................................................109
-------------------
Section 10.07 Compensation and Reimbursement..............................................110
------------------------------
Section 10.08 Corporate Trustee Required; Eligibility.....................................110
---------------------------------------
Section 10.09 Resignation and Removal; Appointment of Successor...........................110
-------------------------------------------------
Section 10.10 Acceptance of Appointment by Successor Trustee..............................112
----------------------------------------------
Section 10.11 Merger, Conversion, Consolidation or Succession to Business of the
------------------------------------------------------------------
Trustee.....................................................................112
Section 10.12 Reporting; Withholding......................................................112
----------------------
Section 10.13 Liability of the Trustee....................................................113
------------------------
Section 10.14 Appointment of Co-Trustee or Separate Trustee...............................113
---------------------------------------------
ARTICLE XI
MISCELLANEOUS................................................115
Section 11.01 Compliance Certificates and Opinions........................................115
------------------------------------
Section 11.02 Form of Documents Delivered to the Trustee..................................115
------------------------------------------
iii
<PAGE>
Section 11.03 Acts of Owners..............................................................116
--------------
Section 11.04 Notices, etc. to Trustee....................................................116
------------------------
Section 11.05 Notices and Reports to Owners; Waiver of Notices............................117
------------------------------------------------
Section 11.06 Rules by Trustee and Seller.................................................117
---------------------------
Section 11.07 Successors and Assigns......................................................117
----------------------
Section 11.08 Severability................................................................117
------------
Section 11.09 Benefits of Agreement.......................................................117
---------------------
Section 11.10 Legal Holidays..............................................................118
--------------
Section 11.11 Governing Law; Submission to Jurisdiction...................................118
-----------------------------------------
Section 11.12 Counterparts................................................................119
------------
Section 11.13 Usury.......................................................................119
-----
Section 11.14 Amendment...................................................................119
---------
Section 11.15 Paying Agent; Appointment and Acceptance of Duties..........................120
--------------------------------------------------
Section 11.16 REMIC Status................................................................120
------------
Section 11.17 Additional Limitation on Action and Imposition of Tax.......................122
-----------------------------------------------------
Section 11.18 Appointment of Tax Matters Person...........................................123
---------------------------------
Section 11.19 The Certificate Insurer.....................................................123
-----------------------
Section 11.20 Maintenance of Security Interest............................................123
--------------------------------
Section 11.21 Third Party Rights..........................................................124
------------------
Section 11.22 Notices.....................................................................124
-------
Section 11.23 Rule 144A Information.......................................................125
---------------------
Section 12.01 Trust Estate and Accounts Held for Benefit of the Certificate Insurer.......127
---------------------------------------------------------------------
Section 12.02 Claims Upon the Policy; Policy Payments Account.............................127
-----------------------------------------------
Section 12.03 Effect of Payments by the Certificate Insurer; Subrogation..................128
----------------------------------------------------------
Section 12.04 Notices to the Certificate Insurer..........................................129
----------------------------------
Section 12.05 Third-Party Beneficiary.....................................................129
-----------------------
Section 12.06 Rights to the Certificate Insurer To Exercise Rights of Owners..............129
--------------------------------------------------------------
SCHEDULE I-A SCHEDULE OF ADJUSTABLE RATE
HOME EQUITY LOANS
SCHEDULE I-B SCHEDULE OF FIXED RATE HOME EQUITY LOANS
EXHIBIT A-1 FORM OF CLASS A-1 CERTIFICATE
EXHIBIT A-2 FORM OF CLASS A-2 CERTIFICATE
EXHIBIT A-3 FORM OF CLASS A-3 CERTIFICATE
EXHIBIT A-4 FORM OF CLASS A-4 CERTIFICATE
EXHIBIT A-5 FORM OF CLASS A-5 CERTIFICATE
EXHIBIT A-6 FORM OF CLASS A-6 CERTIFICATE
EXHIBIT A-7 FORM OF CLASS A-7 CERTIFICATE
EXHIBIT A-8 FORM OF CLASS A-8 CERTIFICATE
EXHIBIT B FORM OF CLASS S CERTIFICATE
EXHIBIT C FORM OF CLASS R CERTIFICATE
EXHIBIT D FORM OF SUBSEQUENT TRANSFER AGREEMENT
EXHIBIT E FORM OF CERTIFICATE RE: HOME EQUITY LOANS
PREPAID IN FULL AFTER CUT-OFF DATE
EXHIBIT F-1 FORM OF TRUSTEE'S RECEIPT
EXHIBIT F-2 FORM OF CUSTODIAN'S RECEIPT
EXHIBIT G FORM OF POOL CERTIFICATION
EXHIBIT H FORM OF DELIVERY ORDER
EXHIBIT I FORM OF CLASS R TAX MATTERS TRANSFER CERTIFICATE
iv
<PAGE>
EXHIBIT J-1 FORM OF CERTIFICATE REGARDING TRANSFER
(ACCREDITED INVESTOR)
EXHIBIT J-2 FORM OF CERTIFICATE REGARDING TRANSFER (RULE 144A)
EXHIBIT K HOME EQUITY LOANS WITH DOCUMENT EXCEPTIONS
</TABLE>
v
<PAGE>
POOLING AND SERVICING AGREEMENT, relating to IMC HOME EQUITY LOAN TRUST
199___, dated as of ________ 1, 199_ by and among IMC SECURITIES, INC., a
Delaware corporation, in its capacity as Depositor (the "Depositor"), INDUSTRY
MORTGAGE COMPANY, L.P., a Delaware limited partnership in its capacities as the
Seller (in such capacity, the "Seller") and as the Servicer (in such capacity,
the "Servicer"), and _________________________________ ___________, in its
capacity as the trustee (the "Trustee").
WHEREAS, the Seller wishes to establish a trust and provide for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution of the trust estate;
WHEREAS, the Servicer has agreed to service the Home Equity Loans,
which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when executed
and authenticated by the Trustee valid instruments, and to make this Agreement a
valid agreement, in accordance with their and its terms, have been done;
WHEREAS, _____________, is willing to serve in the capacity of Trustee
hereunder; and
WHEREAS, _________________________________ (the "Certificate Insurer")
is intended to be a third party beneficiary of this Agreement and is hereby
recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Depositor, the Seller, the Servicer, and the
Trustee hereby agree as follows:
CONVEYANCE
To provide for the distribution of the principal of and/or interest on
the Class A Certificates, the Class S Certificates and the Class R Certificates
in accordance with their terms, all of the sums distributable under this
Agreement with respect to the Certificates and the performance of the covenants
contained in this Agreement, the Seller hereby bargains, sells, conveys, assigns
and transfers to the Depositor and the Depositor hereby bargains, sells,
conveys, assigns and transfers to the Trustee, in trust, without recourse and
for the exclusive benefit of the Owners of the Certificates, all of the Seller's
right, title and interest in and to any and all benefits accruing to the Seller
from (a) the Initial Home Equity Loans (other than any principal and interest
payments due thereon on or prior to ________ 1, 199_ whether or not received)
listed in Schedule I to this Agreement which the Seller is causing to be
delivered to the Depositor and the Depositor is causing to be delivered to the
Trustee herewith and the Subsequent Home Equity Loans (other than any principal
and interest payments due thereon on or prior to the related Subsequent Cut-Off
Date whether or not received) listed in Schedule I to any Subsequent Transfer
Agreement, which the Seller will cause to be delivered to the Depositor and the
Depositor will cause to be delivered to the Trustee (and all substitutions for
such Home Equity Loans as provided by Section 3.03, 3.04 and 3.06), together
with the related Home Equity Loan documents and the Seller's interest in any
Property which secured a Home Equity Loan but which has been acquired by
foreclosure or deed in lieu of foreclosure, and all payments thereon and
proceeds of the conversion, voluntary or involuntary, of the foregoing; (b) such
amounts as may be held by the Trustee in the Certificate Account, the Pre-
Funding Account, the Capitalized Interest Account, and the Upper-Tier
Distribution Account together with investment earnings on such amounts and such
amounts as may be held in the name of the Trustee in the Principal and Interest
Account, if any, exclusive of investment earnings thereon (except as otherwise
provided herein), whether in the form of cash, instruments, securities or other
properties (including any Eligible Investments held by the Servicer) and (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, hazard insurance and title insurance policy
relating to the Home Equity Loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other
<PAGE>
forms of obligations and receivables which at any time constitute all or part of
or are included in the proceeds of any of the foregoing) to pay the Certificates
as specified herein ((a)-(c) above shall be collectively referred to herein as
the "Trust Estate"). In addition to the foregoing, the Seller shall cause the
Certificate Insurer to deliver the Insurance Policy to the Trustee for the
benefit of the Owners of the Class A Certificates and the Class S Certificates.
The Trustee acknowledges such sale, accepts the Trust hereunder in
accordance with the provisions hereof and the Trustee agrees to perform the
duties herein to the best of its ability to the end that the interests of the
Owners may be adequately and effectively protected.
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01 Definitions.
-----------
For all purposes of this Agreement, the following terms shall have the
meanings set forth below, unless the context clearly indicates otherwise:
"Account": Any account established in accordance with Section 7.02 or
8.08 hereof.
"Accrual Period": With respect to the Fixed Rate Certificates and any
Payment Date, the calendar month immediately preceding the month in which the
Payment Date occurs; a "calendar month" shall be deemed to be 30 days. With
respect to the Class A-8 Certificates and any Payment Date, the period
commencing on the immediately preceding Payment Date (or the Closing Date in the
case of the first Payment Date) and ending on the day immediately preceding the
current Payment Date. All calculations of interest on the Fixed Rate
Certificates will be made on the basis of a 360-day year assumed to consist of
twelve 30 day months and calculations of interest on the Class A-8 Certificates
will be made on the basis of the actual number of days elapsed in the related
Accrual Period and in a year of 360 days.
"Addition Notice": With respect to the transfer of Subsequent Home
Equity Loans to the Trust for inclusion in the Fixed Rate Group pursuant to
Section 3.07 hereof, notice given not less than ten Business Days prior to the
related Subsequent Transfer Date of the Depositor's designation of Subsequent
Home Equity Loans to be sold to the Trust for inclusion in the Fixed Rate Group
and the aggregate Loan Balance of such Subsequent Home Equity Loans.
"Adjustable Rate Group": The pool of Home Equity Loans identified in
the related Schedule of Home Equity Loans as having been assigned to the
Adjustable Rate Group in Schedule I-A hereto, including any Qualified
Replacement Mortgages delivered in replacement thereof.
"Adjustable Rate Group Available Funds": As defined in Section
[7.02(d)] hereof.
"Adjustable Rate Group Available Funds Shortfall": As defined in
Section [7.03(c)(ii)(A)] hereof.
"Adjustable Rate Group Initial Specified Subordinated Amount": As
defined in the Insurance Agreement.
"Adjustable Rate Group Interest Remittance Amount": As of any Monthly
Remittance Date, the sum, without duplication, of (i) all interest due during
the related Remittance Period with respect to the Home Equity Loans in the
Adjustable Rate Group, (ii) all Compensating Interest paid by the Servicer on
2
<PAGE>
such Monthly Remittance Date with respect to the Adjustable Rate Group and (iii)
the portion of the Substitution Amount relating to interest on the Home Equity
Loans in the Adjustable Rate Group.
"Adjustable Rate Group Monthly Remittance Amount": As of any Monthly
Remittance Date, the sum of (i) the Adjustable Rate Group Interest Remittance
Amount and (ii) the Adjustable Rate Group Principal Remittance Amount for such
Monthly Remittance Date.
"Adjustable Rate Group Principal Distribution Amount": With respect to
the Class A-8 Certificates for any Payment Date, the lesser of:
(a) the Adjustable Rate Group Total Available Funds plus any Insured
Payment with respect to the Class A-8 Certificates minus the Class A-8 Current
Interest; and
(b) the excess, if any, of (i) the sum of:
(A) the Preference Amount owed to the Owners of the
Class A-8 Certificates as such amounts relate to principal
previously distributed on the Class A-8 Certificates,
(B) the principal actually collected by the Servicer
with respect to Home Equity Loans in the Adjustable Rate Group
during the related Remittance Period,
(C) the Loan Balance of each Home Equity Loan in the
Adjustable Rate Group that was repurchased by the Seller or
purchased by the Servicer on or prior to the related Monthly
Remittance Date, to the extent such Loan Balance is actually
received by the Trustee on or prior to the related Monthly
Remittance Date,
(D) any Substitution Amounts delivered by the Seller
on the related Monthly Remittance Date in connection with a
substitution of a Home Equity Loan in the Adjustable Rate
Group (to the extent such Substitution Amounts relate to
principal), to the extent such Substitution Amounts are
actually received by the Trustee on or prior to the related
Monthly Remittance Date,
(E) all Net Liquidation Proceeds actually collected
by the Servicer with respect to Home Equity Loans in the
Adjustable Rate Group during the related Remittance Period (to
the extent such Net Liquidation Proceeds relate to principal)
to the extent such Net Liquidation Proceeds are actually
received by the Trustee on or prior to the related Monthly
Remittance Date,
(F) the amount of any Subordination Deficit with
respect to the Adjustable Rate Group for such Payment Date,
(G) the portion of the proceeds received by the
Trustee with respect to the Adjustable Rate Group from any
termination of the Trust (to the extent such proceeds related
to principal), and
(H) the amount of any Subordination Increase Amount
with respect to the Adjustable Rate Group for such Payment
Date, to the extent of any Net Monthly Excess Cashflow
available for such purpose;
over
----
3
<PAGE>
(ii) the amount of any Subordination Reduction Amount with
respect to the Adjustable Rate Group for such Payment Date.
"Adjustable Rate Group Principal Remittance Amount": As of any Monthly
Remittance Date, the sum, without duplication, of (i) the principal actually
collected by the Servicer with respect to Home Equity Loans in the Adjustable
Rate Group during the related Remittance Period, (ii) the Loan Balance of each
such Home Equity Loan that was purchased from the Trustee on or prior to such
Monthly Remittance Date, to the extent such Loan Balance was actually deposited
in the Principal and Interest Account, (iii) any Substitution Amounts relating
to principal delivered by the Seller in connection with a substitution of a Home
Equity Loan in the Adjustable Rate Group, to the extent such Substitution
Amounts were actually deposited in the Principal and Interest Account on or
prior to such Monthly Remittance Date, and (iv) all Net Liquidation Proceeds
actually collected by the Servicer with respect to such Home Equity Loans in the
Adjustable Rate Group during the related Remittance Period (to the extent such
Net Liquidation Proceeds related to principal).
"Adjustable Rate Group Specified Subordinated Amount": As defined in
the Insurance Agreement.
"Adjustable Rate Group Subordinated Amount": As of any Payment Date,
the excess, if any, of (x) Loan Balances of the Home Equity Loans in the
Adjustable Rate Group as of the close of business on the last day of the related
Remittance Period over (y) the Class A-8 Certificate Principal Balance as of
such Payment Date (after taking into account the payment of the Class A-8
Distribution Amount thereon (except for any Subordination Deficit with respect
to the Adjustable Rate Group and Subordination Increase Amount with respect to
the Adjustable Rate Group) on such Payment Date).
"Adjustable Rate Group Total Available Funds: As defined in Section
[7.02(d)] hereof.
"Adjustable Rate Group Total Monthly Excess Spread": With respect to
the Adjustable Rate Group and any Payment Date, the excess, if any, of (i) the
interest which is collected on the Home Equity Loans in such Group during the
related Remittance Period less the related Servicing Fee with respect to such
Home Equity Loan Group plus (x) any Delinquency Advances and (y) Compensating
Interest paid by the Servicer with respect to the Adjustable Rate Group for such
Remittance Period over (iii) the interest due on the Class A-8 Certificates on
such Payment Date.
"Adjusted Pass-Through Rate": As of any date of determination thereof,
a rate equal to the sum of (a) the Weighted Average Pass-Through Rate, (b) the
Class S Pass-Through Rate, and (c) any portion of the Premium Amount and the
Trustee Fee (calculated as a percentage of the outstanding principal amount of
the Certificates) then accrued and outstanding.
"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement, as it may be amended
from time to time, including the Exhibits and Schedules hereto.
"Agreement of Limited Partnership": The Third Amended and Restated
Agreement of Limited Partnership of the Seller, dated as of November 1, 1995, as
at any time amended or modified.
4
<PAGE>
"Annual Loss Percentage (Rolling Twelve Month)": As of any date of
determination thereof, a fraction, expressed as a percentage, the numerator of
which is the aggregate of the Realized Losses as of the last day of the calendar
month of each Remittance Period for the twelve immediately preceding Remittance
Periods and the denominator of which is the Maximum Collateral Amount.
"Appraised Value": The appraised value of any Property based upon the
appraisal made at the time of the origination of the related Home Equity Loan,
or, in the case of a Home Equity Loan which is a purchase money mortgage, the
sales price of the Property at such time of origination, if such sales price is
less than such appraised value.
"Authorized Officer": With respect to any Person, any officer of such
Person who is authorized to act for such Person in matters relating to this
Agreement, and whose action is binding upon, such Person; with respect to the
Depositor, the Seller and the Servicer, initially including those individuals
whose names appear on the lists of Authorized Officers delivered at the Closing;
with respect to the Trustee, any officer assigned to the Corporate Trust
Division (or any successor thereto), including any Vice President, Assistant
Vice President, Trust Officer, any Assistant Secretary, any trust officer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having direct
responsibility for the administration of this Agreement.
"Available Funds": As defined in Section [7.02(b)] hereof.
"Backup Servicer": The Trustee shall initially serve as Backup Servicer
hereunder in the event of the termination of the Servicer, subject to the right
of the Trustee to assign such duties to a party acceptable to the Certificate
Insurer and the Owners of the majority of the Percentage Interests of the Class
R Certificates.
"Base REMIC": The Trust Estate (other than the Upper-Tier Distribution
Account (which is an asset of the Upper-Tier REMIC), the Pre-Funding Account and
the Capitalized Interest Account).
"Base REMIC Interest 1": The interest of that name established pursuant
to Section 2.08(a) hereof.
"Base REMIC Interest 2": The interest of that name established pursuant
to Section 2.08(a) hereof.
"Base REMIC Interest 3": The interest of that name established pursuant
to Section 2.08(a) hereof.
"Base REMIC Interest 4": The interest of that name established pursuant
to Section 2.08(a) hereof.
"Base REMIC Interest 5": The interest of that name established pursuant
to Section 2.08(a) hereof.
"Base REMIC Interest 6": The interest of that name established pursuant
to Section 2.08(a) hereof.
"Base REMIC Interest 7": The interest of that name established pursuant
to Section 2.08(a) hereof.
5
<PAGE>
"Base REMIC Interest 8": The interest of that name established pursuant
to Section 2.08(a) hereof.
"Base REMIC Interest 1 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 1 is reduced to zero through the
distribution made in respect of Base REMIC Interest 1 on such Payment Date.
"Base REMIC Interest 2 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 2 is reduced to zero through the
distribution made in respect of Base REMIC Interest 2 on such Payment Date.
"Base REMIC Interest 3 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 3 is reduced to zero through the
distribution made in respect of Base REMIC Interest 3 on such Payment Date.
"Base REMIC Interest 4 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 4 is reduced to zero through the
distribution made in respect of Base REMIC Interest 4 on such Payment Date.
"Base REMIC Interest 5 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 5 is reduced to zero through the
distribution made in respect of Base REMIC Interest 5 on such Payment Date.
"Base REMIC Interest 6 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 6 is reduced to zero through the
distribution made in respect of Base REMIC Interest 6 on such Payment Date.
"Base REMIC Interest 7 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 7 is reduced to zero through the
distribution made in respect of Base REMIC Interest 7 on such Payment Date.
"Base REMIC Interest 8 Termination Date": The Payment Date on which the
Lower-Tier Balance of Base REMIC Interest 8 is reduced to zero through the
distribution made in respect of Base REMIC Interest 8 on such Payment Date.
"Base REMIC Residual Class": With respect to the Base REMIC, the
interest therein designated as the "residual interest" for the purposes of the
REMIC Provisions. The Base REMIC Residual Class shall be uncertificated, and
shall be issuable only in Percentage Interests of ______% to
_____________________, _______% to the Seller and _____% to _______________, as
Tax Matters Person. Such interests shall be non-transferrable, except that
_______________ may assign such interest to another person who accepts such
assignment and the designation as Tax Matters Person pursuant to Section 12.18
hereof.
"Business Day": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in The City of New York, Tampa, Florida or
the city in which the Corporate Trust Office is located, are authorized or
obligated by law or executive order to be closed.
"Capitalized Interest Account": The Capitalized Interest Account
established in accordance with Section [7.02(a)] hereof and maintained by the
Trustee.
6
<PAGE>
"Capitalized Interest Requirement": With respect to the Payment Dates
occurring in _________, _________ and ________ ____, the excess, if any, of (i)
the sum of the amount of interest accruing at a rate equal to the sum of the (A)
weighted average of the then outstanding Class A-1 Pass-Through Rate, Class A-2
Pass-Through Rate, Class A-3 Pass-Through Rate, Class A-4 Pass-Through Rate,
Class A-5 Pass-Through Rate, Class A-6 Pass-Through Date and Class A-7
Pass-Through Rate (weighted by Certificate Principal Balance assuming a ___
constant prepayment rate) plus (B) the Trustee Fee and the Premium Amount
allocable to the Fixed Rate Group (such fees and amounts expressed as a per
annum percentage of the aggregate Loan Balance of the Home Equity Loans in the
Fixed Rate Group) (a) on the aggregate Loan Balances of the Subsequent Home
Equity Loans transferred to the Trust for inclusion in the Fixed Rate Group on
each Subsequent Transfer Date during the month preceding the related Payment
Date for the period from the first day of the related Remittance Period to the
related Subsequent Cut-Off Date (provided, however, that with respect to a
Subsequent Home Equity Loan for which no payment is due during the period
commencing on the Subsequent Transfer Date and ending on the last day of the
related Remittance Period, 30 days interest on such Subsequent Home Equity
Loans), plus (b) on the Pre- Funded Amount outstanding as of the end of the
Accrual Period for a period of 30 days over (ii) any Pre- Funding Account
Earnings to be transferred to the Capitalized Interest Account on the related
Payment Date pursuant to Section [7.04 (d)] hereof.
"Carry-Forward Amount": With respect to any Class of the Class A
Certificates and any Payment Date, the sum of (x) the amount, if any, by which
(i) the Class A Current Interest for such Class for the immediately preceding
Payment Date exceeded (ii) the amount of the actual distribution made to the
Owners of the Class A Certificates on such immediately preceding Payment Date
pursuant to Section 7.03(c)(iv)(B) hereof plus (y) 30 days' interest on such
excess at the Pass-Through Rate for the related Class of Class A Certificate.
"Certificate": Any one of the Class A Certificates, Class S
Certificates or the Class R Certificates, each representing the interests and
the rights described in this Agreement.
"Certificate Account": The segregated certificate account established
in accordance with Section 7.02(a) hereof and maintained at the Corporate Trust
Office entitled "_____________ as Trustee on behalf of the Owners of the IMC
Home Equity Loan Trust 199___, Home Equity Loan Pass-Through Certificates."
"Certificate Insurance Policy": The certificate guaranty insurance
policy (number _______) dated __________, ____ issued by the Certificate Insurer
for the benefit of the Owners of the Class A Certificates, and the Class S
Certificates pursuant to which the Certificate Insurer guarantees Insured
Payments.
"Certificate Insurer": ______________________________, a stock
insurance company organized and created under the laws of the State of New York
and any successor thereto, as issuer of the Certificate Insurance Policy.
"Certificate Insurer Default": The existence and continuance of any of
the following:
(a) the Certificate Insurer fails to make a payment required
under the Certificate Insurance Policy in accordance with its terms; or
(b)(i) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Certificate
Insurer in an involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, rehabilitation, reorganization or other
similar law
7
<PAGE>
or (B) a decree or order adjudging the Certificate Insurer as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganizing,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Certificate Insurer under any applicable United States federal or state law, or
appointing a custodian, receiver, liquidator, rehabilitator, assignee, trustee,
sequestrator or other similar official of the Certificate Insurer or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60 consecutive
days; or
(ii) the commencement by the Certificate Insurer of a
voluntary case or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated as bankrupt or insolvent, or the consent of the
Certificate Insurer to the entry of a decree or order for relief in respect of
the Certificate Insurer in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency case or
proceeding against the Certificate Insurer, or the filing by the Certificate
Insurer to the filing of such petition or to the appointment of or the taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Certificate Insurer or of any substantial part of its
property, or the making by the Certificate Insurer to pay debts generally as
they become due, or the admission by the Certificate Insurer in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Certificate Insurer in furtherance of any such action.
"Certificate Principal Balance": As of the Startup Day as to each of
the following Classes of Class A Certificates, the Certificate Principal
Balances thereof, as follows:
Class A-1 Certificates - $
Class A-2 Certificates - $
Class A-3 Certificates - $
Class A-4 Certificates - $
Class A-5 Certificates - $
Class A-6 Certificates - $
Class A-7 Certificates - $
Class A-8 Certificates - $
The Class S Certificates and the Class R Certificates do not
have a Certificate Principal Balance.
"Class": Any Class of the Class A Certificates, the Class S
Certificates or the Class R Certificates.
"Class A Certificate": Any one of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates, Class A-6 Certificates, Class A-7 Certificates or Class A-8
Certificates.
"Class A Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A Certificates less the aggregate of all amounts actually distributed on
account of the Class A Distribution Amount pursuant to Section 7.03(c)(iv)
hereof with respect to principal thereon on all prior Payment Dates; provided,
however, that solely for purposes of determining the Certificate Insurer's
rights, as subrogee, the Class A Certificate Principal Balance shall not be
reduced by any principal amount paid to the Owner thereof from Insured Payments.
8
<PAGE>
"Class A Certificate Termination Date": With respect to the Class A-1
Certificates, the Class A-1 Certificate Termination Date, with respect to the
Class A-2 Certificates, the Class A-2 Certificate Termination Date, with respect
to the Class A-3 Certificates, the Class A-3 Certificate Termination Date, with
respect to the Class A-4 Certificates, the Class A-4 Certificate Termination
Date, with respect to the Class A-5 Certificates, the Class A-5 Certificate
Termination Date, with respect to the Class A-6 Certificates, the Class A-6
Certificate Termination Date, with respect to the Class A-7 Certificates, the
Class A-7 Certificate Termination Date and with respect to the Class A-8
Certificates, the Class A-8 Certificate Termination Date.
"Class A Distribution Amount": The Class A-1 Distribution Amount, the
Class A-2 Distribution Amount, the Class A-3 Distribution Amount, the Class A-4
Distribution Amount, the Class A-5 Distribution Amount, the Class A-6
Distribution Amount, the Class A-7 Distribution Amount and the Class A-8
Distribution Amount.
"Class A-1 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-1 Certificate, substantially in the form annexed
hereto as Exhibit A-1 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC for purposes of the
REMIC Provisions.
"Class A-1 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-1 Certificates less the aggregate of all amounts actually distributed
with respect to the Class A-1 Distribution Amount pursuant to Section
7.03(c)(iv) hereof with respect to principal thereon on all prior Payment Dates;
provided, however, that solely for the purposes of determining the Certificate
Insurer's rights, as subrogee, the Class A-1 Certificate Principal Balance shall
not be reduced by any principal amounts paid to the Owners thereof from Insured
Payments.
"Class A-1 Certificate Termination Date": The Payment Date on which the
Class A-1 Certificate Principal Balance is reduced to zero.
"Class A-1 Current Interest": With respect to any Payment Date, 30
days' interest accrued on the Class A-1 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-1 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-1 Certificates as it relates to interest previously paid on the Class
A-1 Certificates, plus the Carry Forward Amount, if any, with respect to the
Class A-1 Certificates.
"Class A-1 Distribution Amount": With respect to any Payment Date, the
sum of (x) the Class A-1 Current Interest and (y) the Fixed Rate Group Principal
Distribution Amount payable to the Owners of the Class A-1 Certificates pursuant
to Section 7.03(c)(iv)(D) for such Payment Date.
"Class A-1 Pass-Through Rate": ____% per annum.
"Class A-2 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-2 Certificate, substantially in the form annexed
hereto as Exhibit A-2 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC for purposes of the
REMIC provisions.
"Class A-2 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-2 Certificates less the aggregate of all amounts actually distributed
with respect to the Class A-2 Distribution Amount pursuant to Section
7.03(c)(iv)
9
<PAGE>
hereof with respect to principal thereon on all prior Payment Dates; provided,
however, that solely for the purposes of determining the Certificate Insurer's
rights, as subrogee, the Class A-2 Certificate Principal Balance shall not be
reduced by any principal amounts paid to the Owners thereof from Insured
Payments.
"Class A-2 Certificate Termination Date": The Payment Date on which the
Class A-2 Certificate Principal Balance is reduced to zero.
"Class A-2 Current Interest": With respect to any Payment Date, 30
days' interest accrued on the Class A-2 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-2 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-2 Certificates as it relates to interest previously paid on the Class
A-2 Certificates plus the Carry-Forward Amount, if any, with respect to the
Class A-2 Certificates.
"Class A-2 Distribution Amount": With respect to any Payment Date, the
sum of (x) Class A-2 Current Interest and (y) the Fixed Rate Group Principal
Distribution Amount payable to the Owners of the Class A-2 Certificates pursuant
to Section 7.03(c)(iv)(D) for such Payment Date.
"Class A-2 Pass-Through Rate": ____% per annum.
"Class A-3 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-3 Certificate, substantially in the form annexed
hereto as Exhibit A-3 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC for purposes of the
REMIC provisions.
"Class A-3 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-3 Certificates less the aggregate of all amounts actually distributed
with respect to the Class A-3 Distribution Amount pursuant to Section
7.03(c)(iv) hereof with respect to principal thereon on all prior Payment Dates;
provided, however, that solely for the purposes of determining the Certificate
Insurer's rights, as subrogee, the Class A-3 Certificate Principal Balance shall
not be reduced by any principal amounts paid to the Owners thereof from Insured
Payments.
"Class A-3 Certificate Termination Date": The Payment Date on which the
Class A-3 Certificate Principal Balance is reduced to zero.
"Class A-3 Current Interest": With respect to any Payment Date, 30
days' interest accrued on the Class A-3 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-3 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-3 Certificates as it relates to interest previously paid on the Class
A-3 Certificates plus the Carry-Forward Amount, if any, with respect to the
Class A-3 Certificates.
"Class A-3 Distribution Amount": With respect to any Payment Date, the
sum of (x) Class A-3 Current Interest and (y) the Fixed Rate Group Principal
Distribution Amount payable to the Owners of the Class A-3 Certificates pursuant
to Section 7.03(c)(iv)(D) for such Payment Date.
"Class A-3 Pass-Through Rate": ____% per annum.
"Class A-4 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-4 Certificate, substantially in the form annexed
hereto as Exhibit A-4 authenticated and delivered by
10
<PAGE>
the Trustee, representing the right to distributions as set forth herein and
each evidencing an interest designated as a "regular interest" in the Upper-Tier
REMIC for purposes of the REMIC provisions.
"Class A-4 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-4 Certificates less the aggregate of all amounts actually distributed
with respect to the Class A-4 Distribution Amount pursuant to Section
7.03(c)(iv) hereof with respect to principal thereon on all prior Payment Dates;
provided, however, that solely for the purposes of determining the Certificate
Insurer's rights, as subrogee, the Class A-4 Certificate Principal Balance shall
not be reduced by any principal amounts paid to the Owners thereof from Insured
Payments.
"Class A-4 Certificate Termination Date": The Payment Date on which the
Class A-4 Certificate Principal Balance is reduced to zero.
"Class A-4 Current Interest": With respect to any Payment Date, 30
days' interest accrued on the Class A-4 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-4 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-4 Certificates as it relates to interest previously paid on the Class
A-4 Certificates plus the Carry-Forward Amount, if any, with respect to the
Class A-4 Certificates.
"Class A-4 Distribution Amount": With respect to any Payment Date, the
sum of (x) Class A-4 Current Interest and (y) the Fixed Rate Group Principal
Distribution Amount payable to the Owners of the Class A-4 Certificates pursuant
to Section 7.03(c)(iv)(D) for such Payment Date.
"Class A-4 Pass-Through Rate": ____% per annum.
"Class A-5 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-5 Certificate, substantially in the form annexed
hereto as Exhibit A-5 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC for purposes of the
REMIC provisions.
"Class A-5 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-5 Certificates less the aggregate of all amounts actually distributed
with respect to the Class A-5 Distribution Amount pursuant to Section
7.03(c)(iv) hereof with respect to principal thereon on all prior Payment Dates;
provided, however, that solely for the purposes of determining the Certificate
Insurer's rights, as subrogee, the Class A-5 Certificate Principal Balance shall
not be reduced by any principal amounts paid to the Owners thereof from Insured
Payments.
"Class A-5 Certificate Termination Date": The Payment Date on which the
Class A-5 Certificate Principal Balance is reduced to zero.
"Class A-5 Current Interest": With respect to any Payment Date, 30
days' interest accrued on the Class A-5 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-5 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-5 Certificates as it relates to interest previously paid on the Class
A-5 Certificates plus the Carry-Forward Amount, if any, with respect to the
Class A-5 Certificates.
11
<PAGE>
"Class A-5 Distribution Amount": With respect to any Payment Date, the
sum of (x) Class A-5 Current Interest and (y) the Fixed Rate Group Principal
Distribution Amount payable to the Owners of the Class A-5 Certificates pursuant
to Section 7.03(c)(iv)(D) for such Payment Date.
"Class A-5 Pass-Through Rate": ____% per annum.
"Class A-6 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-6 Certificate, substantially in the form annexed
hereto as Exhibit A-6 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC for purposes of the
REMIC provisions.
"Class A-6 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-6 Certificates less the aggregate of all amounts actually distributed
with respect to the Class A-6 Distribution Amount pursuant to Section
7.03(c)(iv) hereof with respect to principal thereon on all prior Payment Dates;
provided, however, that solely for the purposes of determining the Certificate
Insurer's rights, as subrogee, the Class A-6 Certificate Principal Balance shall
not be reduced by any principal amounts paid to the Owners thereof from Insured
Payments.
"Class A-6 Certificate Termination Date": The Payment Date on which the
Class A-6 Certificate Principal Balance is reduced to zero.
"Class A-6 Current Interest": With respect to any Payment Date, 30
days' interest accrued on the Class A-6 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-6 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-6 Certificates as it relates to interest previously paid on the Class
A-6 Certificates plus the Carry-Forward Amount, if any, with respect to the
Class A-6 Certificates.
"Class A-6 Distribution Amount": With respect to any Payment Date, the
sum of (x) Class A-6 Current Interest and (y) the Fixed Rate Group Principal
Distribution Amount payable to the Owners of the Class A-6 Certificates pursuant
to Section 7.03(c)(iv)(D) for such Payment Date.
"Class A-6 Pass-Through Rate": ____% per annum.
"Class A-7 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-7 Certificate, substantially in the form annexed
hereto as Exhibit A-7 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in the Upper-Tier REMIC for purposes of the
REMIC provisions.
"Class A-7 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-7 Certificates less the aggregate of all amounts actually distributed
with respect to the Class A-7 Distribution Amount pursuant to Section
7.03(c)(iv) hereof with respect to principal thereon on all prior Payment Dates;
provided, however, that solely for the purposes of determining the Certificate
Insurer's rights, as subrogee, the Class A-7 Certificate Principal Balance shall
not be reduced by any principal amounts paid to the Owners thereof from Insured
Payments.
"Class A-7 Certificate Termination Date": The Payment Date on which the
Class A-7 Certificate Principal Balance is reduced to zero.
12
<PAGE>
"Class A-7 Current Interest": With respect to any Payment Date, 30
days' interest accrued on the Class A-7 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-7 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-7 Certificates as it relates to interest previously paid on the Class
A-7 Certificates plus the Carry-Forward Amount, if any, with respect to the
Class A-7 Certificates.
"Class A-7 Distribution Amount": With respect to any Payment Date, the
sum of (x) Class A-7 Current Interest and (y) the Fixed Rate Group Principal
Distribution Amount payable to the Owners of the Class A-7 Certificates pursuant
to Section 7.03(c)(iv)(D) for such Payment Date.
"Class A-7 Pass-Through Rate": ____% per annum.
"Class A-8 Certificate": Any one of the Certificates designated on the
face thereof as a Class A-8 Certificate, substantially in the form annexed
hereto as Exhibit A-8 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein.
"Class A-8 Certificate Principal Balance": As of any time of
determination, the Certificate Principal Balance as of the Startup Day of all
Class A-8 Certificates less any amounts actually distributed with respect to the
Class A-8 Distribution Amount pursuant to Section [7.03(c)(iv)] hereof with
respect to principal thereon on all prior Payment Dates (except, for purposes of
effecting the Certificate Insurer's subrogation rights, that portion of Insured
Payments made in respect of principal).
"Class A-8 Certificate Termination Date": The Payment Date on which the
Class A-8 Certificate Principal Balance is reduced to zero.
"Class A-8 Current Interest": With respect to any Payment Date, the
amount of interest accrued on the Class A-8 Certificate Principal Balance
immediately prior to such Payment Date during the related Accrual Period at the
Class A-8 Pass-Through Rate plus the Preference Amount owed to the Owners of the
Class A-8 Certificates as it relates to interest previously paid on the Class
A-8 Certificates plus the Carry-Forward Amount, if any, with respect to the
Class A-8 Certificates.
"Class A-8 Distribution Amount": The sum of (x) Class A-8 Current
Interest and (y) the Adjustable Rate Group Principal Distribution Amount payable
to the Owners of Class A-8 Certificates pursuant to Section 7.03(c)(iv)(C)
hereof.
"Class A-8 Pass-Through Rate: The lesser of (i) LIBOR plus ____% per
annum and (ii) the weighted average of the Coupon Rates of the Home Equity Loans
in the Adjustable Rate Group, less ____% per annum.
"Class R Certificate": Any one of the Certificates designated on the
face thereof as a Class R Certificate, substantially in the form annexed hereto
as Exhibit C, authenticated and delivered by the Trustee, representing the right
to distributions as set forth herein, and evidencing an interest designated as
the "residual interest" in the Upper-Tier REMIC for the purposes of the REMIC
Provisions.
"Class S Carry Forward Amount": With respect to any Payment Date, the
sum of (i) the Upper- Tier S-1 Carry Forward Amount, the Upper-Tier S-2 Carry
Forward Amount, the Upper-Tier S-3 Carry Forward Amount, the Upper-Tier S-4
Carry Forward Amount, the Upper-Tier S-5 Carry Forward Amount, the Upper-Tier
S-6 Carry Forward Amount, the Upper-Tier S-7 Carry Forward Amount and the
Upper-Tier S-8 Carry Forward Amount and (ii) 30 days' interest on such amount at
the related Class
13
<PAGE>
S-1, Class S-2, Class S-3, Class S-4, Class S-5, Class S-6, Class S-7 or Class
S-8 Pass-Through Rate, as the case may be.
"Class S Certificate": Any one of the Certificates designated on the
face thereof as a Class S Certificate, substantially in the form annexed hereto
as Exhibit B-1, authenticated and delivered by the Trustee representing the
right to distributions as set forth herein. The Class S Certificates are not
themselves an interest in a REMIC, but they represent the sum of the specified
portions of the Upper-Tier S Certificates for purposes of the REMIC Provisions.
"Class S Distribution Amount": With respect to each Payment Date, the
sum of (a) the interest accrued during the related Accrual Period (i) at the
Class S-1 Pass-Through Rate on the Class A-1 Certificate Principal Balance, (ii)
at the Class S-2 Pass-Through Rate on the Class A-2 Certificate Principal
Balance, (iii) at the Class S-3 Pass-Through Rate on the Class A-3 Certificate
Principal Balance, (iv) at the Class S-4 Pass-Through Rate on the Class A-4
Certificate Principal Balance, (v) at the Class S-5 Pass-Through Rate on the
Class A-5 Certificate Principal Balance, (vi) at the Class S-6 Pass-Through Rate
on the Class A-6 Certificate Principal Balance, (vii) at the Class S-7
Pass-Through Rate on the Class A-7 Certificate Principal Balance and (viii) at
the Class S-8 Pass-Through Rate on the Class A-8 Certificate Principal Balance,
(b) the Preference Amount, if any, for the Class S Certificates and (c) the
Class S Carry Forward Amount, if any.
"Class S Pass-Through Rate": With respect to any Payment Date, the
weighted average of the Class S-1 Pass-Through Rate, the Class S-2 Pass-Through
Rate, the Class S-3 Pass-Through Rate, the Class S-4 Pass-Through Rate, the
Class S-5 Pass-Through Rate, the Class S-6 Pass-Through Rate, the Class S-7
Pass-Through Rate and the Class S-8 Pass-Through Rate (weighted by the related
Lower-Tier Balance).
"Class S-1 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) ____%.
"Class S-2 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) ____%.
"Class S-3 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) ____%.
"Class S-4 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) ____%.
"Class S-5 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) ____%.
"Class S-6 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) ____%.
"Class S-7 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) ____%.
"Class S-8 Pass-Through Rate": With respect to any Payment Date, the
difference between (a) the Net Coupon Rate for such Payment Date and (b) the
Class A-8 Pass-Through Rate.
14
<PAGE>
"Clean-Up Call Date": The first Monthly Remittance Date on which the
aggregate Loan Balances of the Home Equity Loans has declined to $___________ or
less.
"Closing": As defined in Section 4.02 hereof.
"Code": The Internal Revenue Code of 1986, as amended.
"Compensating Interest": As defined in Section 8.10(a) hereof.
"Corporate Trust Office": The principal office of the Trustee at
__________________________________________________________________, Attention:
- ---------------------------------.
"Co-Trustee": ______________________________ or any successor thereto.
"Co-Trustee Agreement": The Co-Trustee Agreement dated as of ________
1, 199_ between the Trustee and the Co-Trustee.
"Coupon Rate": The rate of interest borne by each Note.
"Cram Down Loss": With respect to a Home Equity Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Loan Balance or the Coupon Rate of such Home Equity Loan, the
amount of such reduction. A "Cram Down Loss" shall be deemed to have occurred on
the date of issuance of such order.
"Cumulative Loss Percentage": As of any date of determination thereof,
the aggregate of all Realized Losses since the Startup Day as a percentage of
the Maximum Collateral Amount.
"Cumulative Loss Test": The Cumulative Loss Test for each period
indicated below is satisfied if the Cumulative Loss Percentage for such period
does not exceed the percentage set out for such period below:
Cumulative Loss
Period Percentage
------ ----------
"Current Interest": With respect to any Payment Date, the sum of (a)
the Class A-1 Current Interest, (b) the Class A-2 Current Interest, (c) the
Class A-3 Current Interest, (d) the Class A-4 Current Interest, (e) the Class
A-5 Current Interest, (f) the Class A-6 Current Interest, (g) the Class A-7
Current Interest, the Class A-8 Current Interest and (h) the Class S
Distribution Amount for such Payment Date.
"Custodial Agreement": The Custodial Agreement dated as of ________ 1,
199_ among the Custodian, the Trustee, the Depositor, the Seller and the
Servicer.
"Custodian": _________________________________, as Custodian on behalf
of the Trustee pursuant to the Custodial Agreement.
15
<PAGE>
"Cut-Off Date": As of the close of business on ________ 1, 199_.
"Daily Collections": As defined in Section 8.08(c) hereof.
"Delinquency Advance": As defined in Section 8.09(a) hereof.
"Delinquent": A Home Equity Loan is "Delinquent" if any payment due
thereon is not made by the Mortgagor by the close of business on the related Due
Date. A Home Equity Loan is "30 days Delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days Delinquent," "90
days Delinquent" and so on.
"Delivery Order": The delivery order in the form set forth as Exhibit H
hereto and delivered by the Depositor to the Trustee on the Startup Day pursuant
to Section 4.01 hereof.
"Depositor": IMC Securities, Inc., a Delaware corporation, or any
successor thereto.
"Depository": The Depository Trust Company, 7 Hanover Square, New York,
New York, 10004, and any successor Depository named herein.
"Designated Depository Institution": With respect to the Principal and
Interest Account, a trust account maintained by the trust department of a
federal or state chartered depository institution acceptable to the Certificate
Insurer, acting in its fiduciary capacity, having combined capital and surplus
of at least $50,000,000; provided, however, that if the Principal and Interest
Account is not maintained with the Trustee, (i) such institution shall have a
long-term debt rating of at least "A" by Standard & Poor's and "A2" by Moody's
and (ii) the Servicer shall provide the Trustee and the Certificate Insurer with
a statement, which the Trustee will send to the Owners, identifying the location
and account information of the Principal and Interest Account upon a change in
the location of such account.
"Determination Date": With respect to each Payment Date, the fifth
Business Day next preceding such Payment Date.
"Direct Participant" or "DTC Participant": Any broker-dealer, bank or
other financial institution for which the Depository holds Class A Certificates
from time to time as a securities depository.
"Disqualified Organization": "Disqualified Organization" shall have the
meaning set forth from time to time in the definition thereof at Section
860E(e)(5) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Due Date": With respect to any Home Equity Loan, the date on which the
Monthly Payment with respect to such Home Equity Loan is required to be paid
pursuant to the related Note exclusive of any days of grace.
"Eligible Investments": Those investments so designated pursuant to
Section 7.07 hereof.
"Excess Subordinated Amount": With respect to any Payment Date, the
excess, if any, of (x) the Subordinated Amount that would apply to the related
Home Equity Loan Group on such Payment Date after taking into account the
payment of the related Class A Distribution Amounts on such Payment
16
<PAGE>
Date (except for any distributions of related Subordination Reduction Amounts on
such Payment Date), over (y) the related Specified Subordinated Amount for such
Payment Date;
"FDIC": The Federal Deposit Insurance Corporation, a corporate
instrumentality of the United States, or any successor thereto.
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
"File": The documents delivered to the Trustee pursuant to Section 3.06
hereof pertaining to a particular Home Equity Loan and any additional documents
required to be added to the File pursuant to this Agreement.
"Final Certification": As defined in Section 3.06(c) hereof.
"Final Determination": As defined in Section 9.03(a) hereof.
"Final Recovery Determination": With respect to any defaulted Home
Equity Loan or REO Property (other than a Home Equity Loan purchased by the
Seller, the Depositor or the Servicer), a determination made by the Servicer
that all Liquidation Proceeds which the Servicer, in its reasonable business
judgment expects to be finally recoverable in respect thereof have been so
recovered or that the Servicer believes in its reasonable business judgment the
cost of obtaining any additional recoveries therefrom would exceed the amount of
such recoveries. The Servicer shall maintain records of each Final Recovery
Determination.
"Final Scheduled Payment Date": As set out in Section 2.08(k) hereof.
"First Mortgage Loan": A Home Equity Loan which constitutes a first
priority mortgage lien with respect to any Property.
"Fixed Rate Certificates": Collectively, the Class A-1 Certificates,
the Class A-2 Certificates, the Class A-3 Certificates, the Class A-4
Certificates, the Class A-5 Certificates, the Class A-6 Certificates and the
Class A-7 Certificates.
"Fixed Rate Group": The pool of Home Equity Loans identified in the
related Schedule of Home Equity Loans as having been assigned to the Fixed Rate
Group in Schedule I-B hereto, including any Qualified Replacement Mortgages
delivered in replacement thereof and each Subsequent Home Equity Loan delivered
to the Trust for inclusion therein.
"Fixed Rate Group Available Funds": As defined in Section [7.02(c)]
hereof.
"Fixed Rate Group Available Funds Shortfall": As defined in Section
[7.03(c)(ii)(A)] hereof.
"Fixed Rate Group Initial Specified Subordinated Amount": As defined in
the Insurance Agreement.
"Fixed Rate Group Interest Remittance Amount": As of any Monthly
Remittance Date, the sum, without duplication, of (i) all interest due during
the related Remittance Period with respect to the Home Equity Loans in the Fixed
Rate Group, (ii) all Compensating Interest paid by the Servicer on such
17
<PAGE>
Monthly Remittance Date with respect to the Fixed Rate Group and (iii) the
portion of the Substitution Amount relating to interest on the Home Equity Loans
in the Fixed Rate Group.
"Fixed Rate Group Monthly Remittance Amount": As of any Monthly
Remittance Date, the sum of (i) the Fixed Rate Group Interest Remittance Amount
and (ii) the Fixed Rate Group Principal Remittance Amount for such Monthly
Remittance Date.
"Fixed Rate Group Principal Distribution Amount": With respect to the
Fixed Rate Certificates for any Payment Date, the lesser of:
(a) the Fixed Rate Group Total Available Funds plus any Insured Payment
with respect to the Fixed Rate Certificates minus the Current Interest with
respect to the Fixed Rate Certificates; and
(b) the excess, if any, of (i) the sum of:
(A) the Preference Amount owed to the Owners of the
Fixed Rate Certificates as such amounts relate to principal
previously distributed on the Fixed Rate Certificates,
(B) the principal actually collected by the Servicer
with respect to Home Equity Loans in the Fixed Rate Group
during the related Remittance Period,
(C) the Loan Balance of each Home Equity Loan in the
Fixed Rate Group that was repurchased by the Seller or
purchased by the Servicer on or prior to the related Monthly
Remittance Date, to the extent such Loan Balance is actually
received by the Trustee on or prior to the related Monthly
Remittance Date,
(D) any Substitution Amounts delivered by the Seller
on the related Monthly Remittance Date in connection with a
substitution of a Home Equity Loan in the Fixed Rate Group (to
the extent such Substitution Amounts relate to principal), to
the extent such Substitution Amounts are actually received by
the Trustee on or prior to the related Monthly Remittance
Date,
(E) all Net Liquidation Proceeds actually collected
by the Servicer with respect to Home Equity Loans in the Fixed
Rate Group during the related Remittance Period (to the extent
such Net Liquidation Proceeds relate to principal) to the
extent such Net Liquidation Proceeds are actually received by
the Trustee on or prior to the related Monthly Remittance
Date,
(F) the amount of any Subordination Deficit with
respect to the Fixed Rate Group for such Payment Date,
(G) the portion of the proceeds received by the
Trustee with respect to the Fixed Rate Group from any
termination of the Trust (to the extent such proceeds related
to principal),
(H) any moneys released from the Pre-Funding Account
as a prepayment of the Fixed Rate Certificates on the Payment
Date which immediately follows the end of the Funding Period
as a prepayment of such Certificates on such Payment Date, and
18
<PAGE>
(I) the amount of any Subordination Increase Amount
with respect to the Fixed Rate Group for such Payment Date, to
the extent of any Net Monthly Excess Cashflow available for
such purpose;
over
----
(ii) the amount of any Subordination Reduction Amount with
respect to the Fixed Rate Group for such Payment Date.
"Fixed Rate Group Principal Remittance Amount": As of any Monthly
Remittance Date, the sum, without duplication, of (i) the principal actually
collected by the Servicer with respect to Home Equity Loans in the Fixed Rate
Group during the related Remittance Period, (ii) the Loan Balance of each such
Home Equity Loan in the Fixed Rate Group that was purchased from the Trustee on
or prior to such Monthly Remittance Date, to the extent such Loan Balance was
actually deposited in the Principal and Interest Account, (iii) any Substitution
Amounts relating to principal delivered by the Seller in connection with a
substitution of a Home Equity Loan in the Fixed Rate Group, to the extent such
Substitution Amounts were actually deposited in the Principal and Interest
Account on or prior to such Monthly Remittance Date, and (iv) all Net
Liquidation Proceeds actually collected by the Servicer with respect to such
Home Equity Loans in the Fixed Rate Group during the related Remittance Period
(to the extent such Net Liquidation Proceeds related to principal).
"Fixed Rate Group Specified Subordinated Amount": As defined in the
Insurance Agreement.
"Fixed Rate Group Subordinated Amount": As of any Payment Date, the
excess, if any, of (x) the sum of (i) the aggregate Loan Balances of the Home
Equity Loans in the Fixed Rate Group as of the close of business on the last day
of the related Remittance Period and (ii) any amount on deposit in the
Pre-Funding Account at such time exclusive of any Pre-Funding Account Earnings
over (y) the Certificate Principal Balance of the Fixed Rate Certificates as of
such Payment Date (after taking into account the payment of the Fixed Rate Group
Principal Distribution Amount thereon (except for any Subordination Deficit with
respect to the Fixed Rate Group and Subordination Increase Amount with respect
to the Fixed Rate Group) on such Payment Date).
"Fixed Rate Group Total Available Funds": As defined in Section
[7.02(c)] hereof.
"Fixed Rate Group Total Monthly Excess Spread": With respect to the
Fixed Rate Group and any Payment Date, the excess, if any, of (i) the interest
which is collected on the Home Equity Loans in such Group during the related
Remittance Period less the related Servicing Fee and any Retained Yield with
respect to such Home Equity Loan Group plus (x) any Delinquency Advances and (y)
Compensating Interest paid by the Servicer with respect to the Fixed Rate Group
for such Remittance Period over (ii) the interest due on the Fixed Rate
Certificates on such Payment Date; provided, however, that for any Payment Date
during the Funding Period, the sum obtained in (ii) above shall be multiplied by
a fraction (A) the numerator of which is the aggregate of the weighted Loan
Balances of the Home Equity Loans in the Fixed Rate Group (weighted by a full
period in the case of the Initial Home Equity Loans in the Fixed Rate Group and
the Subsequent Home Equity Loans beginning with the Remittance Period following
the first Remittance Period of their transfer into the Trust (or for the
Subsequent Home Equity Loans during the Remittance Period which relates to the
Subsequent Cut-Off Date the fraction (i) number of days from the Subsequent
Cut-Off Date to the end of the Remittance Period divided by (ii) the number of
days in such Remittance Period)) during the preceding Remittance Period minus
all Subordination Increase Amounts paid prior to such Payment Date and (B) the
denominator of which is the Original Pre- Funded Amount plus the Loan Balance of
the Home Equity Loans in the Fixed Rate Group reduced by
19
<PAGE>
the sum of (i) any actual payments of principal received on such Fixed Rate
Group Home Equity Loans prior to the related Remittance Date and (ii) all
Subordination Increase Amounts paid prior to such Payment Date.
"FNMA": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"FNMA Guide": FNMA's Servicing Guide, as the same may be amended by
FNMA from time to time, and the Servicer shall elect to apply such amendments in
accordance with Section 8.01 hereof.
"Funding Period": The period commencing on the Startup Day and ending
on the earliest to occur of (i) the date on which the amount on deposit in the
Pre-Funding Account (exclusive of any investment earnings) is less than
$_______, (ii) the date on which the Servicer may be removed pursuant to Section
8.20(a) hereof and (iii) _______ 1, 199_.
"Highest Lawful Rate": As defined in Section 12.13 hereof.
"Home Equity Loan Group" or "Group": The Fixed Rate Group or the
Adjustable Rate Group, as the case may be. References herein to the related
Class of Class A Certificates, when used with respect to a Home Equity Loan
Group, shall mean (A) in the case of the Fixed Rate Group, the Fixed Rate
Certificates and (B) in the case of the Adjustable Rate Group, the Class A-8
Certificates.
"Home Equity Loans": Such home equity loans (including Initial Home
Equity Loans and Subsequent Home Equity Loans) transferred and assigned to the
Trust pursuant to Section 3.05(a) and 3.07(a) hereof, together with any
Qualified Replacement Mortgages substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate, the Home
Equity Loans originally so held being identified in the Schedules of Home Equity
Loans. The term "Home Equity Loan" includes the terms "First Mortgage Loan" and
"Second Mortgage Loan". The term "Home Equity Loan" includes any Home Equity
Loan which is Delinquent, which relates to a foreclosure or which relates to a
Property which is REO Property prior to such Property's disposition by the
Trust. Any home equity loan which, although intended by the parties hereto to
have been, and which purportedly was, transferred and assigned to the Trust by
the Depositor, in fact was not transferred and assigned to the Trust for any
reason whatsoever, including, without limitation, the incorrectness of the
statement set forth in Section 3.04(b)(x) hereof with respect to such home
equity loan, shall nevertheless be considered a "Home Equity Loan" for all
purposes of this Agreement.
"Indirect Participant": Any financial institution for whom any Direct
Participant holds an interest in a Class A Certificate.
"Initial Home Equity Loans": The Home Equity Loans to be conveyed to
the Trust by the Depositor on the Startup Day.
"Initial Specified Subordinated Amount": $_________.
"Insurance Agreement": The Insurance and Indemnity Agreement dated as
of __________ 1, 199__, among the Depositor, the Seller, the Servicer and the
Certificate Insurer, as it may be amended from time to time.
20
<PAGE>
"Insurance Policy": Any hazard, flood, title or primary mortgage
insurance policy relating to a Home Equity Loan plus any amount remitted under
Section 8.11 hereof.
"Insured Payment": With respect to any Payment Date, the sum of (i) any
shortfall in the amount required to pay the Subordination Deficit for such
Payment Date from a source other than the Certificate Insurance Policy, (ii) any
shortfall in the amount required to pay Current Interest for such Payment Date
from a source other than the Certificate Insurance Policy and (iii) any
shortfall in the amount required to pay the Preference Amount from a source
other than the Certificate Insurance Policy.
"Interest Remittance Amount": The sum of the Fixed Rate Group Interest
Remittance Amount and the Adjustable Rate Group Interest Remittance Amount.
"Late Payment Rate": With respect to any Payment Date, the sum of (a)
the Weighted Average Pass-Through Rate and (b) the Class S Pass-Through Rate for
such Payment Date. The Late Payment Rate shall be computed on the basis of a
year of 360 days calculating the actual number of days elapsed.
"LIBOR": With respect to any Accrual Period for the Class A-8
Certificates, the rate determined by the Trustee on the related LIBOR
Determination Date on the basis of the offered rate for one-month U.S. dollar
deposits as such rate appears on Telerate Page 3750 as of 11:00 a.m. (London
time) on such date; provided that if such rate does not appear on Telerate Page
3750, the rate for such date will be determined on the basis of the rates at
which one-month U.S. dollar deposits are offered by the Reference Banks at
approximately 11:00 a.m. (London time) on such date to prime banks in the London
interbank market. In such event, the Trustee will request the principal London
office of each of the Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate for that date will be the
arithmetic mean of the quotations (rounded upwards if necessary to the nearest
whole multiple of 1/16%). If fewer than two quotations are provided as
requested, the rate for that date will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the Servicer, at
approximately 11:00 a.m. (New York City time) on such date for one-month U.S.
dollar loan to leading European banks.
"LIBOR Determination Date": With respect to any Accrual Period for the
Class A-8 Certificates, the second London Business Day preceding the
commencement of such Accrual Period.
"Liquidated Loan": A Home Equity Loan as to which a Final Recovery
Determination has been made.
"Liquidation Proceeds": With respect to any Liquidated Loan, all
amounts (including the proceeds of any Insurance Policy) recovered by the
Servicer in connection with such Liquidated Loan, whether through trustee's
sale, foreclosure sale or otherwise.
"Loan Balance": With respect to each Home Equity Loan and as of any
date of determination, the actual outstanding principal balance thereof on the
Cut-Off Date with respect to the Initial Home Equity Loans or relevant
Subsequent Cut-Off Date with respect to the Subsequent Home Equity Loans, less
any principal payments relating to such Home Equity Loan included in previous
Monthly Remittance Amounts, provided, however, that the Loan Balance for any
Home Equity Loan that has become a Liquidated Loan shall be zero as of the first
day of the Remittance Period following the Remittance Period in which such Home
Equity Loan becomes a Liquidated Loan, and at all times thereafter.
"Loan Purchase Price": With respect to any Home Equity Loan purchased
from the Trust on a Monthly Remittance Date pursuant to Section 3.03, 3.04,
3.06(b) or 8.10(b) hereof, an amount equal to
21
<PAGE>
the Loan Balance of such Home Equity Loan as of the date of purchase (assuming
that the Monthly Remittance Amount remitted by the Servicer on such Monthly
Remittance Date has already been remitted), plus all accrued and unpaid interest
on such Home Equity Loan at the Coupon Rate to but not including the Monthly
Remittance Date in the Remittance Period of such purchase together with (without
duplication) the aggregate amounts of (i) all unreimbursed Delinquency Advances
and Servicing Advances theretofore made with respect to such Home Equity Loan,
(ii) all Delinquency Advances which the Servicer has theretofore failed to remit
with respect to such Home Equity Loan and (iii) all reimbursed Delinquency
Advances to the extent that reimbursement is not made from the Mortgagor or from
Liquidation Proceeds from the respective Home Equity Loan.
"Loan-to-Value Ratio": As of any particular date (i) with respect to
any First Mortgage Loan, the percentage obtained by dividing the Appraised Value
into the original principal balance of the Note relating to such First Mortgage
Loan and (ii) with respect to any Second Mortgage Loan, the percentage obtained
by dividing the Appraised Value as of the date of origination of such Second
Mortgage Loan into an amount equal to the sum of (a) the remaining principal
balance of the Senior Lien note relating to such First Mortgage Loan as of the
date of origination of the related Second Mortgage Loan and (b) the original
principal balance of the Note relating to such Second Mortgage Loan.
"Lower Tier A-1 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 1 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
"Lower Tier A-2 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 2 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
"Lower Tier A-3 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 3 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
"Lower Tier A-4 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 4 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
"Lower Tier A-5 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 5 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
"Lower Tier A-6 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 6 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
"Lower Tier A-7 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 7 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
"Lower Tier A-8 Monthly Interest": With respect to any Payment Date,
the amount of interest accrued on the Lower-Tier Balance of the Base REMIC
Interest 8 immediately prior to such Payment Date during the related Accrual
Period at the Net Coupon Rate plus ____%.
22
<PAGE>
"Lower-Tier Balance": As to each Class of Base REMIC Interests and any
Payment Date, the Initial Lower-Tier Balance as set forth in Section 2.08(a)
minus all amounts distributed as principal of such Class on previous Payments
Dates pursuant to Section 7.03(c)(iv)(A).
"Lower-Tier Distribution Amount": With respect to any Payment Date, the
sum of the Lower- Tier A-1 Monthly Interest, the Lower-Tier A-2 Monthly
Interest, the Lower-Tier A-3 Monthly Interest, the Lower-Tier A-4 Monthly
Interest, the Lower-Tier A-5 Monthly Interest, the Lower-Tier A-6 Monthly
Interest, the Lower-Tier A-7 Monthly Interest, the Lower-Tier A-8 Monthly
Interest and the Class A Principal Distribution Amount, which sum is allocated
as follows: as a distribution on the Base REMIC Interest 1 until the Base REMIC
Interest 1 Termination Date, the Class A-1 Distribution Amount; as a
distribution on the Base REMIC Interest 2 until the Base REMIC Interest 2
Termination Date, the Class A-2 Distribution Amount; as a distribution on the
Base REMIC Interest 3 until the Base REMIC Interest 3 Termination Date, the
Class A-3 Distribution Amount; as a distribution on the Base REMIC Interest 4
until the Base REMIC Interest 4 Termination Date, the Class A-4 Distribution
Amount; as a distribution of the Base REMIC Interest 5 until the Base REMIC
Interest 5 Termination Date, the Class A-5 Distribution Amount; as a
distribution on the Base REMIC Interest 6 Termination Date, the Class A-6
Distribution Amount; as a distribution on the Base REMIC Interest 7 until the
Base REMIC Interest 7 Termination Date, the Class A-7 Distribution Amount and as
a distribution on the Base REMIC Interest 8 until the Base REMIC Interest 8
Termination Date, the Class A-8 Distribution Amount; provided that Insured
Payments shall be deemed to be paid in respect of the Base REMIC Interests to
the extent such Insured Payments relate to the related Class A Certificates.
"Maximum Collateral Amount": $___________.
"Monthly Payment": With respect to any Home Equity Loan and any
Remittance Period, the payment of principal, if any, and interest due on the Due
Date in such Remittance Period pursuant to the related Note.
"Monthly Remittance Amount": The sum of the Fixed Rate Group Monthly
Remittance Amount and the Adjustable Rate Group Monthly Remittance Amount.
"Monthly Remittance Date": The 18th day of each month, or if such day
is not a Business Day, on the next succeeding Business Day, commencing in ____
199__.
"Moody's": Moody's Investors Service Inc. or any successor thereto.
"Mortgage": The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Note.
"Mortgage Portfolio Performance Test": The Mortgage Portfolio
Performance Test is satisfied for any date of determination thereof if (x) the
60+ Delinquency Percentage (Rolling Six Month) is less than _____%, (y) the O/C
Loss Test is satisfied and (z) the Annual Loss Percentage (Rolling Twelve Month)
for the twelve month period immediately preceding the date of determination
thereof is not greater than or equal to _____%.
"Mortgagor": The obligor on a Note.
"Net Coupon Rate": With respect to any Payment Date, the difference
between (a) the weighted average Coupon Rate for all Home Equity Loans (weighted
by Loan Balance) as of the first day of the related Remittance Period (or as of
the Cut-Off Date with respect to the initial Payment Date for all
23
<PAGE>
Home Equity Loans) and (b) the sum of (i) the Servicing Fee, (ii) the Trustee
Fee, (iii) the Trustee Reimbursable Expenses, (iv) the Premium Amount (in each
case, expressed as a percentage of the aggregate Loan Balance as of the first
day of the related Remittance Period), and (v) ____%.
"Net Liquidation Proceeds": As to any Liquidated Loan, Liquidation
Proceeds net of expenses incurred by the Servicer (including unreimbursed
Servicing Advances) in connection with the liquidation of any defaulted Home
Equity Loan and unreimbursed Delinquency Advances relating to such Home Equity
Loan. In no event shall Net Liquidation Proceeds with respect to any Liquidated
Loan be less than zero.
"Net Monthly Excess Cashflow": As defined in Section [7.03(c)(iii)}
hereof.
"Note": The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Home Equity Loan.
"O/C Loss Test": The O/C Loss Test for any period set out below is
satisfied if the Cumulative Loss Percentage for such period does not exceed the
percentage set out for such period below:
Cumulative Loss
Period Percentage
"Officer's Certificate": A certificate signed by any Authorized Officer
of any Person delivering such certificate and delivered to the Trustee.
"Operative Documents": Collectively, this Agreement, the Certificate
Insurance Policy, the Certificates and the Insurance Agreement.
"Original Aggregate Loan Balance": The aggregate Loan Balances of all
Initial Home Equity Loans as of the Cut-Off Date, i.e., $______________.
"Original Aggregate Pre-Funded Amount": The amount deposited in the
Pre-Funding Account on the Startup Day from the proceeds of the sale of the
Fixed Rate Certificates, which amount is equal to $_____________.
"Outstanding": With respect to all Certificates of a Class, as of any
date of determination, all such Certificates theretofore executed and delivered
hereunder except:
(i) Certificates theretofore cancelled by the Registrar or
delivered to the Registrar for cancellation;
(ii) Certificates or portions thereof for which full and final
payment of money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent in trust for the Owners of such
Certificates;
24
<PAGE>
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this
Agreement, unless proof satisfactory to the Trustee is presented that
any such Certificates are held by a bona fide purchaser;
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided
for in Section 5.05 hereof; and
(v) Certificates as to which the Trustee has made the final
distribution thereon, whether or not such Certificate is ever returned
to the Trustee.
"Overfunded Interest Amount": With respect to each Subsequent Transfer
Date, the difference between (x) interest accruing from the Subsequent Cut-Off
Date to _______ 1, 199_ on the aggregate Loan Balances of the Subsequent Home
Equity Loans acquired by the Trust on such Subsequent Transfer Date, calculated
at a rate equal to the sum of (i) the Weighted Average Pass-Through Rate [of the
Fixed Rate Certificates], (ii) the Class S Pass-Through Rate and (iii) the rate
at which the Premium Amount is determined and (y) interest accruing from the
Subsequent Cut-Off Date to _______ 1, 199_ on the aggregate Loan Balances of the
Subsequent Home Equity Loans acquired by the Trust on such Subsequent Transfer
Date, calculated at the rate at which Pre-Funding Account moneys are invested as
of such Subsequent Transfer Date.
"Owner": The Person in whose name a Certificate is registered in the
Register, and the Certificate Insurer, to the extent described in Section 5.06
and Section [7.03(e)] hereof, respectively.
"Paying Agent": Initially, the Trustee, and thereafter, the Trustee or
any other Person that meets the eligibility standards for the Paying Agent
specified in Section 12.15 hereof and is authorized by the Trustee and the
Depositor to make payments on the Certificates on behalf of the Trustee.
"Payment Date": Any date on which the Trustee is required to make
distributions to the Owners, which shall be the 25th day of each month or if
such day is not a Business Day, the next Business Day thereafter, commencing in
the month following the Startup Day. The first Payment Date will be ____ 25,
199__.
"Percentage Interest": With respect to a Class A Certificate, a
fraction, expressed as a decimal, the numerator of which is the initial Class A
Certificate Principal Balance represented by such Class A Certificate and the
denominator of which is the aggregate initial Class A Certificate Principal
Balance represented by all the Class A Certificates. With respect to the Class S
Certificates and the Class R Certificate, the portion of the Class evidenced
thereby, expressed as a percentage, as stated on the face of such Certificate,
all of which shall total 100% with respect to the related Class.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preference Amount": With respect to the Class A Certificates and the
Class S Certificates as the case may be, means any amounts of Class A Current
Interest and principal included in previous distributions of the Class A
Distribution Amount to the Owners of the Class A Certificates or the Class S
Distribution Amount included in previous distributions to the Owners of the
Class S Certificates which are recovered from such Owners as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code in accordance with a final, nonappealable order of a court having competent
jurisdiction and which have not theretofore been repaid to such Owners and for
which there has been full compliance with the provisions of Section 13.02.
25
<PAGE>
"Pre-Funded Amount": With respect to any Determination Date, the amount
remaining on deposit in the Pre-Funding Account.
"Pre-Funding Account": The Pre-Funding Account established in
accordance with Section 7.02(a) hereof and maintained by the Trustee.
"Pre-Funding Account Earnings": With respect to the __________, 199_
Payment Date, the actual investment earnings earned during the period from the
Startup Day through __________, 199_ (inclusive) on the Pre-Funding Account
during such period as calculated by the Trustee pursuant to Section 3.07(d)
hereof; and with respect to the ______ __, 199__ Payment Date, the actual
investment earnings earned during the period from __________, 199_ through
__________, 199_ (inclusive) on the Pre-Funding Account during such period as
calculated by the Trustee pursuant to Section 3.07(d) hereof.
"Premium Amount": The amount payable monthly to the Certificate Insurer
on each Payment Date in an amount equal to ____% per annum, on the Certificate
Principal Balance as of the related Determination Date.
"Prepayment": Any payment of principal of a Home Equity Loan which is
received by the Servicer in advance of the scheduled due date for the payment of
such principal and which is not accompanied by an amount of interest
representing the full amount of scheduled interest due on any Due Date in any
month or months subsequent to the month of prepayment, Substitution Amounts, the
portion of the purchase price of any Home Equity Loan purchased from the Trust
pursuant to Section 3.03, 3.04, 3.06(b) or 8.10(b) hereof representing principal
and the proceeds of any Insurance Policy which are to be applied as a payment of
principal on the related Home Equity Loan shall be deemed to be Prepayments for
all purposes of this Agreement.
"Preservation Expenses": Expenditures made by the Servicer in
connection with a foreclosed Home Equity Loan prior to the liquidation thereof,
including, without limitation, expenditures for real estate property taxes,
hazard insurance premiums, property restoration or preservation.
"Principal and Interest Account": The principal and interest account
created by the Servicer pursuant to Section 8.08(a) hereof.
"Prohibited Transaction": "Prohibited transaction" shall have the
meaning set forth from time to time in the definition thereof at Section
860F(a)(2) of the Code (or any successor statute thereto) and applicable to the
Trust.
"Property": The underlying property securing a Home Equity Loan.
"Prospectus": The Depositor's Prospectus dated __________, 199_
constituting part of the Registration Statement.
"Prospectus Supplement": The IMC Home Equity Loan Trust 199___
Prospectus Supplement dated __________, 199_ to the Prospectus.
"Purchase Option Period": As defined in Section 9.03(a) hereof.
"Qualified Liquidation": "Qualified liquidation" shall have the meaning
set forth from time to time in the definition thereof at Section 860F(a)(4) of
the Code (or any successor statute thereto) and applicable to the Trust.
26
<PAGE>
"Qualified Mortgage": "Qualified mortgage" shall have the meaning set
forth from time to time in the definition thereof at Section 860G(a)(3) of the
Code (or any successor statute thereto) and applicable to the Trust.
"Qualified Replacement Mortgage": A Home Equity Loan substituted for
another pursuant to Section 3.03, 3.04 and 3.06(b) hereof, which (i) has a
Coupon Rate at least equal to the Coupon Rate of the Home Equity Loan being
replaced, (ii) is of the same property type or is a single family dwelling and
the same occupancy status or is a primary residence as the Home Equity Loan
being replaced, (iii) shall mature no later than _____ __, ____ (iv) has a
Loan-to-Value Ratio as of the Replacement Cut-Off Date no higher than the
Loan-to-Value Ratio of the replaced Home Equity Loan at such time, (v) shall be
of the same or higher credit quality classification (determined in accordance
with the Seller's credit underwriting guidelines set forth in the Seller's
underwriting manual) as the Home Equity Loan which such Qualified Replacement
Mortgage replaces, (vi) shall be a First Mortgage Loan if the Home Equity Loan
which such Qualified Replacement Mortgage replaces was a First Mortgage Loan,
(vii) has a Loan Balance as of the related Replacement Cut-Off Date equal to or
less than the Loan Balance of the replaced Home Equity Loan as of such
Replacement Cut-Off Date, (viii) shall not provide for a "balloon" payment if
the related Home Equity Loan did not provide for a "balloon" payment (and if
such related Home Equity Loan provided for a "balloon" payment, such Qualified
Replacement Mortgage shall have an original maturity of not less than the
original maturity of such related Home Equity Loan), (ix) shall be a fixed rate
Home Equity Loan if the Home Equity Loan being replaced is in the Fixed Rate
Group and shall be an adjustable rate Home Equity Loan if the Home Equity Loan
being replaced is in the Adjustable Rate Group and (x) satisfies the criteria
set forth from time to time in the definition thereof at Section 860G(a)(4) of
the Code (or any successor statute thereto) and applicable to the Trust. In the
event that one or more home equity loans are proposed to be substituted for one
or more Home Equity Loans, the Certificate Insurer may allow the foregoing tests
to be met on a weighted average basis or other aggregate basis acceptable to the
Certificate Insurer, as evidenced by a written approval delivered to the Trustee
by the Certificate Insurer, except that the requirements of clauses (i), (iv)
and (x) hereof must be satisfied as to each Qualified Replacement Mortgage.
"Rating Agencies": Collectively, Moody's and Standard & Poor's or any
successors thereto.
"Realized Loss": As to any Liquidated Loan (or, in the case of a Cram
Down Loss a Home Equity Loan that is not a Liquidated Loan), the amount (not
less than zero), if any, by which (A) the sum of (x) the Loan Balance thereof as
of the date of liquidation, (y) the amount of accrued but unpaid interest
thereon (to the extent that there are no outstanding advances for such interest
by the Servicer) and (z) the amount of any Cram Down Loss with respect thereto
is in excess of (B) the Net Liquidation Proceeds realized thereon applied in
reduction of such Loan Balance.
"Record Date": With respect to each Payment Date, the last day of the
calendar month immediately preceding the calendar month in which such Payment
Date occurs.
"Register": The register maintained by the Registrar in accordance with
Section 5.04 hereof, in which the names of the Owners are set forth.
"Registrar": The Trustee, acting in its capacity as Registrar appointed
pursuant to Section 5.04 hereof, or any duly appointed and eligible successor
thereto.
"Registration Statement": The Registration Statement filed by the
Depositor with the Securities and Exchange Commission (Registration Number
________), including all amendments thereto and including the Prospectus
relating to the Class A Certificates.
27
<PAGE>
"Reimbursement Amount": As of any Payment Date, the sum of (x)(i) all
Insured Payments previously paid to the Trustee by the Certificate Insurer and
not previously repaid to the Certificate Insurer pursuant to Section 7.03(c)(ii)
hereof plus (ii) interest accrued on each such Insured Payment not previously
repaid calculated pursuant to the terms of the Insurance Agreement and (y)(i)
any amounts then due and owing to the Certificate Insurer under the Insurance
Agreement (including, without limitation, any unpaid Premium Amount relating to
such Payment Date) plus (ii) interest on such amounts at the Late Payment Rate.
The Certificate Insurer shall notify the Trustee, the Depositor and the Seller
of the amount of any Reimbursement Amount.
"REMIC": A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.
"REMIC Opinion": As defined in Section 3.03 hereof.
"REMIC Provisions": Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related provisions,
and regulations and revenue rulings promulgated thereunder, as the foregoing may
be in effect from time to time.
"Remittance Period": With respect to each Monthly Remittance Date, the
period commencing the second day of the calendar month immediately preceding
such Monthly Remittance Date and ending the first day of the calendar month in
which such Monthly Remittance Date occurs.
"REO Property": A Property acquired by the Servicer on behalf of the
Trust through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Home Equity Loan.
"Replacement Cut-Off Date": With respect to any Qualified Replacement
Mortgage, the first day of the calendar month in which such Qualified
Replacement Mortgage is conveyed to the Trust.
"Representation Letter": Letters to, or agreements with, the Depository
to effectuate a book entry system with respect to the Class A Certificates
registered in the Register under the nominee name of the Depository.
"Residual Net Monthly Excess Cashflow": With respect to any Payment
Date, the aggregate Net Monthly Excess Cashflow, if any, remaining after the
making of all applications, transfers and disbursements described in Sections
7.03(c)(i), (ii) and (iii) and 7.03(c)(iv) hereof.
"Schedule of Home Equity Loans": The schedule of Home Equity Loans,
separated by Home Equity Loan Group, with respect to the Initial Home Equity
Loans listing each Initial Home Equity Loan in the related Group to be conveyed
on the Startup Day and with respect to Subsequent Home Equity Loans (with
respect to the Fixed Rate Group only) listing each Subsequent Home Equity Loan
conveyed to the Trust for inclusion in the Fixed Rate Group as of each
Subsequent Transfer Date. Such Schedules of Home Equity Loans shall identify
each Home Equity Loan by the Servicer's loan number, borrower's name and address
(including the state and zip code) of the Property and shall set forth as to
each Home Equity Loan the lien status thereof (and with respect to the Home
Equity Loans in the Adjustable Rate Group the margin), the Loan-to-Value Ratio
and the Loan Balance as of the Cut-Off Date, the Coupon Rate thereof, the
original Loan Balance thereof, the current scheduled monthly payment of
principal and interest and the maturity date of the related Note, the property
type, occupancy status, Appraised Value and the original term-to-maturity
thereof and whether or not such Home Equity Loan (including related Note) has
been modified.
28
<PAGE>
"Scheduled Principal Payment": As of any date of calculation, with
respect to a Home Equity Loan, the then stated scheduled monthly installment of
principal payable thereunder which, if timely paid, would result in the full
amortization of principal over the term thereof (or, in the case of a "balloon"
Note, the term to the nominal maturity date for amortization purposes, without
regard to the actual maturity date), without taking into account any Prepayment
made on such Home Equity Loan during the then-current Remittance Period.
"Second Mortgage Loan": A Home Equity Loan which constitutes a second
priority mortgage lien with respect to the related Property.
"Securities Act": The Securities Act of 1933, as amended.
"Seller": Industry Mortgage Company, L.P., a Delaware limited
partnership.
"Senior Lien": With respect to any Second Mortgage Loan, the home
equity loan relating to the corresponding Property having a first priority lien.
"Servicer": Industry Mortgage Company, L.P., a Delaware limited
partnership, and its permitted successors and assigns.
"Servicer Affiliate": A Person (i) controlling, controlled by or under
common control with the Servicer and (ii) which is qualified to service
residential home equity loans.
"Servicer Loss Test": The Servicer Loss Test for any period set out
below is satisfied, if the Cumulative Loss Percentage for such period does not
exceed the percentage set out for such period below (provided, that for purposes
of the calculation of the Servicer Loss Test, Realized Losses attributable
solely to Cram Down Losses should be excluded from the calculation of Cumulative
Loss Percentage):
Cumulative Loss
Period Percentage
------ ----------
"Servicer Termination Event": As defined in Section 8.20(a) hereof.
"Servicer Termination Test": The Servicer Termination Test is satisfied
for any date of determination thereof, if (x) the 60+ Delinquency Percentage
(Rolling Six Month) is less than _____%, (y) the Servicer Loss Test is satisfied
and (z) the Annual Loss Percentage (Rolling Twelve Month) for the twelve month
period immediately preceding the date of determination thereof is not greater
than ____%.
"Servicing Advance": As defined in Section 8.09(b) and Section 8.13(a)
hereof.
"Servicing Fee": With respect to any Home Equity Loan, an amount
retained by the Servicer as compensation for servicing and administration duties
relating to such Home Equity Loan pursuant to Section 8.15 and equal to one
month's interest at ____% per annum of the then outstanding principal
29
<PAGE>
balance of such Home Equity Loan as of the first day of each Remittance Period
payable on a monthly basis; provided, however, that if a successor Servicer is
appointed pursuant to Section 8.20 hereof, the Servicing Fee shall be such
amount as agreed upon by the Trustee, the Certificate Insurer, the successor
Servicer and the Owners of a majority of the Percentage Interests of the Class R
Certificates.
"60-Day Delinquent Loan": With respect to any Determination Date, all
REO Properties and each Home Equity Loan, with respect to which any portion of a
Monthly Payment is, as of the last day of the prior Remittance Period, two
months (calculated from Due Date with respect to such Home Equity Loan to Due
Date) or more past due (without giving effect to any grace period).
"60+ Delinquency Percentage (Rolling Six Month)": With respect to any
Determination Date, the average of the percentage equivalents of the fractions
determined for each of the six immediately preceding Remittance Period the
numerator of each of which is equal to the aggregate Loan Balance of 60-Day
Delinquent Loans as of the end of such Remittance Period and the denominator of
which is the Loan Balance of all of the Home Equity Loan as of the end of such
Remittance Period.
"Specified Subordinated Amount": As applicable, the Fixed Rate Group
Specified Subordinated Amount or the Adjustable Rate Group Specified
Subordinated Amount.
"Standard & Poor's": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies or any successor thereto.
"Startup Day": __________, 199_.
"Stepdown Date": The Determination Date occurring in __________, 199_.
"Stepdown Requirement": The Stepdown Requirement is satisfied for any
date of determination thereof if as of such date of determination (x) the 60+
Delinquency Percentage (Rolling Six Month) is less than _____%, (y) the
Cumulative Loss Test is satisfied and (z) the Annual Loss Percentage (Rolling
Twelve Month) for the twelve month period immediately preceding the date of
determination thereof is not greater than or equal to ____%.
"Subordinated Amount": The Fixed Rate Group Subordinated Amount or the
Adjustable Rate Group Subordinated Amount, as the case may be.
"Subordination Deficiency Amount": With respect to any Home Equity Loan
Group and Payment Date, the excess, if any, of (i) the Specified Subordinated
Amount applicable to such Home Equity Loan Group and Payment Date over (ii) the
Subordinated Amount applicable to such Home Equity Loan Group and Payment Date
prior to taking into account the payment of any related Subordination Increase
Amounts on such Payment Date.
"Subordination Deficit": With respect to any Home Equity Loan Group and
Payment Date, the amount, if any, by which (x) the Class A Certificate Principal
Balance after taking into account the related Class A Principal Distribution
Amount with respect to such Home Equity Loan Group and on such Payment Date
(except for any Subordination Deficit with respect to such Home Equity Loan
Group and Subordination Increase Amount) with respect to such Home Equity Loan
Group, exceeds (y) the sum of (a) the aggregate Loan Balances of the Home Equity
Loans in the related Home Equity Loan Group as of the close of business on the
last day of the related Remittance Period and (b) with respect to the Fixed Rate
Group only, the amount, if any, on deposit in the Pre-Funding Account on such
Payment Date exclusive of any Pre-Funding Account Earnings.
30
<PAGE>
"Subordination Increase Amount": With respect to any Home Equity Loan
Group and Payment Date, the lesser of (i) the Subordination Deficiency Amount as
of such Payment Date (after taking into account the payment of the related Class
A Principal Distribution Amount on such Payment Date (except for any
Subordination Increase Amount with respect to such Home Equity Loan Group)) and
(ii) the aggregate amount of Net Monthly Excess Cashflow allocated to such Home
Equity Loan Group on such Payment Date.
"Subordination Reduction Amount": With respect to any Home Equity Loan
Group and Payment Date, an amount equal to the lesser of (x) the Excess
Subordinated Amount for such Home Equity Loan Group and Payment Date and (y) the
Principal Remittance Amount with respect to such Home Equity Loan Group for the
related Remittance Period.
"Subsequent Cut-Off Date": The beginning of business on the date
specified in a Subsequent Transfer Agreement with respect to those Subsequent
Home Equity Loans which are transferred and assigned to the Trust pursuant to
the related Subsequent Transfer Agreement.
"Subsequent Home Equity Loans": The Home Equity Loans sold to the Trust
for inclusion in the Fixed Rate Group pursuant to Section 3.07 hereof, which
shall be listed on the Schedule of Home Equity Loans attached to a Subsequent
Transfer Agreement.
"Subsequent Transfer Agreement": Each Subsequent Transfer Agreement
dated as of a Subsequent Transfer Date executed by the Trustee, the Depositor
and the Seller substantially in the form of Exhibit D hereto, by which
Subsequent Home Equity Loans are sold and assigned to the Trust.
"Subsequent Transfer Date": The date specified in each Subsequent
Transfer Agreement.
"Sub-Servicer": Any Person with whom the Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
8.03 hereof in respect of the qualification of a Sub-Servicer.
"Sub-Servicing Agreement": The written contract between the Servicer
and any Sub-Servicer relating to servicing and/or administration of certain Home
Equity Loans as permitted by Section 8.03.
"Substitution Amount": As defined in Section 3.03 hereof.
"Tax Matters Certificate": The certificate issued to _______________,
as Tax Matters Person representing the Tax Matters Person Residual Interest.
"Tax Matters Person": The Person designated pursuant to Section 11.18
hereof to act as the Tax Matters Person under the Code.
"Tax Matters Person Residual Interest": The 0.001% interest in the
Class R Certificates and the Upper-Tier Residual Interest each of which shall be
issued to and held by _______________ throughout the term hereof unless another
person shall accept an assignment of either such interest and the designation of
Tax Matters Person pursuant to Section 11.18 hereof.
"Termination Notice": As defined in Section 9.03(a) hereof.
"Total Available Funds": As defined in Section 7.02(b) hereof.
31
<PAGE>
"Total Monthly Excess Cashflow": As defined in Section 7.03(c)(ii)
hereof.
"Total Monthly Excess Spread": The sum of the Fixed Rate Group Total
Monthly Excess Spread and the Adjustable Rate Group Total Monthly Excess Spread.
"Trust": IMC Home Equity Loan Trust 199___, the trust created under
this Agreement.
"Trust Estate": As defined in the conveyance clause under this
Agreement.
"Trustee": _____________, a ______________________________, the
_______________ Department of which is located on the date of execution of this
Agreement at ___________________________________________________, not in its
individual capacity but solely as Trustee under this Agreement, and any
successor hereunder.
"Trustee Fee": The fee payable monthly to the Trustee on each Payment
Date in an amount equal to _______% per annum, on the outstanding aggregate Loan
Balances of the Home Equity Loans as of the related Determination Date.
"Trustee Reimbursable Expenses": Any amounts payable (i) pursuant to
Sections 11.16(a)(v) and Section 11.16(g), and (ii) pursuant to the second
sentence of Section 10.07, provided that the aggregate amounts payable pursuant
to this clause (ii) shall not exceed $_______.
"Underwriters":
"Upper-Tier Distribution Account": The Upper-Tier Distribution Account
established pursuant to Section 7.02 hereof.
"Upper-Tier REMIC": The REMIC established pursuant to Section 2.08
hereof with respect to the Certificates. The assets of the Upper-Tier REMIC
shall include the Upper-Tier Distribution Account and the right to receive the
distributions deposited therein with respect to each Lower-Tier Interest.
"Upper-Tier S Certificates": Any one of the Upper-Tier S-1
Certificates, Upper-Tier S-2 Certificates, Upper-Tier S-3 Certificates,
Upper-Tier S-4 Certificates, Upper-Tier S-5 Certificates, Upper- Tier S-6
Certificates, Upper-Tier S-7 Certificates or Upper-Tier S-8 Certificates.
"Upper-Tier S-1 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-1 Distribution
Amount with respect to the Class S-1 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution made
in respect of the Upper-Tier S-1 Certificates on such immediately preceding
Payment Date.
"Upper-Tier S-1 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-1 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-1 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-1 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-1 Certificate Principal
Balance during the related Accrual Period immediately prior to such Payment Date
at the Class S-1 Pass-Through Rate plus the Preference Amount
32
<PAGE>
owed in respect of the Upper Tier S-1 Certificates as it relates to interest
previously paid to the Upper-Tier S-1 Certificates.
"Upper Tier S-1 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-1 Current Interest and (ii) the Upper-Tier S-1
Carry Forward Amount.
"Upper-Tier S-2 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-2 Distribution
Amount with respect to the Class S-2 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution made
in respect of the Upper-Tier S-2 Certificates on such immediately preceding
Payment Date.
"Upper Tier S-2 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-2 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-2 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-2 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-2 Certificate Principal
Balance during the related Accrual Period immediately prior to such Payment Date
at the Class S-2 Pass-Through Rate plus the Preference Amount owed in respect of
the Upper Tier S-2 Certificates as it relates to interest previously paid to the
Upper-Tier S-2 Certificates.
"Upper Tier S-2 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-2 Current Interest and (ii) the Upper-Tier S-2
Carry Forward Amount.
"Upper-Tier S-3 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-3 Distribution
Amount with respect to the Class S-3 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution made
in respect of the Upper-Tier S-3 Certificates on such immediately preceding
Payment Date.
"Upper Tier S-3 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-3 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-3 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-3 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-3 Certificate Principal
Balance during the related Accrual Period immediately prior to such Payment Date
at the Class S-3 Pass-Through Rate plus the Preference Amount owed in respect of
the Upper Tier S-3 Certificates as it relates to interest previously paid to the
Upper-Tier S-3 Certificates.
"Upper Tier S-3 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-3 Current Interest and (ii) the Upper-Tier S-3
Carry Forward Amount.
"Upper-Tier S-4 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-4 Distribution
Amount with respect to the Class S-4 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual
33
<PAGE>
distribution made in respect of the Upper-Tier S-4 Certificates on such
immediately preceding Payment Date.
"Upper Tier S-4 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-4 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-4 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-4 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-4 Certificate Principal
Balance during the related Accrual Period immediately prior to such Payment Date
at the Class S-4 Pass-Through Rate plus the Preference Amount owed in respect of
the Upper Tier S-4 Certificates as it relates to interest previously paid to the
Upper-Tier S-4 Certificates.
"Upper Tier S-4 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-4 Current Interest and (ii) the Upper-Tier S-4
Carry Forward Amount.
"Upper-Tier S-5 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-5 Distribution
Amount with respect to the Class S-5 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution made
in respect of the Upper-Tier S-5 Certificates on such immediately preceding
Payment Date.
"Upper Tier S-5 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-5 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-5 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-5 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-5 Certificate Principal
Balance during the related Accrual Period immediately prior to such Payment Date
at the Class S-5 Pass-Through Rate plus the Preference Amount owed in respect of
the Upper Tier S-5 Certificates as it relates to interest previously paid to the
Upper-Tier S-5 Certificates.
"Upper Tier S-5 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-5 Current Interest and (ii) the Upper-Tier S-5
Carry Forward Amount.
"Upper-Tier S-6 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-6 Distribution
Amount with respect to the Class S-6 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution made
in respect of the Upper-Tier S-6 Certificates on such immediately preceding
Payment Date.
"Upper Tier S-6 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-6 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-6 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-6 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-6 Certificate Principal
Balance during the related Accrual Period
34
<PAGE>
immediately prior to such Payment Date at the Class S-6 Pass-Through Rate plus
the Preference Amount owed in respect of the Upper Tier S-6 Certificates as it
relates to interest previously paid to the Upper-Tier S-6 Certificates.
"Upper Tier S-6 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-6 Current Interest and (ii) the Upper-Tier S-6
Carry Forward Amount.
"Upper-Tier S-7 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-7 Distribution
Amount with respect to the Class S-7 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution made
in respect of the Upper-Tier S-7 Certificates on such immediately preceding
Payment Date.
"Upper Tier S-7 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-7 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-7 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-7 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-7 Certificate Principal
Balance during the related Accrual Period immediately prior to such Payment Date
at the Class S-7 Pass-Through Rate plus the Preference Amount owed in respect of
the Upper Tier S-7 Certificates as it relates to interest previously paid to the
Upper-Tier S-7 Certificates.
"Upper Tier S-7 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-7 Current Interest and (ii) the Upper-Tier S-7
Carry Forward Amount.
"Upper-Tier S-8 Carry Forward Amount": With respect to any Payment Date
the sum of the amount, if any, by which (x) the Upper-Tier S-8 Distribution
Amount with respect to the Class S-8 Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual distribution made
in respect of the Upper-Tier S-8 Certificates on such immediately preceding
Payment Date.
"Upper Tier S-8 Certificate": An interest in the Upper-Tier REMIC which
(x) represents the right to receive the Upper-Tier S-8 Distribution Amount and
(y) is designated as a "regular interest" in the Upper-Tier REMIC for purposes
of the REMIC Provisions. The Upper-Tier S-8 Certificates are nontransferable and
uncertificated.
"Upper-Tier S-8 Current Interest": With respect to any Payment Date,
the aggregate amount of interest accrued on the Class A-8 Certificate Principal
Balance during the related Accrual Period immediately prior to such Payment Date
at the Class S-8 Pass-Through Rate plus the Preference Amount owed in respect of
the Upper Tier S-8 Certificates as it relates to interest previously paid to the
Upper-Tier S-8 Certificates.
"Upper Tier S-8 Distribution Amount:" With respect to any Payment Date
the sum of (i) the Upper-Tier S-8 Current Interest and (ii) the Upper-Tier S-8
Carry Forward Amount.
"Weighted Average Pass-Through Rate": As to the Class A Certificates
and any Payment Date, the weighted average of the Class A-1 Pass-Through Rate,
the Class A-2 Pass-Through Rate, the Class A-3 Pass-Through Rate, the Class A-4
Pass-Through Rate, the Class A-5 Pass-Through Rate, the Class
35
<PAGE>
A-6 Pass-Through Rate, the Class A-7 Pass-Through Rate, [and the Class A-8
Pass-Through Rate] weighted by, respectively, the Class A-1 Certificate
Principal Balance, the Class A-2 Certificate Principal Balance, the Class A-3
Certificate Principal Balance, the Class A-4 Certificate Principal Balance, the
Class A-5 Certificate Principal Balance, the Class A-6 Certificate Principal
Balance and the Class A-7 Certificate Principal Balance [and the Class A-8
Certificate Principal Balance] as of such Payment Date prior to taking into
account any distributions to be made on such Payment Date.
Section 1.02 Use of Words and Phrases.
------------------------
"Herein", "hereby", "hereunder", "hereof", "hereinbefore",
"hereinafter" and other equivalent words refer to this Agreement as a whole and
not solely to the particular section of this Agreement in which any such word is
used. The definitions set forth in Section 1.01 hereof include both the singular
and the plural. Whenever used in this Agreement, any pronoun shall be deemed to
include both singular and plural and to cover all genders.
Section 1.03 Captions; Table of Contents.
----------------------------
The captions or headings in this Agreement and the Table of Contents
are for convenience only and in no way define, limit or describe the scope and
intent of any provisions of this Agreement.
Section 1.04 Opinions.
---------
Each opinion with respect to the validity, binding nature and
enforceability of documents or Certificates may be qualified to the extent that
the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether considered in a
proceeding or action in equity or at law) and may state that no opinion is
expressed on the availability of the remedy of specific enforcement, injunctive
relief or any other equitable remedy. Any opinion required to be furnished by
any Person hereunder must be delivered by counsel upon whose opinion the
addressee of such opinion may reasonably rely, and such opinion may state that
it is given in reasonable reliance upon an opinion of another, a copy of which
must be attached, concerning the laws of a foreign jurisdiction. Any opinion
delivered hereunder shall be addressed to the Rating Agencies, the Certificate
Insurer and the Trustee.
END OF ARTICLE I
36
<PAGE>
ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01 Establishment of the Trust.
----------------------------
The parties hereto do hereby create and establish, pursuant to the laws
of the State of New York and this Agreement, the Trust, which, for convenience,
shall be known as "IMC Home Equity Loan Trust 199___".
Section 2.02 Office.
-------
The office of the Trust shall be in care of the Trustee, addressed to
_______________, Attention: _________________________ or at such other address
as the Trustee may designate by notice to the Depositor, the Seller, the
Servicer, the Owners and the Certificate Insurer.
Section 2.03 Purposes and Powers.
--------------------
The purpose of the Trust is to engage in the following activities and
only such activities: (i) the issuance of the Certificates and the acquiring,
owning and holding of Home Equity Loans and the Trust Estate in connection
therewith; (ii) activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith,
including the investment of moneys in accordance with this Agreement; and (iii)
such other activities as may be required in connection with conservation of the
Trust Estate and distributions to the Owners; provided, however, that nothing
contained herein shall permit the Trustee to take any action which would
adversely affect the Base REMIC's or the Upper-Tier REMIC's status as a REMIC.
Section 2.04 Appointment of the Trustee; Declaration of Trust.
------------------------------------------------
The Seller and the Depositor hereby appoint the Trustee as trustee of
the Trust effective as of the Startup Day, to have all the rights, powers and
duties set forth herein. The Trustee hereby acknowledges and accepts such
appointment, represents and warrants its eligibility as of the Startup Day to
serve as Trustee pursuant to Section 10.08 hereof and declares that it will hold
the Trust Estate in trust upon and subject to the conditions set forth herein
for the benefit of the Owners.
Section 2.05 Expenses of the Trust.
----------------------
All expenses of the Trust, including (i) the fees of the Trustee
(including any portion of the Trustee Fee not paid pursuant to Section
7.03(c)(i) hereof) and (ii) to the extent not paid pursuant to Section 10.07,
any other expenses of the Trustee that have been reviewed and approved by the
Seller, which review shall not be required in connection with the enforcement of
a remedy by the Trustee resulting from a default under this Agreement, shall be
paid directly by the Seller. Failure by the Seller to pay any such fees or other
expenses shall not relieve the Trustee of its obligations hereunder.
Section 2.06 Ownership of the Trust.
------------------------
On the Startup Day the ownership interests in the Trust shall be
transferred as set forth in Section 4.02 hereof, such transfer to be evidenced
by sale of the Certificates as described therein. Thereafter, transfer of any
ownership interest shall be governed by Sections 5.04 and 5.08 hereof.
37
<PAGE>
Section 2.07 Situs of the Trust.
-------------------
It is the intention of the parties hereto that the Trust constitute a
trust under the laws of the State of New York. The Trust will be created and
administered in, and all Accounts maintained by the Trustee on behalf of the
Trust will be located in, the State of New York. The Trust will not have any
employees and will not have any real or personal property (other than property
acquired pursuant to Section 8.13 hereof and Home Equity Loan Files and certain
other documents) located in any state other than in the State of New York.
Payments will be received by the Trust only in the State of New York and
payments from the Trust will be made only from the State of New York. The
Trust's only office will be at the office of the Trustee as set forth in Section
2.02 hereof.
Section 2.08 Miscellaneous REMIC Provisions.
-------------------------------
(a) The beneficial ownership interest in the Base REMIC shall be
evidenced by the interests having the following characteristics and terms as
follows:
Final Scheduled
Class Designation Lower Tier Balance Payment Date
----------------- ------------------ ------------
Base REMIC Interest 1
Base REMIC Interest 2
Base REMIC Interest 3
Base REMIC Interest 4
Base REMIC Interest 5
Base REMIC Interest 6
Base REMIC Interest 7
Base REMIC Interest 8
Base REMIC Residual Class (1) (2)
(1) The Base REMIC Residual Class is not issued with a Lower-Tier Balance.
(2) The Base REMIC Residual Class has no Final Scheduled Payment Date.
(b) The Base REMIC Interest 1, the Base REMIC Interest 2, the Base
REMIC Interest 3, the Base REMIC Interest 4, the Base REMIC Interest 5, the Base
REMIC Interest 6, the Base REMIC 7, the Base REMIC Interest 8, and the
Upper-Tier S Certificates shall be issued as non-certificated interests. The
Class R Certificates shall be issued from the Upper-Tier REMIC in fully
registered certificated form.
(c) The Depositor hereby designates Base REMIC Interest 1, Base REMIC
Interest 2, the Base REMIC Interest 3, the Base REMIC Interest 4, the Base REMIC
Interest 5, the Base REMIC Interest 6, Base REMIC Interest 7 and the Base REMIC
Interest 8 as "regular interests" and the Base REMIC Residual Class as the
single class of "residual interests" in the Base REMIC for purposes of the REMIC
Provisions.
(d) The Depositor hereby designates the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8, Upper-Tier S-1,
Upper-Tier S-2, Upper-Tier S-3, Upper-Tier S-4, Upper-Tier S-5, Upper-Tier S-6,
Upper-Tier S-7 and Upper Tier S-8 Certificates as "regular interests," and the
Class R Certificates as the single class of "residual interests" in the
Upper-Tier REMIC for purposes of the REMIC Provisions. The Class S Certificates
are not themselves an interest in either the Upper-Tier REMIC or the Base REMIC,
but they represent the sum of the specified portions of interest from the
Upper-Tier S Certificates. The Depositor hereby designates the Base REMIC
Interest 1, the
38
<PAGE>
Base REMIC Interest 2, the Base REMIC Interest 3, the Base REMIC Interest 4, the
Base REMIC Interest 5, the Base REMIC Interest 6, the Base REMIC Interest 7, the
Base REMIC Interest 8 and the Upper-Tier Distribution Account as the only assets
of the Upper-Tier REMIC.
(e) The Startup Day is hereby designated as the "startup day" of the
Upper-Tier REMIC and the Base REMIC within the meaning of Section 860G(a)(9) of
the Code.
(f) The Owner of the Tax Matters Person Residual Interests in the
Upper-Tier REMIC and the Base REMIC is hereby designated as "tax matters person"
as defined in the REMIC Provisions with respect to each REMIC.
(g) The Trust and each REMIC shall, for federal income tax purposes,
maintain books on a calendar year basis and report income on an accrual basis.
(h) The Trustee shall cause the Upper-Tier REMIC and the Base REMIC
each to elect to be treated as a REMIC under Section 860D of the Code. Any
inconsistencies or ambiguities in this Agreement or in the administration of the
Trust shall be resolved in a manner that preserves the validity of such election
to be treated as a REMIC. The Trustee shall report all expenses of the Trust
Estate to the Base REMIC.
(i) For all Federal tax law purposes amounts transferred by the Trustee
to the Owners of the Class R Certificates shall be treated as distributions by
the Upper-Tier REMIC and amounts distributed on the Base REMIC Residual Class,
if any, shall be treated as distributions by the Base REMIC.
(j) The Trustee shall provide to the Internal Revenue Service and to
the person described in Section 860(E)(e)(3) and (6) of the Code the information
described in Treasury Regulation Section 1.860D-1(b)(5)(ii), or any successor
regulation thereto with respect to both the Base REMIC and the Upper-Tier REMIC.
Such information will be provided in the manner described in Treasury Regulation
Section 1.860E-2(a)(5), or any successor regulation thereto.
(k) For federal income tax purposes, the Final Scheduled Payment Date
for each Class of the Class A Certificates in the Upper-Tier REMIC is hereby set
to be the Payment Date indicated below:
Final Scheduled
Class Payment Date
Class A-1 Certificates
Class A-2 Certificates
Class A-3 Certificates
Class A-4 Certificates
Class A-5 Certificates
Class A-6 Certificates
Class A-7 Certificates
Class A-8 Certificates
(l) The Final Scheduled Payment Date for the Class S Certificates is
hereby set out to be ___ , ----.
END OF ARTICLE II
39
<PAGE>
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEPOSITOR, THE SERVICER AND THE SELLER;
COVENANT OF SELLER TO CONVEY HOME EQUITY LOANS
Section 3.01 Representations and Warranties of the Depositor.
-----------------------------------------------
The Depositor hereby represents, warrants and covenants to the Trustee,
the Seller, the Certificate Insurer and the Owners that as of the Startup Day:
(a) The Depositor is a corporation duly organized, validly existing and
in good standing under the laws governing its creation and existence and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of its business, or the properties owned or leased by it make such qualification
necessary. The Depositor has all requisite corporate power and authority to own
and operate its properties, to carry out its business as presently conducted and
as proposed to be conducted and to enter into and discharge its obligations
under this Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Depositor and
its performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Depositor and will not violate the
Depositor's Certificate of Incorporation, 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 a breach of, any material contract, agreement or
other instrument to which the Depositor is a party or by which the Depositor is
bound or violate any statute or any order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over the
Depositor or any of its properties.
(c) This Agreement and the other Operative Documents to which the
Depositor is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which default would materially and adversely affect the
condition (financial or other) or operations of the Depositor or its properties
or the consequences of which would materially and adversely affect its
performance hereunder and under the other Operative Documents to which the
Depositor is a party.
(e) No litigation is pending with respect to which the Depositor has
received service of process or, to the best of the Depositor's knowledge,
threatened against the Depositor which litigation might have consequences that
would prohibit its entering into this Agreement or any other Operative Documents
to which it is a party or that would materially and adversely affect the
condition (financial or otherwise) or operations of the Depositor or its
properties or might have consequences that would materially and adversely affect
its performance hereunder and under the other Operative Documents to which the
Depositor is a party.
40
<PAGE>
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Depositor contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
(g) The statements contained in the Registration Statement which
describe the Depositor or matters or activities for which the Depositor is
responsible in accordance with the Operative Documents or which are attributable
to the Depositor therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Depositor required to be stated therein or necessary to make
the statements contained therein with respect to the Depositor, in light of the
circumstances under which they were made, not misleading. The Registration
Statement does not contain any untrue statement of a material fact required to
be stated therein or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to the Depositor that
materially adversely affects or in the future may (so far as the Depositor can
now reasonably foresee) materially adversely affect the Depositor or the Home
Equity Loans or the ownership interests therein represented by the Certificates
that has not been set forth in the Registration Statement.
(h) Neither the Trustee nor the Depositor has any obligation to
register the Trust as an investment company under the Investment Company Act of
1940, as amended.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state or federal securities laws, real estate syndication or
"Blue Sky" statutes, as to which the Depositor makes no such representation or
warranty), that are necessary or advisable in connection with the purchase and
sale of the Certificates and the execution and delivery by the Depositor of the
Operative Documents to which it is a party, have been duly taken, given or
obtained, as the case may be, are in full force and effect on the date hereof,
are not subject to any pending proceedings or appeals (administrative, judicial
or otherwise) and either the time within which any appeal therefrom may be taken
or review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
Operative Documents on the part of the Depositor and the performance by the
Depositor of its obligations under this Agreement and such of the other
Operative Documents to which it is a party.
(j) The transactions contemplated by this Agreement are in the ordinary
course of business of the Depositor.
(k) The Depositor is not insolvent, nor will it be made insolvent by
the transfer of the Home Equity Loans, nor is the Depositor aware of any pending
insolvency.
It is understood and agreed that the representations and warranties set
forth in this Section 3.01 shall survive delivery of the respective Home Equity
Loans to the Trustee.
Upon discovery by any of the Depositor, the Seller, the Servicer, any
Sub-Servicer, the Certificate Insurer, any Owner or the Trustee (each, for
purposes of this paragraph, a party) of a breach of any of the representations
and warranties set forth in this Section 3.01 which materially and adversely
affects the interests of the Owners or of the Certificate Insurer, the party
discovering such breach shall give prompt written notice to the other parties.
As promptly as practicable, but in any event, within 60 days of its discovery or
its receipt of notice of breach, the Depositor shall cure such breach in all
material
41
<PAGE>
respects; provided, however, that if the Depositor can establish to the
reasonable satisfaction of the Certificate Insurer that it is diligently
pursuing remedial action, then the cure period may be extended for an additional
90 days with the written approval of the Certificate Insurer.
Section 3.02 Representations and Warranties of the Servicer.
----------------------------------------------
The Servicer hereby represents, warrants and covenants to the
Depositor, the Trustee, the Certificate Insurer and the Owners that as of the
Startup Day:
(a) The Servicer is a limited partnership duly formed and validly
existing under the laws of the State of Delaware, is, and each Sub-Servicer is,
in compliance with the laws of each state in which any Property is located to
the extent necessary to enable it to perform its obligations hereunder and is in
good standing in each jurisdiction in which the nature of its business, or the
properties owned or leased by it make such qualification necessary. The Servicer
and each Sub-Servicer has all requisite partnership or corporate, as the case
may be, power and authority to own and operate its properties, to carry out its
business as presently conducted and as proposed to be conducted and to enter
into and discharge its obligations under this Agreement and the other Operative
Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Servicer and
its performance and compliance with the terms of this Agreement have been duly
authorized by all necessary action on the part of the Servicer and will not
violate the Servicer's Agreement of Limited Partnership 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 contract, agreement or
other instrument to which the Servicer is a party or by which the Servicer is
bound or violate any statute or any order, rule or regulation of any court,
governmental agency or body or other tribunal having jurisdiction over the
Servicer or any of its properties.
(c) This Agreement and the Operative Documents to which the Servicer is
a party, assuming due authorization, execution and delivery by the other parties
hereto and thereto, each constitutes a valid, legal and binding obligation of
the Servicer, enforceable against it in accordance with the terms hereof and
thereof, except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Servicer is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which might have consequences that would materially and
adversely affect the condition (financial or otherwise) or operations of the
Servicer or its properties or might have consequences that would materially and
adversely affect its performance hereunder.
(e) No litigation is pending with respect to which the Servicer has
received service of process or, to the best of the Servicer's knowledge,
threatened against the Servicer which litigation might have consequences that
would prohibit its entering into this Agreement or that would materially and
adversely affect the condition (financial or otherwise) or operations of the
Servicer or its properties or might have consequences that would materially and
adversely affect its performance hereunder and the other Operative Documents to
which the Servicer is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Servicer contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report not misleading.
42
<PAGE>
(g) The statements contained in the Registration Statement which
describe the Servicer or matters or activities for which the Servicer is
responsible or which are attributed to the Servicer therein are true and correct
in all material respects, and the Registration Statement does not contain any
untrue statement of a material fact with respect to the Servicer or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein with respect to the Servicer, in light of the
circumstances under which they were made, not misleading.
(h) The Servicing Fee is a "current (normal) servicing fee rate" as
that term is used in Statement of Financial Accounting Standards No. 65 issued
by the Financial Accounting Standards Board. Neither the Servicer nor any
affiliate thereof will report on any financial statements any part of the
Servicing Fee as an adjustment to the sales price of the Home Equity Loans.
(i) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Servicer makes no such representation or warranty),
that are necessary or advisable in connection with the execution and delivery by
the Servicer of the Operative Documents to which it is a party, have been duly
taken, given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Servicer and the
performance by the Servicer of its obligations under this Agreement and such of
the other Operative Documents to which it is a party.
(j) The collection practices used by the Servicer with respect to the
Home Equity Loans have been, in all material respects, legal, proper, prudent
and customary in the mortgage servicing business and in conformity with relevant
FNMA guidelines.
(k) The transactions contemplated by this Agreement are in the ordinary
course of business of the Servicer.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the Home Equity Loans to
the Trustee.
Upon discovery by any of the Depositor, the Seller, the Servicer, any
Sub-Servicer, the Certificate Insurer, any Owner or the Trustee (each, for
purposes of this paragraph, a party) of a breach of any of the representations
and warranties set forth in this Section 3.02 which materially and adversely
affects the interests of the Owners or of the Certificate Insurer, the party
discovering such breach shall give prompt written notice to the other parties.
As promptly as practicable, but in any event, within 60 days of its discovery or
its receipt of notice of breach, the Servicer shall cure such breach in all
material respects and, upon the Servicer's continued failure to cure such
breach, may thereafter be removed by the Trustee with the written consent of the
Certificate Insurer pursuant to Section 8.20 hereof; provided, however, that if
the Servicer can establish to the reasonable satisfaction of the Certificate
Insurer that it is diligently pursuing remedial action, then the cure period may
be extended for an additional 90 days with the written approval of the
Certificate Insurer.
43
<PAGE>
Section 3.03 Representations and Warranties of the Seller.
--------------------------------------------
The Seller hereby represents, warrants and covenants to the Depositor,
the Trustee, the Certificate Insurer and the Owners that as of the Startup Day:
(a) The Seller is a limited partnership duly formed and validly
existing under the laws governing its creation and existence and is in good
standing in each jurisdiction in which the nature of its business, or the
properties owned or leased by it make such qualification necessary. The Seller
has all requisite authority to own and operate its properties, to carry out its
business as presently conducted and as proposed to be conducted and to enter
into and discharge its obligations under this Agreement and the other Operative
Documents to which it is a party.
(b) The execution and delivery of this Agreement by the Seller and its
performance and compliance with the terms of this Agreement and the other
Operative Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of the Seller and will not violate the
Seller's Agreement of Limited Partnership or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
or result in a breach of, any material contract, agreement or other instrument
to which the Seller is a party or by which the Seller is bound or violate any
statute or any order, rule or regulation of any court, governmental agency or
body or other tribunal having jurisdiction over the Seller or any of its
properties.
(c) This Agreement and the other Operative Documents to which the
Seller is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Seller, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Seller is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default would materially and adversely affect the
condition (financial or other) or operations of the Seller or its properties or
the consequences of which would materially and adversely affect its performance
hereunder and under the other Operative Documents to which the Seller is a
party.
(e) No litigation is pending with respect to which the Seller has
received service of process or, to the best of the Seller's knowledge,
threatened against the Seller which litigation might have consequences that
would prohibit its entering into this Agreement or any other Operative Documents
to which it is a party or that would materially and adversely affect the
condition (financial or otherwise) or operations of the Seller or its properties
or might have consequences that would materially and adversely affect its
performance hereunder and under the other Operative Documents to which the
Seller is a party.
(f) No certificate of an officer, statement furnished in writing or
report delivered pursuant to the terms hereof by the Seller contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the certificate, statement or report not misleading.
(g) The statements contained in the Prospectus Supplement which
describe the Seller or matters or activities for which the Seller is responsible
in accordance with the Operative Documents or which are attributable to the
Seller therein are true and correct in all material respects, and the Prospectus
Settlement does not contain any untrue statement of a material fact with respect
to the Seller required to be stated therein or necessary to make the statements
contained therein with respect to the Seller, in light of the circumstances
under which they were made, not misleading. The Prospectus Supplement does not
44
<PAGE>
contain any untrue statement of a material fact required to be stated therein or
omit to state any material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. There is no fact known to the Seller that materially adversely
affects or in the future may (so far as the Seller can now reasonably foresee)
materially adversely affect the Seller or the Home Equity Loans or the ownership
interests therein represented by the Certificates that has not been set forth in
the Prospectus Supplement.
(h) Upon the receipt of each Home Equity Loan (including the related
Note) and other items of the Trust Estate by the Trustee under this Agreement,
the Trust will have good title to such Home Equity Loan (including the related
Note) and such other items of the Trust Estate free and clear of any lien,
charge, mortgage, encumbrance or rights of others, except as set forth in
Section 3.04 (b) (ix) (other than liens which will be simultaneously released).
(i) Neither the Seller nor any affiliate thereof will report on any
financial statement any part of the Servicing Fee as an adjustment to the sales
price of the Home Equity Loans.
(j) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Seller makes no such representation or warranty), that
are necessary or advisable in connection with the purchase and sale of the
Certificates and the execution and delivery by the Seller of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative Documents on
the part of the Seller and the performance by the Seller of its obligations
under this Agreement and such of the other Operative Documents to which it is a
party.
(k) The origination practices used by the Seller with respect to the
Home Equity Loans have been, in all material respects, legal, proper, prudent
and customary in the mortgage lending business.
(l) The transactions contemplated by this Agreement are in the ordinary
course of business of the Seller.
(m) Neither the Trustee nor the Seller has any obligation to register
the Trust as an investment company under the Investment Company Act of 1940, as
amended.
(n) The Seller is not insolvent, nor will it be made insolvent by the
transfer of the Home Equity Loans, nor is the Seller aware of any pending
insolvency.
It is understood and agreed that the representations and warranties set
forth in this Section 3.03 shall survive delivery of the respective Home Equity
Loans to the Trustee.
Upon discovery by any of the Depositor, the Servicer, the Custodian,
any Sub-Servicer, any Owner, the Seller, the Certificate Insurer or the Trustee
(each, for purposes of this paragraph, a "party") of a breach of any of the
representations and warranties set forth in this Section 3.03 which materially
and adversely affects the interests of the Owners or the interests of the
Certificate Insurer, the party discovering such breach shall give prompt written
notice to the other parties. The Seller hereby
45
<PAGE>
covenants and agrees that within 60 days of its discovery or its receipt of
notice of breach, it shall cure such breach in all material respects or, with
respect to a breach of clause (h) above, the Seller may (or may cause an
affiliate of the Seller to) on the Monthly Remittance Date next succeeding such
discovery or receipt of notice (i) substitute in lieu of any Home Equity Loan
not in compliance with clause (h) a Qualified Replacement Mortgage and, if the
outstanding principal amount of such Qualified Replacement Mortgage as of the
applicable Replacement Cut-Off Date is less than the Loan Balance of such Home
Equity Loan as of such Replacement Cut-Off Date, deliver an amount (a
"Substitution Amount") equal to such difference together with the aggregate
amount of (A) all Delinquency Advances and Servicing Advances theretofore made
with respect to such Home Equity Loan and (B) all Delinquency Advances which the
Servicer has theretofore failed to remit with respect to such Home Equity Loan
to the Servicer for deposit in the Principal and Interest Account or (ii)
purchase such Home Equity Loan from the Trust at the Loan Purchase Price, which
purchase price shall be delivered to the Servicer for deposit in the Principal
and Interest Account. Notwithstanding any provision of this Agreement to the
contrary, with respect to any Home Equity Loan which is not in default or as to
which no default is imminent, no repurchase or substitution pursuant to Section
3.03, 3.04 or 3.06 shall be made unless the Seller obtains for the Trustee and
the Certificate Insurer at the Seller's expense an opinion of counsel
experienced in federal income tax matters to the effect that such a repurchase
or substitution would not constitute a Prohibited Transaction for the Trust or
any REMIC therein or otherwise subject the Trust or any REMIC therein to tax and
would not jeopardize the status of the Base REMIC or the Upper-Tier REMIC as a
REMIC (a "REMIC Opinion") addressed to the Trustee and the Certificate Insurer
and acceptable to the Certificate Insurer and the Trustee. The Seller shall also
deliver an Officer's Certificate to the Trustee and the Certificate Insurer
concurrently with the delivery of a Qualified Replacement Mortgage pursuant to
Sections 3.03, 3.04 and 3.06 stating that such Home Equity Loan meets the
requirements of the definition of a Qualified Replacement Mortgage and that all
other conditions to the substitution thereof have been satisfied. Any Home
Equity Loan as to which repurchase or substitution was delayed pursuant to this
Section shall be repurchased or substituted for (subject to compliance with
Sections 3.03, 3.04 or 3.06, as the case may be) upon the earlier of (a) the
occurrence of a default or imminent default with respect to such Home Equity
Loan and (b) receipt by the Trustee and the Certificate Insurer of a REMIC
Opinion.
Section 3.04 Covenants of Seller to Take Certain Actions with Respect
to the Home Equity Loans in Certain Situations.
--------------------------------------------------------
(a) Upon the discovery by the Depositor, the Seller, the Servicer, the
Certificate Insurer, any Sub-Servicer, any Owner, the Custodian or the Trustee
that the representations and warranties set forth in clause (b) below were
untrue in any material respect as of the Startup Day (or in the case of the
Subsequent Home Equity Loans, as of the respective Subsequent Transfer Date)
with the result that the interests of the Owners or of the Certificate Insurer
are materially and adversely affected, the party discovering such breach shall
give prompt written notice to the other parties. Upon the earliest to occur of
the Seller's discovery, its receipt of notice of breach from any one of the
other parties or such time as a situation resulting from an existing statement
which is untrue materially and adversely affects the interests of the Owners or
of the Certificate Insurer, the Seller hereby covenants and warrants that it
shall promptly cure such breach in all material respects or subject to the last
two sentences of Section 3.03 it shall on the second Monthly Remittance Date
next succeeding such discovery, receipt of notice or such time (i) substitute in
lieu of each Home Equity Loan which has given rise to the requirement for action
by the Seller a Qualified Replacement Mortgage and deliver the Substitution
Amount to the Servicer for deposit in the Principal and Interest Account or (ii)
purchase such Home Equity Loan from the Trust at a purchase price equal to the
Loan Purchase Price thereof, which purchase price shall be delivered to the
Servicer for deposit in the Principal and Interest Account; provided, however,
that if the Seller can establish to the reasonable satisfaction of the
Certificate Insurer that it is diligently pursuing remedial
46
<PAGE>
action, the period of time in which the Seller must substitute a Qualified
Replacement Mortgage or purchase such Home Equity Loan may be extended for an
additional 30 days with the written approval of the Certificate Insurer. It is
understood and agreed that the obligation of the Seller so to substitute or
purchase any Home Equity Loan as to which such a statement set forth below is
untrue in any material respect and has not been remedied shall constitute the
sole remedy respecting a discovery of any such statement which is untrue in any
material respect in this Section 3.04 available to the Owners, the Trustee and
the Certificate Insurer.
(b) The Seller hereby represents, warrants and covenants to the
Trustee, the Depositor, the Servicer, the Certificate Insurer and the Owners
that as of the Startup Day (with respect to the Initial Home Equity Loans) and
as of the respective Subsequent Transfer Date (with respect to the Subsequent
Home Equity Loans):
(i) The information with respect to each Initial Home Equity
Loan and Subsequent Home Equity Loan set forth in the related
Schedule of Home Equity Loans is true and correct as of the Cut-Off
Date (or in the case of the Subsequent Home Equity Loans, on the
related Subsequent Transfer Date);
(ii) All the original or certified documentation set forth in
Section 3.05 (including all material documents related thereto) with
respect to each Initial Home Equity Loan has been or will be
delivered to the Trustee on the Startup Day (or in the case of the
Subsequent Home Equity Loans, on the related Subsequent Transfer
Date) or as otherwise provided in Section 3.05;
(iii) Each Home Equity Loan being transferred to the Trust is
a Qualified Mortgage and is a Mortgage;
(iv) Each Property is improved by a single (one-to-four)
family residential dwelling (except for ___ Initial Home Equity
Loans in the amount of $____________ that are condominiums, planned
unit developments, townhouses, manufactured housing, mixed use
properties, multifamily residential, or cooperative, provided that
no more than _____% of the Properties are secured by manufactured
homes);
(v) As of the Cut-Off Date, no Initial Home Equity Loan has a
Loan-to-Value Ratio in excess of ___% except for ___ Initial Home
Equity Loans in the amount of $_____________ that had a
Loan-to-Value Ratio not greater than 100.00%;
(vi) Each Home Equity Loan is being serviced by the Servicer
in accordance with the terms of this Agreement;
(vii) The Note related to each Initial Home Equity Loan in the
Fixed Rate Group bears a fixed Coupon Rate (net of Retained Yield)
of at least _____% per annum and the Note related to each Home
Equity Loan in the Adjustable Rate Group bears a current Coupon Rate
(net of Retained Yield) of at least _____% per annum;
(viii) Each Note with respect to the Initial Home Equity Loans
will provide for a schedule of substantially level and equal Monthly
Payments which are sufficient to amortize fully the principal
balance of such Note on or before its maturity date, except for
______ Initial Home Equity Loans in the amount of $ _______________,
representing _____% of the aggregate Loan Balance of the Initial
Home Equity Loans as of the Cut-Off Date which may
47
<PAGE>
provide for a "balloon" payment due at the end of the 15th year
(except for ___ Initial Home Equity Loans in the amount of
$_____________________ which provide for "balloon" payments due
within ___ months to ____ months);
(ix) As of the Startup Day and any Subsequent Transfer Date,
each Mortgage is a valid and subsisting first or second lien of
record (or is in the process of being recorded) on the Property
subject in the case of any Second Mortgage Loan only to a Senior
Lien on such Property and subject in all cases to the exceptions to
title set forth in the title insurance policy or attorney's opinion
of title, with respect to the related Home Equity Loan, which
exceptions are generally acceptable to banking institutions in
connection with their regular mortgage lending activities, and such
other exceptions to which similar properties are commonly subject
and which do not individually, or in the aggregate, materially and
adversely affect the benefits of the security intended to be
provided by such Mortgage;
(x) Immediately prior to the transfer and assignment of the
Home Equity Loans by the Seller to the Depositor and by the
Depositor to the Trust herein contemplated, the Seller and the
Depositor, as the case may be, held good and indefeasible title to,
and was the sole owner of, each Home Equity Loan (including the
related Note) conveyed by the Seller subject to no liens, charges,
mortgages, encumbrances or rights of others except as set forth in
clause (ix) or other liens which will be released simultaneously
with such transfer and assignment; and immediately upon the transfer
and assignment herein contemplated, the Trustee will hold good and
indefeasible title to, and be the sole owner of, each Home Equity
Loan subject to no liens, charges, mortgages, encumbrances or rights
of others except as set forth in paragraph (ix) or other liens which
will be released simultaneously with such transfer and assignment;
(xi) As of the Cut-Off Date, (a) no Initial Home Equity Loan
is ____ days or more Delinquent except that there are _____ Initial
Home Equity Loans in the Fixed Rate Group with an outstanding
aggregate Loan Balance of $ _________________ that are ___ or more
days Delinquent but not more than ___ days Delinquent, and (b) no
Initial Home Equity Loan is ____ days or more Delinquent except that
there are _____ Initial Home Equity Loans in the Adjustable Rate
Group with an outstanding aggregate Loan Balance of $
_________________ that are ___ or more days Delinquent but not more
than ___ days Delinquent, and ;
(xii) There is no delinquent tax or assessment lien on any
Property, and each Property is free of substantial damage and is in
good repair;
(xiii) There is no valid and enforceable offset, defense or
counterclaim to any Note or Mortgage, including the obligation of
the related Mortgagor to pay the unpaid principal of or interest on
such Note;
(xiv) There is no mechanics' lien or claim for work, labor or
material affecting any Property which is or may be a lien prior to,
or equal with, the lien of the related Mortgage except those which
are insured against by any title insurance policy referred to in
paragraph (xvi) below;
(xv) Each Home Equity Loan at the time it was made complied in
all material respects with applicable state and federal laws and
regulations, including, without limitation, the federal
Truth-in-Lending Act (as amended by the Riegle Community Development
and Regulatory Improvement Act of 1994) and other consumer
protection laws, usury, equal credit opportunity, disclosure and
recording laws;
48
<PAGE>
(xvi) With respect to each Home Equity Loan either (a) an
attorney's opinion of title has been obtained but no title policy
has been obtained (provided that no title policy has been obtained
with respect to not more than ___% of the Original Aggregate Loan
Balance), or (b) a lender's title insurance policy, issued in
standard American Land Title Association form by a title insurance
company authorized to transact business in the state in which the
related Property is situated, in an amount at least equal to the
original balance of such Home Equity Loan together, in the case of a
Second Mortgage Loan, with the then-original principal amount of the
mortgage note relating to the Senior Lien, insuring the mortgagee's
interest under the related Home Equity Loan as the holder of a valid
first or second mortgage lien of record on the real property
described in the related Mortgage, as the case may be, subject only
to exceptions of the character referred to in paragraph (ix) above,
was effective on the date of the origination of such Home Equity
Loan, and, as of the Startup Day, such policy is valid and
thereafter such policy shall continue in full force and effect;
(xvii) The improvements upon each Property are covered by a
valid and existing hazard insurance policy with a carrier generally
acceptable to the Servicer that provides for fire and extended
coverage representing coverage not less than the least of (A) the
outstanding principal balance of the related Home Equity Loan
(together, in the case of a Second Mortgage Loan, with the
outstanding principal balance of the Senior Lien), (B) the minimum
amount required to compensate for damage or loss on a replacement
cost basis or (C) the full insurable value of the Property;
(xviii) If any Property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as
having special flood hazards, a flood insurance policy in a form
meeting the requirements of the current guidelines of the Flood
Insurance Administration is in effect with respect to such Property
with a carrier generally acceptable to the Servicer in an amount
representing coverage not less than the least of (A) the outstanding
principal balance of the related Home Equity Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal
balance of the Senior Lien), (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis or (C) the
maximum amount of insurance that is available under the Flood
Disaster Protection Act of 1973;
(xix) Each Mortgage and Note is the legal, valid and binding
obligation of the maker thereof and is enforceable in accordance
with its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether considered in a proceeding or
action in equity or at law), and all parties to each Home Equity
Loan had full legal capacity to execute all documents relating to
such Home Equity Loan and convey the estate therein purported to be
conveyed;
(xx) The Seller has caused and will cause to be performed any
and all acts required to be performed to preserve the rights and
remedies of the Trustee in any Insurance Policies applicable to any
Home Equity Loans delivered by the Seller including, without
limitation, any necessary notifications of insurers, assignments of
policies or interests therein, and establishments of co-insured,
joint loss payee and mortgagee rights in favor of the Trustee;
(xxi) As of the Startup Day, no more than _____% of the
aggregate Loan Balance of the Initial Home Equity Loans in the Fixed
Rate Group and no more that ____% of the
49
<PAGE>
aggregate Loan Balance of the Initial Home Equity Loans in the
Adjustable Rate Group will be secured by Properties located within
any single zip code area;
(xxii) Each original Mortgage was recorded or is in the
process of being recorded, and all subsequent assignments of the
original Mortgage have been delivered for recordation or have been
recorded in the appropriate jurisdictions wherein such recordation
is necessary to perfect the lien thereof as against creditors of or
purchasers from the Seller (or, subject to Section 3.05 hereof, are
in the process of being recorded);
(xxiii) The terms of each Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the
interest of the Owners and the Certificate Insurer and which has
been delivered to the Trustee. The substance of any such alteration
or modification is reflected on the related Schedule of Home Equity
Loans;
(xxiv) The proceeds of each Home Equity Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee
to make future advances thereunder. 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 such Home Equity Loans were paid;
(xxv) The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
corresponding Mortgage;
(xxvi) No Home Equity Loan has a shared appreciation feature,
or other contingent interest feature;
(xxvii) Each Property is located in the state identified in
the respective Schedule of Home Equity Loans and consists of one or
more parcels of real property with a residential dwelling erected
thereon;
(xxviii) Each Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of the
related Home Equity Loan in the event the related Property is sold
without the prior consent of the mortgagee thereunder;
(xxix) Any advances made after the date of origination of a
Home Equity Loan but prior to the Cut-Off Date (or the relevant
Subsequent Cut-Off Date) have been consolidated with the outstanding
principal amount secured by the related Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and
single repayment term reflected on the respective Schedule of Home
Equity Loans. The consolidated principal amount does not exceed the
original principal amount of the related Home Equity Loan. No Note
permits or obligates the Servicer to make future advances to the
related Mortgagor at the option of the Mortgagor;
(xxx) There is no proceeding pending or threatened for the
total or partial condemnation of any Property, nor is such a
proceeding currently occurring, and each Property is undamaged by
waste, fire, water, flood, earthquake or earth movement.
(xxxi) All of the improvements which were included for the
purposes of determining the Appraised Value of any Property lie
wholly within the boundaries and building restriction lines
50
<PAGE>
of such Property, and no improvements on adjoining properties
encroach upon such Property, and are stated in the title insurance
policy and affirmatively insured;
(xxxii) No improvement located on or being part of any
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 all occupied portions of each Property and,
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 such Property is lawfully occupied under the
applicable law;
(xxxiii) 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 Owners or the Trust to the trustee under the deed of
trust, except in connection with a trustee's sale after default by
the related Mortgagor;
(xxxiv) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder
thereof adequate for the realization against the related Property of
the benefits of the security, including (A) in the case of a
Mortgage designated as a deed of trust, by trustee's sale and (B)
otherwise by judicial foreclosure. There is no homestead or other
exemption other than any applicable Mortgagor redemption rights
available to the related Mortgagor which would materially interfere
with the right to sell the related Property at a trustee's sale or
the right to foreclose the related Mortgage;
(xxxv) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Note and no
event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration; and neither the Servicer
nor the Seller has waived any default, breach, violation or event of
acceleration;
(xxxvi) No instrument of release or waiver has been executed
in connection with any Home Equity 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;
(xxxvii) The maturity date of each Home Equity Loan is at
least twelve months prior to the maturity date of the related first
home equity loan if such first home equity loan provides for a
balloon payment;
(xxxviii) Each Home Equity Loan was underwritten in accordance
with the credit underwriting guidelines of the Seller as set forth
in the Seller's Policies and Procedures Manual, as in effect on the
date hereof;
(xxxix) Each Home Equity Loan was originated based upon a full
appraisal, which included an interior inspection of the subject
property;
(xl) The Home Equity Loans were not selected for inclusion in
the Trust by the Seller on any basis intended to adversely affect
the Trust;
51
<PAGE>
(xli) No more than ___% of the aggregate Loan Balance of the
Initial Home Equity Loans in the Fixed Rate Group and no more than
____% of the aggregate Loan Balance of the Initial Home Equity Loans
in the Adjustable Rate Group, respectively, are secured by
Properties that are non-owner occupied Properties (i.e.,
investor-owned and vacation);
(xlii) The Seller has no actual knowledge that there exist any
hazardous substances, hazard wastes or solid wastes, as such terms
are defined in the Comprehensive Environmental Response Compensation
and Liability Act, the Resource Conservation and Recovery Act of
1976, or other federal, state or local environmental legislation on
any Property;
(xliii) The Seller was properly licensed or otherwise
authorized, to the extent required by applicable law, to originate
or purchase each Home Equity Loan; and the consummation of the
transactions herein contemplated, including, without limitation, the
receipt of interest by the Owners and the ownership of the Home
Equity Loans by the Trustee as trustee of the Trust will not involve
the violation of such laws;
(xliv) With respect to each Property subject to a ground lease
(i) the current ground lessor has been identified and all ground
rents which have previously become due and owing have been paid;
(ii) the ground lease term extends, or is automatically renewable,
for at least five years beyond the maturity date of the related Home
Equity Loan; (iii) the ground lease has been duly executed and
recorded; (iv) the amount of the ground rent and any increases
therein are clearly identified in the lease and are for
predetermined amounts at predetermined times; (v) the ground rent
payment is included in the borrower's monthly payment as an expense
item in determining the qualification of the borrower for such Home
Equity Loan; (vi) the Trust has the right to cure defaults on the
ground lease; and (vii) the terms and conditions of the leasehold do
not prevent the free and absolute marketability of the Property. As
of the Cut-Off Date, the Loan Balance of the Initial Home Equity
Loans with related Properties subject to ground leases does not
exceed 1% of the Original Aggregate Loan Balance;
(xlv) As of the Startup Day, the Seller has not received a
notice of default of any First Mortgage Loan secured by any Property
which has not been cured by a party other than the Seller;
(xlvi) No Home Equity Loan is subject to a temporary rate
reduction pursuant to a buydown program;
(xlvii) No more than ____% of the aggregate Loan Balance of
the Initial Home Equity Loans in the Fixed Rate Group and no more
that ____% of the aggregate Loan Balance of the Initial Home Equity
Loans in the Adjustable Rate Group, respectively, are secured by
Home Equity Loans which were originated under the Seller's
non-income verification program; and
(xlviii) The Coupon Rate on each Home Equity Loan is
calculated on the basis of a year of 360 days with twelve 30-day
months.
(c) In the event that any such repurchase pursuant to this Section
results in a prohibited transaction tax as specified in the REMIC Opinion
delivered pursuant to Section 3.03, the Trustee shall immediately notify the
Seller in writing thereof and the Seller will, within 10 days of receiving
notice thereof from the Trustee, deposit the amount due from the Trust with the
Trustee for the payment thereof, including any interest and penalties, in
immediately available funds. In the event that any Qualified Replacement
Mortgage is delivered by the Seller to the Trust pursuant to Section 3.03,
Section 3.04 or
52
<PAGE>
Section 3.06 hereof, the Seller shall be obligated to take the actions described
in Section 3.04(a) with respect to such Qualified Replacement Mortgage upon the
discovery by any of the Owners, the Seller, the Servicer, the Certificate
Insurer, any Sub-Servicer, the Custodian or the Trustee that the statements set
forth in subsection (b) above are untrue in any material respect on the date
such Qualified Replacement Mortgage is conveyed to the Trust such that the
interests of the Owners or the Certificate Insurer in the related Qualified
Replacement Mortgage are materially and adversely affected; provided, however,
that for the purposes of this subsection (c) the statements in subsection (b)
above referring to items "as of the Cut-Off Date" or "as of the Startup Day"
shall be deemed to refer to such items as of the date such Qualified Replacement
Mortgage is conveyed to the Trust. Notwithstanding the fact that a
representation contained in subsection (b) above may be limited to the Seller's
knowledge, such limitation shall not relieve the Seller of its repurchase
obligation under this Section and Section 3.05 hereof.
(d) It is understood and agreed that the covenants set forth in this
Section 3.04 shall survive delivery of the respective Home Equity Loans
(including Qualified Replacement Mortgage) to the Trustee.
(e) The Trustee shall have no duty to conduct any affirmative
investigation other than as specifically set forth in this Agreement as to the
occurrence of any condition requiring the repurchase or substitution of any Home
Equity Loan pursuant to this Article III or the eligibility of any Home Equity
Loan for the purpose of this Agreement.
Section 3.05 Conveyance of the Initial Home Equity Loans and
Qualified Replacement Mortgages.
-----------------------------------------------
(a) On the Startup Day the Seller, concurrently with the execution and
delivery hereof, hereby transfers, assigns, sets over and otherwise conveys to
the Depositor and the Depositor, concurrently with the execution and delivery
hereof, transfers, assigns, sets over and otherwise conveys without recourse, to
the Trustee (or Co-Trustee with respect to Home Equity Loans located in New
Jersey) for the benefit of the Owners and the Certificate Insurer, all of their
respective right, title and interest in and to the Initial Home Equity Loans
(other than payments of principal and interest due on the Home Equity Loans on
or before the Cut-Off Date). The transfer by the Depositor of the Initial Home
Equity Loans set forth on the Schedule of Home Equity Loans to the Trustee is
absolute and is intended by the Owners and all parties hereto to be treated as a
sale by the Depositor.
In the event that either such conveyance or a conveyance pursuant to
Section 3.07 and any Subsequent Transfer Agreement is deemed to be a loan, the
parties intend that the Seller shall be deemed to have granted to the Depositor
and the Depositor shall be deemed to have granted to the Trustee a security
interest in the Trust Estate, and that this Agreement shall constitute a
security agreement under applicable law.
In connection with such sale, transfer, assignment, and conveyance from
the Seller to the Depositor, the Seller has filed, in the appropriate office or
offices in the States of Delaware and Florida, a UCC-1 financing statement
executed by the Seller as debtor, naming the Depositor as secured party and
listing the Initial Home Equity Loans and the other property described above as
collateral and on or prior to the final Subsequent Transfer Date the Seller will
file in such offices a similar UCC-1 financing statement listing the Subsequent
Home Equity Loans so transferred as collateral. The characterization of the
Seller as a debtor and the Depositor as the secured party in such financing
statements is solely for protective purposes and shall in no way be construed as
being contrary to the intent of the parties that this transaction be treated as
a sale of the Seller's entire right, title and interest in the Trust Estate. In
connection with such filing, the Seller agrees that it shall cause to be filed
all necessary continuation
53
<PAGE>
statements thereof and to take or cause to be taken such actions and execute
such documents as are necessary to perfect and protect the Trustee's, the
Owners' and the Certificate Insurer's interest in the Trust Estate.
In connection with such sale, transfer, assignment, and conveyance from
the Depositor to the Trustee (or Co-Trustee with respect to Home Equity Loans
located in New Jersey), the Depositor has filed, in the appropriate office or
offices in the States of Delaware and New York a UCC-1 financing statement
executed by the Depositor as debtor, naming the Trustee (or Co-Trustee with
respect to Home Equity Loans located in New Jersey) as secured party and listing
the Initial Home Equity Loans and the other property described above as
collateral and on or prior to the final Subsequent Transfer Date the Depositor
will file in such offices a similar UCC-1 financing statement listing the
Subsequent Home Equity Loans so transferred as collateral. The characterization
of the Depositor as a debtor and the Trustee as the secured party in such
financing statements is solely for protective purposes and shall in no way be
construed as being contrary to the intent of the parties that this transaction
be treated as a sale of the Depositor's entire right, title and interest in the
Trust Estate. In connection with such filing, the Depositor agrees that it shall
cause to be filed all necessary continuation statements thereof and to take or
cause to be taken such actions and execute such documents as are necessary to
perfect and protect the Trustee's, the Owners' and the Certificate Insurer's
interest in the Trust Estate.
(b) In connection with the transfer and assignment of the Initial Home
Equity Loans, or on each Subsequent Transfer Date with respect to the Subsequent
Home Equity Loan, the Seller agrees to:
(i) deliver without recourse to the Custodian, on behalf of
the Trustee, on the Startup Day with respect to each Initial Home
Equity Loan or on each Subsequent Transfer Date with respect to the
Subsequent Home Equity Loans, (A) the original Notes endorsed in blank
or to the order of the Trustee, (B) (I) the original title insurance
commitment or a copy thereof certified as a true copy by the closing
agent or the Seller, and when available, the original title insurance
policy or a copy certified by the issuer of the title insurance policy
or (II) the attorney's opinion of title, (C) originals or copies of all
intervening assignments certified as true copies by the closing agent
or the Seller, showing a complete chain of title from origination to
the Trustee, if any, including warehousing assignments, if recorded,
(D) originals of all assumption and modification agreements, if any and
(E) either: (1) the original Mortgage, with evidence of recording
thereon (if such original Mortgage has been returned to the Seller from
the applicable recording office) or a copy of the Mortgage certified as
a true copy by the closing agent or the Seller, or (2) a copy of the
Mortgage certified by the public recording office in those instances
where the original recorded Mortgage has been lost;
(ii) cause, within 60 days following the Startup Day with
respect to the Initial Home Equity Loans or on each Subsequent Transfer
Date with respect to the Subsequent Home Equity Loans, assignments of
the Mortgages to "_______________, as Trustee of IMC Home Equity Loan
Trust 199___ under the Pooling and Servicing Agreement dated as of
__________ 1, 199__" to be submitted for recording in the appropriate
jurisdictions; provided, however, that the Seller shall not be required
to prepare an assignment for any Mortgage described in subsection
(b)(i)(E)(2) above with respect to which the original recording
information has not yet been received from the recording office;
provided, further, that the Seller shall not be required to record an
assignment of a Mortgage if the Seller furnishes to the Trustee and the
Certificate Insurer, on or before the Startup Day, with respect to the
Initial Home Equity Loans or on each Subsequent Transfer Date with
respect to the Subsequent Home Equity Loans, at the Seller's expense,
an opinion of counsel with respect to the relevant jurisdiction that
such recording is not
54
<PAGE>
necessary to perfect the Trustee's interest in the related Home Equity
Loans (in form and substance satisfactory to the Certificate Insurer
and the Rating Agencies);
(iii) deliver the title insurance policy or title searches,
the original Mortgages and such recorded assignments, together with
originals or duly certified copies of any and all prior assignments
(other than unrecorded warehouse assignments), to the Custodian, on
behalf of the Trustee, within 15 days of receipt thereof by the Seller
(but in any event, with respect to any Mortgage as to which original
recording information has been made available to the Seller, within one
year after the Startup Day with respect to the Initial Home Equity
Loans or on each Subsequent Transfer Date with respect to the
Subsequent Home Equity Loans); and
(iv) furnish to the Trustee, the Certificate Insurer and the
Rating Agencies at the Seller's expense, an opinion of counsel with
respect to the sale and perfection of the Subsequent Home Equity Loans
delivered to the Trust in form and substance satisfactory to the
Certificate Insurer.
Notwithstanding anything to the contrary contained in this Section
3.05, in those instances where the public recording office retains the original
Mortgage, the assignment of a Mortgage or the intervening assignments of the
Mortgage after it has been recorded, the Depositor shall be deemed to have
satisfied its obligations hereunder upon delivery to the Custodian, on behalf of
the Trustee of a copy of such Mortgage, such assignment or assignments of
Mortgage certified by the public recording office to be a true copy of the
recorded original thereof.
Not later than ten days following the end of the 60-day period referred
in clause (ii) of the preceding paragraph, the Seller shall deliver to the
Custodian, on behalf of the Trustee a list of all Mortgages for which no
Mortgage assignment has yet been submitted for recording by the Seller, which
list shall state the reason why the Seller has not yet submitted such Mortgage
assignments for recording. With respect to any Mortgage assignment disclosed on
such list as not yet submitted for recording for a reason other than a lack of
original recording information, the Custodian, on behalf of the Trustee shall
make an immediate demand on the Seller to prepare such Mortgage assignments, and
shall inform the Certificate Insurer of the Seller's failure to prepare such
Mortgage assignments. Thereafter, the Custodian, on behalf of the Trustee shall
cooperate in executing any documents prepared by the Certificate Insurer and
submitted to the Custodian, on behalf of the Trustee in connection with this
provision. Following the expiration of the 60-day period referred to in clause
(ii) of the preceding paragraph, the Seller shall promptly prepare a Mortgage
assignment for any Mortgage for which original recording information is
subsequently received by the Seller, and shall promptly deliver a copy of such
Mortgage assignment to the Custodian, on behalf of the Trustee. The Seller
agrees that it will follow its normal servicing procedures and attempt to obtain
the original recording information necessary to complete a Mortgage assignment.
In the event that the Seller is unable to obtain such recording information with
respect to any Mortgage prior to the end of the 18th calendar month following
the Startup Day with respect to the Initial Home Equity Loans and the relevant
Subsequent Transfer Date with respect to Subsequent Home Equity Loans and has
not provided to the Custodian, on behalf of the Trustee a Mortgage assignment
with evidence of recording thereon relating to the assignment of such Mortgage
to the Trustee, the Custodian, on behalf of the Trustee shall notify the Seller
of the Seller's obligation to provide a completed assignment (with evidence of
recording thereon) on or before the end of the 20th calendar month following the
Startup Day with respect to the Initial Home Equity Loans and the relevant
Subsequent Transfer Date with respect to Subsequent Home Equity Loans. A copy of
such notice shall be sent by the Custodian, on behalf of the Trustee to the
Certificate Insurer. If no such completed assignment (with evidence of recording
thereon) is provided before the end of such 20th calendar month, the related
Home Equity Loan shall be deemed to have breached the representation
55
<PAGE>
contained in clause (xxii) of Section 3.04(b) hereof; provided, however, that if
as of the end of such 20th calendar month the Seller demonstrates to the
satisfaction of the Certificate Insurer that it is exercising its best efforts
to obtain such completed assignment and, during each month thereafter until such
completed assignment is delivered to the Custodian, on behalf of the Trustee,
the Seller continues to demonstrate to the satisfaction of the Certificate
Insurer that it is exercising its best efforts to obtain such completed
assignment, the related Home Equity Loan will not be deemed to have breached
such representation. The requirement to deliver a completed assignment with
evidence of recording thereon will be deemed satisfied upon delivery of a copy
of the completed assignment certified by the applicable public recording office.
Copies of all Mortgage assignments received by the Custodian, on behalf
of the Trustee shall be retained in the related File.
All recording required pursuant to this Section 3.05 shall be
accomplished at the expense of the Seller.
(c) In the case of Initial Home Equity Loans which have been prepaid in
full on or after the Cut-Off Date and prior to the Startup Day, the Seller, in
lieu of the foregoing, will deliver within six (6) days after the Startup Day to
the Trustee a certification of an Authorized Officer in the form set forth in
Exhibit E.
(d) The Seller shall transfer, assign, set over and otherwise convey
without recourse, to the Trustee all right, title and interest of the Seller in
and to any Qualified Replacement Mortgage delivered to the Custodian, on behalf
of the Trustee on behalf of the Trust by the Seller pursuant to Section 3.03,
3.04 or 3.06 hereof and all its right, title and interest to principal and
interest due on such Qualified Replacement Mortgage after the applicable
Replacement Cut-Off Date; provided, however, that the Seller shall reserve and
retain all right, title and interest in and to payments of principal and
interest due on such Qualified Replacement Mortgage on or prior to the
applicable Replacement Cut-Off Date.
(e) As to each Home Equity Loan released from the Trust in connection
with the conveyance of a Qualified Replacement Mortgage therefor, the Trustee
will transfer, assign, set over and otherwise convey without recourse or
representation, on the Seller's order, all of its right, title and interest in
and to such released Home Equity Loan and all the Trust's right, title and
interest to principal and interest due on such released Home Equity Loan after
the applicable Replacement Cut-Off Date; provided, however, that the Trust shall
reserve and retain all right, title and interest in and to payments of principal
and interest due on such released Home Equity Loan on or prior to the applicable
Replacement Cut-Off Date.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Trustee on behalf of the Trust, the Seller agrees to
(i) deliver without recourse to the Custodian, on behalf of the Trustee on the
date of delivery of such Qualified Replacement Mortgage the original Note
relating thereto, endorsed in blank or to the order of the Trustee, (ii) cause
promptly to be recorded an assignment in the appropriate jurisdictions, (iii)
deliver the original Qualified Replacement Mortgage and such recorded
assignment, together with original or duly certified copies of any and all prior
assignments, to the Custodian, on behalf of the Trustee within 15 days of
receipt thereof by the Seller (but in any event within 120 days after the date
of conveyance of such Qualified Replacement Mortgage) and (iv) deliver the title
insurance policy, or where no such policy is required to be provided under
Section 3.05(b)(i)(B), the other evidence of title in same required in Section
3.05(b)(i)(B).
56
<PAGE>
(g) As to each Home Equity Loan released from the Trust in connection
with the conveyance of a Qualified Replacement Mortgage the Custodian, on behalf
of the Trustee shall deliver on the date of conveyance of such Qualified
Replacement Mortgage and on the order of the Seller (i) the original Note
relating thereto, endorsed without recourse or representation, to the Seller,
(ii) the original Mortgage so released and all assignments relating thereto and
(iii) such other documents as constituted the File with respect thereto.
(h) If a Mortgage assignment is lost during the process of recording,
or is returned from the recorder's office unrecorded due to a defect therein,
the Seller shall prepare a substitute assignment or cure such defect, as the
case may be, and thereafter cause each such assignment to be duly recorded.
Section 3.06 Acceptance by Trustee; Certain Substitutions of Home
Equity Loans; Certification by Trustee.
-----------------------------------------------------
(a) The Trustee agrees to execute and deliver and to cause the
Custodian to execute and deliver on the Startup Day an acknowledgment of receipt
of the items delivered by the Seller or the Depositor in the forms attached as
Exhibit F-1 and Exhibit F-2 hereto, and declares through the Custodian that it
will hold such documents and any amendments, replacement or supplements thereto,
as well as any other assets included in the definition of Trust Estate and
delivered to the Custodian, on behalf of the Trustee, as Trustee in trust upon
and subject to the conditions set forth herein for the benefit of the Owners.
The Trustee agrees, for the benefit of the Owners, to cause the Custodian to
review such items within 45 days after the Startup Day (or, with respect to any
document delivered after the Startup Day, within 45 days of receipt and with
respect to any Subsequent Home Equity Loan or Qualified Replacement Mortgage,
within 45 days after the assignment thereof) and to deliver to the Depositor,
the Seller, the Servicer and the Certificate Insurer a certification in the form
attached hereto as Exhibit G (a "Pool Certification") to the effect that, as to
each Home Equity Loan listed in the Schedule of Home Equity Loans (other than
any Home Equity Loan paid in full or any Home Equity Loan specifically
identified in such Pool Certification as not covered by such Pool
Certification), (i) all documents required to be delivered to it pursuant to
Section 3.05(b)(i) of this Agreement are in its possession, (ii) such documents
have been reviewed by it and have not been mutilated, damaged or torn and relate
to such Home Equity Loan and (iii) based on its examination and only as to the
foregoing documents, the information set forth on the Schedule of Home Equity
Loans accurately reflects the information set forth in the File. The Trustee
shall have no responsibility for reviewing any File except as expressly provided
in this subsection 3.06(a). Without limiting the effect of the preceding
sentence, in reviewing any File, the Trustee shall have no responsibility for
determining whether any document is valid and binding, whether the text of any
assignment is in proper form (except to determine if the Trustee is the
assignee), whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction or whether a blanket assignment is
permitted in any applicable jurisdiction, but shall only be required to
determine whether a document has been executed, that it appears to be what it
purports to be, and, where applicable, that it purports to be recorded. The
Trustee shall be under no duty or obligation to inspect, review or examine any
such documents, instruments, certificates or other papers to determine that they
are genuine, enforceable, or appropriate for the represented purpose or that
they are other than what they purport to be on their face, nor shall the Trustee
be under any duty to determine independently whether there are any intervening
assignments or assumption or modification agreements with respect to any Home
Equity Loan.
(b) If the Custodian, on behalf of the Trustee during such 45-day
period finds any document constituting a part of a File which is not executed,
has not been received, or is unrelated to the Home Equity Loans identified in
the Schedule of Home Equity Loans, or that any Home Equity Loan does not conform
to the description thereof as set forth in the Schedule of Home Equity Loans,
the Custodian, on
57
<PAGE>
behalf of the Trustee shall promptly so notify the Depositor, the Seller, the
Owners and the Certificate Insurer. In performing any such review, the
Custodian, on behalf of the Trustee may conclusively rely on the Seller as to
the purported genuineness of any such document and any signature thereon. It is
understood that the scope of the review of the items delivered by the Seller
pursuant to Section 3.05(b)(i) is limited solely to confirming that the
documents listed in Section 3.05(b)(i) have been executed and received, relate
to the Files identified in the Schedule of Home Equity Loans and conform to the
description thereof in the Schedule of Home Equity Loans. The Seller agrees to
use reasonable efforts to remedy a material defect in a document constituting
part of a File of which it is so notified by the Custodian, on behalf of the
Trustee. If, however, within 90 days after such notice to it respecting such
defect the Seller has not remedied the defect and the defect materially and
adversely affects the interest in the related Home Equity Loan of the Owners or
the Certificate Insurer, the Seller will (or will cause an affiliate of the
Seller to) on the next succeeding Monthly Remittance Date (i) substitute in lieu
of such Home Equity Loan a Qualified Replacement Mortgage and deliver the
Substitution Amount to the Servicer for deposit in the Principal and Interest
Account or (ii) purchase such Home Equity Loan at a purchase price equal to the
Loan Purchase Price thereof, which purchase price shall be delivered to the
Servicer for deposit in the Principal and Interest Account.
(c) In addition to the foregoing, the Custodian, on behalf of the
Trustee also agrees to make a review during the 12th month after the Startup Day
indicating the current status of the exceptions previously indicated on the Pool
Certification (the "Final Certification"). After delivery of the Final
Certification, the Custodian, on behalf of the Trustee and the Servicer shall
provide to the Certificate Insurer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
Section 3.07 Conveyance of the Subsequent Home Equity Loans.
----------------------------------------------
(a) Subject to the satisfaction of the conditions set forth in Section
3.05 and paragraph (b) below (based on the Custodian's review of such
conditions) in consideration of the Trustee's delivery on the relevant
Subsequent Transfer Dates to or upon the order of the Seller of all or a portion
of the balance of funds in the Pre-Funding Account, the Seller shall indirectly
on any Subsequent Transfer Date sell, transfer, assign, set over and otherwise
convey without recourse, to the Trustee, and the Trustee shall purchase on
behalf of the Trust all of the Seller's right, title and interest in and to any
and all benefits accruing to the Seller from the Subsequent Home Equity Loans
(other than any principal and interest due on or prior to the relevant
Subsequent Cut-Off Date) which the Seller is causing to be delivered to the
Custodian, on behalf of the Trustee herewith (and all substitutions therefor as
provided by Section 3.03, 3.04 and 3.06), together with the related Subsequent
Home Equity Loan documents and the Seller's interest in any Property which
secured a Subsequent Home Equity Loan but which has been acquired by foreclosure
or deed in lieu of foreclosure, and all payments thereon and proceeds of the
conversion, voluntary or involuntary, of the foregoing and proceeds of all the
foregoing (including, but not by way of limitation, all proceeds of any mortgage
insurance, hazard insurance and title insurance policy relating to the
Subsequent Home Equity Loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts, rights to
payment of any and every kind, and other forms of obligations and receivables
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing). Notwithstanding anything to the contrary herein, there
shall be no more than three Subsequent Transfer Dates during the Funding Period.
The transfer by the Seller of the Subsequent Home Equity Loans set
forth on the Schedule of Home Equity Loans to the Trustee shall be absolute and
shall be intended by the Owners and all parties hereto to be treated as a sale
by the Seller. Any Subsequent Home Equity Loan so transferred will be included
in the Fixed Rate Group. The amount released from the Pre-Funding Account shall
be one-
58
<PAGE>
hundred percent (100%) of the aggregate principal balances of the Subsequent
Home Equity Loans so transferred. Upon the transfer by the Seller of the
Subsequent Home Equity Loans hereunder, such Subsequent Home Equity Loans (and
all principal and interest due thereon subsequent to the Subsequent Cut-Off
Date) and all other rights and interests with respect to such Subsequent Home
Equity Loans transferred pursuant to a Subsequent Transfer Agreement shall be
deemed for all purposes hereunder to be part of the Trust Estate.
(b) The obligation of the Trustee to accept the transfer of the
Subsequent Home Equity Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:
(i) the Seller shall have provided the Trustee and the Certificate
Insurer with an Addition Notice and shall have provided any information
reasonably requested by any of the foregoing with respect to the Subsequent
Home Equity Loans;
(ii) the Seller shall have delivered to the Trustee a duly executed
written Subsequent Transfer Agreement (including an acceptance by the
Trustee) in substantially the form of Exhibit D hereto, which shall include
a Schedule of Home Equity Loans, listing the Subsequent Home Equity Loans
and any other exhibits listed thereon;
(iii) the Seller shall have delivered to the Servicer for deposit in the
Principal and Interest Account all principal and interest due in respect of
such Subsequent Home Equity Loans after the related Subsequent Cut-Off
Date;
(iv) as of each Subsequent Transfer Date, the Seller was not insolvent,
nor will it be made insolvent by such transfer, nor is it aware of any
pending insolvency;
(v) the Funding Period shall not have ended; and
(vi) the Depositor shall have delivered to the Trustee and the
Certificate Insurer an Officer's Certificate confirming the satisfaction of
each condition precedent specified in this paragraph (b) and in the related
Subsequent Transfer Agreement and the Certificate Insurer shall have
reviewed such transfer.
(c) The obligation of the Trust to purchase a Subsequent Home Equity
Loan on the final Subsequent Transfer Date is subject to the following
requirements any of which may, at the Seller's request, be waived or modified by
the Certificate Insurer by a written waiver, a copy of which waiver shall be
delivered to Standard & Poor's and Moody's: (i) such Subsequent Home Equity Loan
may not be 30 or more days contractually Delinquent as of the related Subsequent
Cut-Off Date (except that Subsequent Home Equity Loans representing not more
than _% of the aggregate Loan Balance of the Subsequent Home Equity Loans may
not be more than 60 days Delinquent as of the related Subsequent Cut-Off Date);
(ii) such Subsequent Home Equity Loan will be a fixed-rate Home Equity Loan;
(iii) the original term to maturity of such Subsequent Home Equity Loan may not
exceed 30 years; (iv) such Subsequent Home Equity Loan will have a Coupon Rate
of not less than _____%; (v) such Subsequent Home Equity Loan is not secured by
a Property that is a manufactured home; and (vi) following the purchase of such
Subsequent Home Equity Loan by the Trust, the Home Equity Loans (including the
Subsequent Home Equity Loans) (a) will have a weighted average Coupon Rate of at
least ______%; (b) will have a weighted average combined Loan-to-Value Ratio of
not more than _____%, (c) will not have Balloon Loans representing more than
_____% by aggregate Loan Balance and no such Subsequent
59
<PAGE>
Home Equity Loan which is a Balloon Loan shall have an original term to maturity
of less than 15 years; and (d) will have no Subsequent Home Equity Loan with a
Loan Balance in excess of $_______.
(d) In connection with each Subsequent Transfer Date and on the Payment
Dates occurring in ____ and ____ 199__, the Trustee shall determine: (i) the
amount and correct dispositions of the Capitalized Interest Requirements,
Overfunded Interest Amounts, Pre-Funding Account Earnings and the Pre-Funded
Amount and (ii) any other necessary matters in connection with the
administration of the Pre- Funding Account and of the Capitalized Interest
Account. In the event that any amounts are released as a result of an error in
calculation to the Owners or Depositor from the Pre-Funding Account or from the
Capitalized Interest Account, such Owners or the Depositor shall immediately
repay such amounts to the Trustee or the Trustee shall have the right to
withhold such amounts from future distributions on such Certificates.
On the Payment Date in ___, 199__, if the Subsequent Home Equity Loans,
in the aggregate, do not comply in all material respects with the conditions
specified in Section 3.07(c) above, or there is a proposed change in the
Certificate Insurer credit risk exposure by the Rating Agencies, the Certificate
Insurer may increase the Specified Subordinated Amount by an amount necessary to
cause such rating, without regard to the Certificate Insurance Policy, to be
maintained at the level assigned on the Startup Day.
Section 3.08 Custodian.
----------
Notwithstanding anything to the contrary in this Agreement, the parties
hereto acknowledge that the functions of the Trustee with respect to the
custody, acceptance, inspection and release of the Files pursuant to Sections
3.05, 3.06, 3.07 and 8.14 and the related Pool Certification and Final
Certification shall be performed by the Custodian pursuant to the Custodial
Agreement. The fees and expenses of the Custodian will be paid by the Seller.
END OF ARTICLE III
60
<PAGE>
ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01 Issuance of Certificates.
-------------------------
On the Startup Day, upon the Trustee's receipt from the Seller of an
executed Delivery Order in the form set forth as Exhibit H hereto, the Trustee
shall authenticate and deliver the Certificates on behalf of the Trust.
Section 4.02 Sale of Certificates.
---------------------
At 11 a.m. New York City time on the Startup Day, at the offices of
__________________________________ (or at such other location acceptable to the
Seller), the Seller will sell and convey the Home Equity Loans and the money,
instruments and other property related thereto to the Depositor and the
Depositor will sell and convey the Home Equity Loans and the money, instruments
and other property related thereto to the Trustee, and the Trustee will deliver
(i) to the Underwriters, the Class A Certificates with an aggregate Percentage
Interest in each Class equal to 100% registered in the name of Cede & Co. or in
such other names as the Underwriters shall direct, against payment of the
purchase price thereof by wire transfer of immediately available funds to the
Trustee, (ii) to the initial purchasers thereof, Class S Certificates with a
cumulative Percentage Interest equal to ___%, and (iii) to the respective
registered owners thereof, a Class R Certificate with a Percentage Interest
equal to ______%, registered in the name of the initial purchasers thereof and a
Class R Certificate with a Percentage Interest equal to _____%, registered in
the name of the Tax Matters Person (all such events shall be referred to herein
as the "Closing").
Upon the Trustee's receipt of the entire net proceeds of the sale of
the Fixed Rate Certificates, the Seller shall instruct the Trustee to deposit
(a) an amount equal to the Original Aggregate Pre-Funded Amount in the
Pre-Funding Account and (b) an amount equal to $__________ in the Capitalized
Interest Account contributed out of such proceeds or otherwise. The Trustee
shall then remit the entire balance of such net proceeds in accordance with
instructions delivered by the Seller.
END OF ARTICLE IV
61
<PAGE>
ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01 Terms.
------
(a) The Certificates are pass-through securities having the rights
described therein and herein. Notwithstanding references herein or therein with
respect to the Certificates as to "principal" and "interest" thereof, no debt of
any Person is represented thereby, nor are the Certificates or the underlying
Notes guaranteed by any Person (except that the Notes may be recourse to the
Mortgagors thereof to the extent permitted by law and the terms of the related
Note and except for the rights of the Trustee on behalf of the Owners of the
Class A Certificate, and the Class S Certificates with respect to the
Certificate Insurance Policy). The Class A Certificates and the Class S
Certificates are payable solely from payments received on or with respect to the
Home Equity Loans (other than the Servicing Fees), moneys in the Principal and
Interest Account, except as otherwise provided herein, moneys in the Pre-Funding
Account and the Capitalized Interest Account, from earnings on moneys and the
proceeds of property held as a part of the Trust Estate and, with respect to the
Class A Certificates and the Class S Certificates upon the occurrence of certain
events, from Insured Payments. Each Certificate entitles the Owner thereof to
receive monthly on each Payment Date, in order of priority of distributions with
respect to such Class of Certificates as set forth in Section 7.03, a specified
portion of such payments with respect to the Home Equity Loans, certain related
Insured Payments, pro rata in accordance with such Owner's Percentage Interest
and certain amounts payable from the Capitalized Interest Account and from the
Pre- Funding Account.
(b) Each Owner is required, and hereby agrees, to return to the
Trustee, any Certificate with respect to which the Trustee has made the final
distribution due thereon. Any such Certificate as to which the Trustee has made
the final distribution thereon shall be deemed cancelled and shall no longer be
Outstanding for any purpose of this Agreement, whether or not such Certificate
is ever returned to the Trustee.
Section 5.02 Forms.
------
The Class A-1 Certificates, the Class A-2 Certificates, the Class A-3
Certificates, the Class A-4 Certificates, the Class A-5 Certificates, the Class
A-6 Certificates, the Class A-7 Certificates, the Class A-8 Certificates, the
Class S Certificates and the Class R Certificates shall be in substantially the
forms set forth in Exhibits A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8, B and C
hereof, respectively.
Section 5.03 Execution, Authentication and Delivery.
---------------------------------------
Each Certificate shall be executed on behalf of the Trust, by the
manual signature of one of the Trustee's Authorized Officers. In addition, each
Certificate shall be authenticated by the manual signature of one of the
Trustee's Authorized Officers.
Certificates bearing the manual signature of individuals who were at
any time the proper officers of the Trustee shall, upon proper authentication by
the Trustee, bind the Trust, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the execution and delivery of
such Certificates or did not hold such offices at the date of authentication of
such Certificates.
62
<PAGE>
The initial Certificates shall be dated as of the Startup Day and
delivered at the Closing to the parties specified in Section 4.02 hereof.
Subsequently issued Certificates will be dated as of the issuance of the
Certificate.
No Certificate shall be valid until executed and authenticated as set
forth above.
Section 5.04 Registration and Transfer of Certificates.
-----------------------------------------
(a) The Trustee shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby initially appointed Registrar
for the purpose of registering Certificates and transfers of Certificates as
herein provided. The Certificate Insurer, the Owners and the Trustee shall have
the right to inspect the Register during the Trustee's normal hours and to
obtain copies thereof, and the Trustee shall have the right to rely upon a
certificate executed on behalf of the Registrar by an Authorized Officer thereof
as to the names and addresses of the Owners of the Certificates and the
principal amounts and numbers of such Certificates.
If a Person other than the Trustee is appointed as Registrar by the
Owners of a majority of the aggregate Percentage Interests represented by the
Class A Certificates then Outstanding with the consent of the Certificate
Insurer or if there are no longer any Class A Certificates then outstanding, by
such majority of the Percentage Interests represented by the Class R
Certificates, such Owners shall give the Trustee, the Certificate Insurer and
the Owners prompt written notice of the appointment of such Registrar and of the
location, and any change in the location, of the Register. In connection with
any such appointment the reasonable fees of the Registrar shall be paid, as
expenses of the Trust, pursuant to Section 7.06 hereof.
(b) Subject to the provisions of Section 5.08 hereof, upon surrender
for registration of transfer of any Certificate at the office designated as the
location of the Register, upon the direction of the Registrar, the Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the aggregate
principal amount or percentage interest of the Certificate so surrendered.
(c) At the option of any Owner, Certificates of any Class owned by such
Owner may be exchanged for other Certificates authorized of like Class and tenor
and a like aggregate original principal amount or percentage interest and
bearing numbers not contemporaneously outstanding, upon surrender of the
Certificates to be exchanged at the office designated as the location of the
Register. Whenever any Certificate is so surrendered for exchange, upon the
direction of the Registrar, the Trustee shall execute, authenticate and deliver
the Certificate or Certificates which the Owner making the exchange is entitled
to receive.
(d) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
(e) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by
the Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any registration of
transfer or exchange of Certificates, but the Registrar or Trustee may require
payment of a sum sufficient to cover any tax or
63
<PAGE>
other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Certificates; any other expenses in
connection with such transfer or exchange shall be an expense of the Trust.
(g) It is intended that the Class A Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. Each Class of Class A Certificates shall, except as otherwise provided
in Subsection (h), be initially issued in the form of a single fully registered
Class A Certificate of such Class. Upon initial issuance, the ownership of each
such Class A Certificate shall be registered in the Register in the name of Cede
& Co., or any successor thereto, as nominee for the Depository.
On the Startup Day, no Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7 or Class A-8 Certificates shall be issued in
denominations of less than $1,000 and integral multiples thereof.
The Depositor and the Trustee are hereby authorized to execute and
deliver the Representation Letter with the Depository in the form provided to
the Trustee by the Depositor.
With respect to the Class A Certificates registered in the Register in
the name of Cede & Co., as nominee of the Depository, the Depositor, the
Servicer, the Seller and the Trustee shall have no responsibility or obligation
to Direct or Indirect Participants or beneficial owners for which the Depository
holds Class A Certificates from time to time as a Depository. Without limiting
the immediately preceding sentence, the Depositor, the Servicer, the Seller and
the Trustee shall have no responsibility or obligation with respect to (i) the
accuracy of the records of the Depository, Cede & Co., or any Direct or Indirect
Participant with respect to the ownership interest in the Class A Certificates,
(ii) the delivery to any Direct or Indirect Participant or any other Person,
other than a registered Owner of a Class A Certificate as shown in the Register,
of any notice with respect to the Class A Certificates or (iii) the payment to
any Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class A Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Class A
Certificates. No Person other than a registered Owner of a Class A Certificate
as shown in the Register shall receive a certificate evidencing such Class A
Certificate.
Upon delivery by the Depository to the Trustee of written notice to the
effect that the Depository has determined to substitute a new nominee in place
of Cede & Co., and subject to the provisions hereof with respect to the payment
of interest by the mailing of checks or drafts to the registered Owners of Class
A Certificates appearing as registered Owners in the registration books
maintained by the Trustee at the close of business on a Record Date, the name
"Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
(h) In the event that (i) the Depository or the Seller advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Class A Certificates and the Seller or the Trustee is unable to locate a
qualified successor or (ii) the Seller at its sole option elects to terminate
the book-entry system through the Depository, the Class A Certificates shall no
longer be restricted to being registered in the Register in the name of Cede &
Co. (or a successor nominee) as nominee of the Depository. At that time, the
Seller may determine that the Class A Certificates shall be registered in the
name of and deposited with a successor depository operating a global book-entry
system, as may be acceptable to the Seller and at the Seller's expense, or such
depository's agent or designee but, if the Depositor does not select such
alternative global book-entry system, then the Class A Certificates may be
registered in whatever name
64
<PAGE>
or names registered Owners of Class A Certificates transferring Class A
Certificates shall designate, in accordance with the provisions hereof.
(a) Notwithstanding any other provision of this Agreement to the
contrary, so long as any Class A Certificate is registered in the name of Cede &
Co., as nominee of the Depository, all distributions of principal or interest on
such Class A Certificates and all notices with respect to such Class A
Certificates shall be made and given, respectively, in the manner provided in
the Representation Letter.
Section 5.05 Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If (i) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) in the case of any mutilated Certificate, such
mutilated Certificate shall first be surrendered to the Trustee, and in the case
of any destroyed, lost or stolen Certificate, there shall be first delivered to
the Trustee such security or indemnity as may be reasonably required by it to
hold the Trustee and the Certificate Insurer harmless (provided, that with
respect to an Owner which is an institutional investor, a letter of indemnity
furnished by it shall be sufficient for this purpose), then, in the absence of
notice to the Trustee or the Registrar that such Certificate has been acquired
by a bona fide purchaser, the Seller shall execute and the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like Class, tenor
and aggregate principal amount, bearing a number not contemporaneously
outstanding.
Upon the issuance of any new Certificate under this Section, the
Registrar or Trustee may require the payment from the transferor or transferee
of the related Certificate of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto; any other expenses
in connection with such issuance shall be an expense of the Trust.
Every new Certificate issued pursuant to this Section in exchange for
or in lieu of any mutilated, destroyed, lost or stolen Certificate shall
constitute evidence of a substitute interest in the Trust, and shall be entitled
to all the benefits of this Agreement equally and proportionately with any and
all other Certificates of the same Class duly issued hereunder and such
mutilated, destroyed, lost or stolen Certificate shall not be valid for any
purpose.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates.
Section 5.06 Persons Deemed Owners.
----------------------
Prior to due presentment for registration of transfer of any
Certificate, the Certificate Insurer, the Trustee and any agent of the Trustee
may treat the Person in whose name any Certificate is registered as the Owner of
such Certificate for the purpose of receiving distributions with respect to such
Certificate and for all other purposes whatsoever, and neither the Certificate
Insurer, the Trustee nor any agent of the Trustee shall be affected by notice to
the contrary.
65
<PAGE>
Section 5.07 Cancellation.
-------------
All Certificates surrendered for registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly cancelled by it. No Certificate shall be
authenticated in lieu of or in exchange for any Certificate cancelled as
provided in this Section, except as expressly permitted by this Agreement. All
cancelled Certificates may be held by the Trustee in accordance with its
standard retention policy.
Section 5.08 Limitation on Transfer of Ownership Rights.
------------------------------------------
(a) No sale or other transfer of a Certificate (other than the initial
sale of the Certificates upon the issuance thereof) shall be made to any Person
unless such Person delivers to the Trustee (i) a completed certificate
substantially in the form attached as Exhibit ___ hereto and (ii) if required by
the terms of such certificate, an opinion to the effect that such sale or other
transfer will not violate any applicable federal or state securities laws.
(b) No sale or other transfer of record or beneficial ownership of a
Class R Certificate (whether pursuant to a purchase, a transfer resulting from a
default under a secured lending agreement or otherwise) shall be made to a
Disqualified Organization or an agent of a Disqualified Organization. The
transfer, sale or other disposition of a Class R Certificate (whether pursuant
to a purchase, a transfer resulting from a default under a secured lending
agreement or otherwise) to a Disqualified Organization shall be deemed to be of
no legal force or effect whatsoever and such transferee shall not be deemed to
be an Owner for any purpose hereunder, including, but not limited to, the
receipt of distributions on such Class R Certificate. Furthermore, in no event
shall the Trustee accept surrender for transfer, registration of transfer, or
register the transfer, of any Class R Certificate nor authenticate and make
available any new Class R Certificate unless the Trustee has received an
affidavit from the proposed transferee in the form attached hereto as Exhibit I.
Each holder of a Class R Certificate by his acceptance thereof, shall be deemed
for all purposes to have consented to the provisions of this Section 5.08(a).
(c) No other sale or other transfer of record or beneficial ownership
of a Class S Certificate or a Class R Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act, and
any applicable state securities laws or is made in accordance with said Act and
laws. In the event such a transfer is to be made within three years from the
Startup Day, (i) in the case of transfers for which an investment letter in the
form of Exhibit J-1 is provided by the transferee, the Trustee or the Seller
shall require a written opinion of counsel acceptable to and in form and
substance satisfactory to the Seller, the Trustee and the Certificate Insurer in
the event that such transfer may 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 Seller, the Depositor, the Trustee, the Trust Estate or the
Certificate Insurer; provided, however, that no such opinion shall be required
in connection with the initial transfer of the Class S Certificate by the
Seller, and (ii) the Trustee shall require the Transferee to execute an
investment letter substantially in the form of Exhibit J-1 in the case of the
initial transfer by the Seller and substantially in the form of Exhibit J-1 or
J-2 in the case of all subsequent transfers, which investment letter shall not
be an expense of the Seller, the Depositor, the Trustee, the Trust Estate or the
Certificate Insurer. The Owner of a Class S Certificate or a Class R Certificate
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee, the Certificate Insurer, the Depositor and the Seller 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.
66
<PAGE>
(d) No transfer of a Class S Certificate or a Class R Certificate shall
be made unless the Trustee shall have received either: (i) a representation
letter from the transferee of such Class S or Class R Certificate, acceptable to
and in form and substance satisfactory to the Trustee (which may be combined
with the investment letter required by subsection (b) above), to the effect that
such transferee is not an employee benefit plan subject to Section 406 of ERISA
nor a plan or other arrangement subject to Section 406 of ERISA nor a plan or
other arrangement subject to Section 4975 of the Code (collectively, a "Plan"),
nor is acting on behalf of any Plan nor using the assets of any Plan to effect
such transfer or (ii) in the event that any Class S or Class R Certificates is
purchased by a Plan, or by a person or entity acting on behalf of any Plan or
using the assets of any Plan to effect such transfer (including the assets of
any Plan held in an insurance company separate or general account), an Opinion
of Counsel, acceptable to and in form and substance satisfactory to the Trustee,
which Opinion of Counsel shall not be at the expense of either the Trustee or
the Trust, to the effect that the purchase or holding of any Class S or Class R
Certificates will not result in the assets of the Trust being deemed to be "plan
assets," will not cause the Trust to be subject to the fiduciary requirements
and prohibited transaction provisions of ERISA and the Code, and will not
subject the Trustee to any obligation or liability in addition to those
expressly undertaken under this Agreement. Notwithstanding anything else to the
contrary herein, any purported transfer of a Certificate to or on behalf of any
Plan without the delivery to the Trustee of an Opinion of Counsel as described
above shall be null and void and of no effect.
(e) No sale or other transfer of any Class A Certificate may be made to
the Depositor, the Seller, the Servicer or any of their respective Affiliates.
Section 5.09 Assignment of Rights.
---------------------
An Owner may pledge, encumber, hypothecate or assign all or any part of
its right to receive distributions hereunder, but such pledge, encumbrance,
hypothecation or assignment shall not constitute a transfer of an ownership
interest sufficient to render the transferee an Owner of the Trust without
compliance with the provisions of Section 5.04 and Section 5.08 hereof.
END OF ARTICLE V
67
<PAGE>
ARTICLE VI
COVENANTS
Section 6.01 Distributions.
--------------
On each Payment Date, the Trustee will withdraw amounts from the
Certificate Account and make the distributions with respect to the Certificates
in accordance with the terms of the Certificates and this Agreement. Such
distributions shall be made (i) in the case of the Class A Certificates
registered in the name of the Depository, by wire transfer to the Depository or
(ii) by check or draft mailed on each Payment Date or (iii) if requested by any
Owner (other than the Depository) of (A) a Class A Certificate having an
original principal balance of not less than $_________ or (B) a Class S
Certificate or Class R Certificate having a Percentage Interest of not less than
__% in writing not later than one Business Day prior to the applicable Record
Date (which request does not have to be repeated unless it has been withdrawn),
to such Owner by wire transfer to an account within the United States designated
no later than five Business Days prior to the related Record Date, made on each
Payment Date, in each case to each Owner of record on the immediately preceding
Record Date.
Section 6.02 Money for Distributions to be Held in Trust; Withholding.
--------------------------------------------------------
(a) All payments of amounts due and payable with respect to any
Certificate that are to be made from amounts withdrawn from the Certificate
Account or from Insured Payments shall be made by and on behalf of the Trustee
or by a Paying Agent, and no amounts so withdrawn from the Certificate Account
for payments of Certificates and no Insured Payment shall be paid over to the
Trustee except as provided in this Section.
(b) If the Seller has appointed a Paying Agent pursuant to Section
11.15 hereof, the Trustee will, on the Business Day immediately preceding each
Payment Date, deposit with such Paying Agents in immediately available funds an
aggregate sum sufficient to pay the amounts then becoming due (to the extent
funds are then available for such purpose in the Certificate Account for the
Class to which such amounts are due) such sum to be held in trust for the
benefit of the Owners entitled thereto.
(c) The Seller may at any time direct any Paying Agent to pay to the
Trustee all sums held in trust by such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which the sums were held by such
Paying Agent; and upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
(d) The Seller shall require the Paying Agent, including the Trustee on
behalf of the Trust to comply with all requirements of the Code and applicable
state and local law with respect to the withholding from any distributions made
by it to any Owner of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith.
(e) Any money held by the Trustee or a Paying Agent in trust for the
payment of any amount due with respect to any Class A Certificate and Class S
Certificate and remaining unclaimed by the Owner of such Certificate for the
period then specified in the escheat laws of the State of New York after such
amount has become due and payable shall be discharged from such trust and be
paid to the Owners of the Class R Certificates subject to the Certificate
Insurer's right of subrogation; and the Owner of such Class A Certificate or
Class S Certificate shall thereafter, as an unsecured general creditor, look
only to the Owners of the Class R Certificates for payment thereof (but only to
the extent of the amounts so paid to the Owners of the Class R Certificates) and
all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such Paying
68
<PAGE>
Agent before being required to make any such payment, may at the expense of the
Trust cause to be published once, in the eastern edition of The Wall Street
Journal, notice that such money remains unclaimed and that, after a date
specified therein, which shall be not fewer than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be paid to
the Owners of the Class R Certificates. The Trustee shall, at the direction of
the Seller, also adopt and employ, at the expense of the Seller, any other
reasonable means of notification of such payment (including but not limited to
mailing notice of such payment to Owners whose right to or interest in moneys
due and payable but not claimed is determinable from the records of the
Registrar, the Trustee or any Paying Agent, at the last address of record for
each such Owner).
Section 6.03 Protection of Trust Estate.
---------------------------
(a) Subject to Sections 10.01(e) and 10.01(g), the Trustee will hold
the Trust Estate in trust for the benefit of the Owners and the Certificate
Insurer and, upon request of the Certificate Insurer or, with the consent of the
Certificate Insurer, at the request of the Seller, will from time to time
execute and deliver all such supplements and amendments hereto pursuant to
Section 11.14 hereof and all instruments of further assurance and other
instruments, and will take such other action upon such request from the
Depositor (with the consent of the Certificate Insurer) or the Certificate
Insurer, to:
(i) more effectively hold in trust all or any portion of the
Trust Estate;
(ii) perfect, publish notice of, or protect the validity of
any grant made or to be made by this Agreement;
(iii) enforce any of the Home Equity Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee, and the ownership interests of the Owners
represented thereby, in such Trust Estate against the claims of all
Persons and parties.
To the extent not covered by the indemnity or other security
contemplated by 10.01(e) and 10.01(g), the Trustee shall be reimbursed for any
costs or expenses associated with this section pursuant to Section
7.03(c)(iv)(F) hereof.
(b) The Trustee shall have the power to enforce, and shall enforce the
obligations and rights of the other parties to this Agreement, and of the
Certificate Insurer or the Owners, by action, suit or proceeding at law or
equity, and shall also have the power to enjoin, by action or suit in equity,
any acts or occurrences which may be unlawful or in violation of the rights of
the Certificate Insurer as such rights are set forth in this Agreement;
provided, however, that nothing in this Section shall require any action by the
Trustee unless the Trustee shall first (i) have been furnished indemnity
satisfactory to it and (ii) when required by this Agreement, have been requested
by the Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates; provided, further, however, that if
there is a dispute with respect to payments under the Certificate Insurance
Policy the Trustee's sole responsibility is to the Owners.
(c) The Trustee shall execute any instrument required pursuant to this
Section so long as such instrument does not conflict with this Agreement or with
the Trustee's fiduciary duties, or adversely affect its rights and immunities
hereunder.
69
<PAGE>
Section 6.04 Performance of Obligations.
---------------------------
The Trustee will not take any action that would release any Person from
any of such Person's covenants or obligations under any instrument or document
relating to the Certificates or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or document, except as
expressly provided in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in performing
its duties hereunder pursuant to Section 10.03(g); provided, that the Trustee
shall remain liable for the performance of any such duties notwithstanding any
such contractual arrangement.
Section 6.05 Negative Covenants.
-------------------
The Trustee will not:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on or make any deduction from the
distributions payable in respect of, the Certificates (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Owner by reason of the payment
of any taxes levied or assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty, on behalf of the Trust, any
indebtedness of any Person except pursuant to this Agreement;
(iv) dissolve or liquidate the Trust in whole or in part,
except pursuant to Article IX hereof; or
(v) (A) permit the validity or effectiveness of this
Agreement to be impaired, or permit any Person to be released from any
covenant or obligation with respect to the Trust or to the Certificates
under this Agreement, except as may be expressly permitted hereby or
(B) permit any lien, charge, adverse claim, security interest, mortgage
or other encumbrance to be created on or extend to or otherwise arise
upon or burden the Trust Estate or any part thereof or any interest
therein or the proceeds thereof.
Section 6.06 No Other Powers.
----------------
The Trustee will not permit the Trust to engage in any business
activity or transaction other than those activities permitted by Section 2.03
hereof.
Section 6.07 Limitation of Suits.
--------------------
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement or the Certificate Insurance Policy,
or for the appointment of a receiver or trustee of the Trust, or for any other
remedy with respect to an event of default hereunder, unless:
(1) such Owner has previously given written notice to the Seller
and the Trustee of such Owner's intention to institute such
proceeding;
70
<PAGE>
(2) the Owners of not less than 25% of the Percentage Interests
represented by the Class A Certificates then Outstanding or,
if there are no Class A Certificates then Outstanding, by a
majority of the Percentage Interests represented by the Class
R Certificates, shall have made written request to the Trustee
to institute such proceeding in its own name as Trustee
establishing the Trust;
(3) such Owner or Owners have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such
proceeding;
(5) as long as any Class A Certificates or Class S Certificates
are Outstanding, the Certificate Insurer consented in writing
thereto (unless the Certificate Insurer is the party against
whom the proceeding is directed); and
(6) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Owners
of a majority of the Percentage Interests represented by the
Class A Certificates or, if there are no Class A Certificates
then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Owners, each representing less
than a majority of the applicable Class of Certificates and each conforming to
paragraphs (1)-(6) of this Section 6.07, the Certificate Insurer in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provision of this Agreement (unless the Certificate Insurer is the
party against whom the proceeding is directed and in such case the Servicer
shall determine what action if any shall be taken).
Section 6.08 Unconditional Rights of Owners to Receive Distributions.
-------------------------------------------------------
Notwithstanding any other provision in this Agreement, the Owner of any
Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
Section 6.09 Rights and Remedies Cumulative.
-------------------------------
Except as otherwise provided herein, no right or remedy herein
conferred upon or reserved to the Trustee, the Certificate Insurer or to the
Owners is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. Except as otherwise provided herein, the
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
71
<PAGE>
Section 6.10 Delay or Omission Not Waiver.
----------------------------
No delay of the Trustee, the Certificate Insurer or any Owner of any
Certificate to exercise any right or remedy under this Agreement shall impair
any such right or remedy or constitute a waiver of such right or remedy. Every
right and remedy given by this Article VI or by law to the Trustee, the
Certificate Insurer or to the Owners may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee, the Certificate Insurer, or by
the Owners, as the case may be.
Section 6.11 Control by Owners.
------------------
The Certificate Insurer or the Owners of a majority of the Percentage
Interests represented by the Class A Certificates then Outstanding with the
consent of the Certificate Insurer or, if there are no longer any Class A
Certificates then Outstanding, by such majority of the Percentage Interests
represented by the Class R Certificates then Outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate,
including, but not limited to, those powers set forth in Section 6.03 and
Section 8.20 hereof, provided that:
(1) such direction shall not be in conflict with any rule of law
or with this Agreement;
(2) the Trustee shall have been provided with indemnity
satisfactory to it; and
(3) the Trustee may take any other action deemed proper by the
Trustee, as the case may be, which is not inconsistent with
such direction; provided, however, that the Trustee need not
take any action which it determines might involve it in
liability or may be unjustly prejudicial to the Owners not so
directing.
Section 6.12 Indemnification by the Seller.
------------------------------
The Seller agrees to indemnify and hold the Trustee, the Depositor, the
Certificate Insurer and each Owner harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Certificate Insurer and any
Owner sustain in any way related to the failure of Seller to perform its duties
in compliance with the terms of this Agreement. The Seller shall immediately
notify the Trustee, the Depositor, the Certificate Insurer and each Owner if a
claim is made by a third party that the Servicer has failed to perform its
obligations to service and administer the Home Equity Loans in compliance with
the terms of this Agreement, and the Seller shall assume (with the consent of
the Trustee) the defense of any such claim and pay all expenses in connection
therewith, including reasonable counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Depositor, the
Servicer, the Seller, the Trustee, the Certificate Insurer and/or Owner in
respect of such claim. The Trustee shall, in accordance with instructions
received from the Seller, reimburse the Seller only from amounts otherwise
distributable on the Class R Certificates for all amounts advanced by it
pursuant to the preceding sentence, except when a final nonappealable
adjudication determines that the claim relates directly to the failure of the
Seller to perform its duties in compliance with the terms of this Agreement. The
provisions of this Section 6.12 shall survive the termination of this Agreement
and the payment of the outstanding Certificates.
END OF ARTICLE VI
72
<PAGE>
ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01 Collection of Money.
--------------------
Except as otherwise expressly provided herein, the Trustee shall demand
payment or delivery of all money and other property payable to or receivable by
the Trustee pursuant to this Agreement or the Certificate Insurance Policy,
including (a) all payments due on the Home Equity Loans in accordance with the
respective terms and conditions of such Home Equity Loans and required to be
paid over to the Trustee by the Servicer or by any Sub-Servicer and (b) Insured
Payments. The Trustee shall hold all such money and property received by it,
other than pursuant to or as contemplated by Section 6.02(e) hereof, as part of
the Trust Estate and shall apply it as provided in this Agreement.
Section 7.02 Establishment of Accounts.
--------------------------
(a) The Seller shall cause to be established on the Startup Day, and
the Trustee shall maintain, at the Corporate Trust Office, the Certificate
Account, an Upper-Tier Distribution Account, a Pre-Funding Account and a
Capitalized Interest Account each to be held by the Trustee in the name of the
Trust on behalf of the Owners of the Fixed Rate Certificates and the Certificate
Insurer, as their interests may appear. The Pre-Funding Account and the
Capitalized Interest Account are not assets of the Base REMIC or the Upper-Tier
REMIC.
(b) On each Determination Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
by the Servicer) with respect to the immediately following Payment Date, the
amounts that are expected to be on deposit in the Certificate Account (exclusive
of any deposits from the Pre-Funding Account and the Capitalized Interest
Account expected to be made and inclusive of any investment earnings on Eligible
Investments held in the Certificate Account) as of such date on such Payment
Date for the Fixed Rate Group (disregarding the amounts of any Insured Payments)
and equal to the sum of (x) such amounts excluding the amount of any Total
Monthly Excess Cashflow amounts from the Fixed Rate Group included in such
amounts plus (y) any amounts of related Total Monthly Excess Cashflow from
either Group to be applied on such Payment Date to the Fixed Rate Certificates
plus (z) any deposit to the Certificate Account from the Pre-Funding Account and
the Capitalized Interest Account expected to be made. The amounts described in
clause (x) of the preceding sentence with respect to each Payment Date are the
"Fixed Rate Group Available Funds" and the sum of the amounts described in
clauses (x), (y) and (z) of the preceding sentence with respect to each Payment
Date is the "Fixed Rate Group Total Available Funds."
(c) On the Business Day after each Monthly Remittance Date the Trustee
shall determine (subject to the terms of Section 10.03(j) hereof, based solely
on information provided to it by the Servicer) with respect to the immediately
following Payment Date, the amount that is expected to be on deposit in the
Certificate Account as of such Payment Date for the Adjustable Rate Group
(disregarding the amount of any Insured Payments), which amount will be equal to
the sum of (x) the amount on deposit therein with respect to such Group
excluding the amount of any Total Monthly Excess Cashflow from the Adjustable
Rate Group included in such amount plus (y) any amount of Total Monthly Excess
Cashflow from either Group to be applied on such Payment Date to the Class A-8
Certificates. The amount described in clause (x) of the preceding sentence with
respect to each Payment Date is the "Adjustable Rate Group Available Funds"; the
sum of the amounts described in clauses (x) and (y) of the preceding sentence
with respect to each Payment Date is the "Adjustable Rate Group Total Available
Funds." Collectively the Adjustable Rate Group Total Available Funds and the
Fixed Rate Group Total Available Funds is the "Total Available Funds."
73
<PAGE>
Section 7.03 Flow of Funds.
--------------
(a) With respect to the Fixed Rate Group, the Trustee shall deposit to
the Certificate Account, without duplication, (i) upon receipt, any Insured
Payments relating to such Group, the proceeds of any liquidation of the assets
of the Trust insofar as such assets relate to the Fixed Rate Group, all
remittances made to the Trustee pursuant to Section 8.08(d)(ii) insofar as such
assets relate to the Fixed Rate Group, and the Fixed Rate Group Monthly
Remittance Amount remitted by the Servicer, (ii) on the first three Payment
Dates, the Capitalized Interest Requirement to be transferred on such Payment
Dates from the Capitalized Interest Account for the related Payment Date,
pursuant to Section [7.04(e)] hereof and (iii) on the first three Payment Dates,
the amount, if any, to be transferred on such Payment Date from the Pre-Funding
Account pursuant to Section 7.04(c) hereof.
(b) With respect to the Adjustable Rate Group, the Trustee shall
deposit to the Certificate Account upon receipt, any Insured Payments relating
to such Group, the proceeds of any liquidation of the assets of the Trust
insofar as such assets relate to the Adjustable Rate Group, all remittances made
to the Trustee pursuant to Section 8.08(d)(ii) insofar as such assets relate to
the Adjustable Rate Group and the Adjustable Rate Group Monthly Remittance
Amount remitted by the Servicer.
(c) Subject to any superseding provisions of clause (c) below during
the continuance of a Certificate Insurer Default, with respect to funds on
deposit in the Certificate Account, on each Payment Date, the Trustee shall make
the following allocations, disbursements and transfers from amounts deposited
therein pursuant to subsection (a) in the following order of priority, and each
such allocation, transfer and disbursement shall be treated as having occurred
only after all preceding allocations, transfers and disbursements have occurred:
(i) first, on each Payment Date from amounts then on deposit in
the Certificate Account, (A) the Trustee Fee and the Trustee
Reimbursable Expenses shall be paid to the Trustee, and (B)
provided that no Certificate Insurer Default has occurred and
is continuing the Premium Amount allocable to the related
Group for such Payment Date shall be paid to the Certificate
Insurer;
(ii) second, on each Payment Date, the Trustee shall allocate an
amount equal to the sum of (x) the Total Monthly Excess Spread
with respect to such Payment Date plus (y) any Subordination
Reduction Amount with respect to such Home Equity Loan Group
and Payment Date (such sum being the "Total Monthly Excess
Cashflow" with respect to such Home Equity Loan Group and
Payment Date) in the following order of priority:
(A) first, such Total Monthly Excess Cashflow with
respect to each Group shall be ----- allocated to the
payment of the related Class A Principal Distribution
Amount (excluding any Subordination Increase Amount)
in an amount equal to the amount, if any, by which
(x) the related Class A Principal Distribution Amount
(calculated for this purpose only by reference to
clause (b) of the definition of the Fixed Rate Group
Principal Distribution Amount or the Adjustable Rate
Group Principal Distribution Amount, as the case may
be, and without any Subordination Increase Amount
with respect to the related Group) for such Payment
Date exceeds (y) the Available Funds with respect to
such Home Equity Loan Group for such Payment Date
(the amount of such difference being the "Fixed Rate
Group Available Funds Shortfall" with respect to the
Fixed Rate Group and the "Adjustable Rate Group
Available Funds Shortfall" with respect to the
Adjustable Rate Group) (net of Trustee Fees, the
Premium Amount, the
74
<PAGE>
Servicing Fee, the Trustee Reimbursable Expenses and
Current Interest) and shall be paid from the
Upper-Tier Distribution Account as part of the Class
A Principal Distribution Amount pursuant to clause
(iv)(D) below; and
(B) second, any portion of the Total Monthly Excess
Cashflow with respect to such Home Equity Loan Group
remaining after the allocations and payments
described in clause (A) above shall be paid from the
Upper-Tier Distribution Account pursuant to clause
(iv)(A) below to the Certificate Insurer in respect
of amounts owed on account of any Reimbursement
Amount with respect to such Home Equity Loan Group.
(iii) third, the amount, if any, of the Total Monthly Excess
Cashflow with respect to such Home Equity Loan Group on a
Payment Date remaining after the allocations and payments
described in clause (ii) above (the "Net Monthly Excess
Cashflow" for such Home Equity Loan Group and Payment Date) is
required to be applied in the following order or priority:
(A) first, such Net Monthly Excess Cashflow shall be used
to reduce to zero, through the payment to the Owners
of the Class A Certificates of a Subordination
Increase Amount included in the Class A Principal
Distribution Amount, which shall be paid from the
Upper-Tier Distribution Account pursuant to clause
(iv)(D) below, any Subordination Deficiency Amount
with respect to the related Home Equity Loan Group as
of such Payment Date; and
(B) second, any Net Monthly Excess Cashflow remaining
after the applications and payments described in
clause (A) above shall be paid to the Servicer from
the Upper-Tier Distribution Account pursuant to
clause (iv)(A) below to the extent of any
unreimbursed Delinquency Advances and unreimbursed
Servicing Advances.
(iv) fourth, following the making by the Trustee of all
allocations, transfers and disbursements described above from
amounts (including any related Insured Payment) then on
deposit in the Certificate Account with respect to the related
Home Equity Loan Group, the Trustee shall distribute:
(A) the Lower-Tier Distribution Amount (including the
proceeds of any Insured Payments made by the
Certificate Insurer) as a distribution on the related
Base REMIC Interests to the Upper-Tier Distribution
Account and from the Upper-Tier Distribution
Account, (I) to the Certificate Insurer the amounts
described in clause (ii)(B) above and (II) to the
Servicer the amounts described in clause (iii)(B)
above;
(B) from the Upper-Tier Distribution Account to the
Owners of the Class A Certificates, the Class A
Current Interest for each Class (including the
proceeds of any Insured Payments made by the
Certificate Insurer) on a pro rata basis based on
each such Class A Certificate's Current Interest
without priority among the Class A Certificates;
75
<PAGE>
(C) from the Upper-Tier Distribution Account to each
Owner of the Class S Certificates, the Class S
Distribution Amount for such Payment Date on a pro
rata basis without any priority among such Class S
Certificates;
(D) from the Upper-Tier Distribution Account to the
Owners of the related Class of Fixed Rate
Certificates, the Fixed Rate Group Principal
Distribution Amount shall be distributed as follows:
(i) first, to the Owners of the Class A-1 -----
Certificates until the Class A-1 Certificate
Principal Balance is reduced to zero; (ii) second, to
the Owners of the Class A-2 Certificates until the
Class A-2 ------ Certificate Principal Balance is
reduced to zero; (iii) third, to the Owners of the
----- Class A-3 Certificates until the Class A-3
Certificate Principal Balance is reduced to zero;
(iv) fourth, to the Owners of the Class A-4
Certificates until the Class ------ A-4 Certificate
Principal Balance is reduced to zero; (v) fifth, to
the Owners of ----- the Class A-5 Certificates until
the Class A-5 Certificate Principal Balance is
reduced to zero; (vi) sixth, to the Owners of the
Class A-6 Certificates until the ----- Class A-6
Certificate Principal Balance is reduced to zero; and
(vii) seventh, to ------- the Owners of the Class A-7
Certificates until the Class A-7 Certificate
Principal Balance is reduced to zero;
(E) from the Upper-Tier Distribution Account to the
Owners of the Adjustable Rate Certificates, the
Adjustable Rate Group Principal Distribution Amount
shall be distributed to the Owners of the Class A-8
Certificates until the Class A-8 Certificate
Termination Date; and
(F) from both the Certificate Account and the Upper-Tier
Distribution Account (as necessary), to the Trustee,
for the reimbursement of expenses of the Trustee not
reimbursed pursuant to clause (b)(i) above which
expenses were incurred in connection with its duties
and obligations hereunder.
(v) fifth, following the making by the Trustee of all allocations,
transfers and disbursements described above, the Trustee shall
distribute from both the Certificate Account and the
Upper-Tier Distribution Account, to the Owners of the Class R
Certificates, the Residual Net Monthly Excess Cashflow, if
any, for such Payment Date.
(c) On any Payment Date during the continuance of any Certificate
Insurer Default, if there is a Subordination Deficit, then the Class A Principal
Distribution Amount for such Payment Date shall be distributed pro rata to the
Owners of any Outstanding Class A Certificates on such Payment Date.
(d) Notwithstanding any of the foregoing provisions, the aggregate
amounts distributed on all Payment Dates to the Owners of the related Class A
Certificates on account of principal pursuant to clauses (b)(iv)(D) and
(b)(iv)(E) shall not exceed the original Certificate Principal Balance of the
related Class A Certificates.
(e) Upon receipt of Insured Payments from the Certificate Insurer on
behalf of Owners of the Class A Certificates and the Class S Certificates, the
Trustee shall deposit such Insured Payments in the Certificate Account and shall
distribute such Insured Payments, or the proceeds thereof in accordance with
Section 7.03(c), to the Owners of such Certificates.
(f) The Trustee or Paying Agent shall (i) receive for each Owner of the
Class A Certificates and the Class S Certificates any Insured Payment from the
Certificate Insurer and (ii) disburse the same
76
<PAGE>
to the Owners of the related Class A Certificates and the Class S Certificates
as set forth in Section 7.03(c). Insured Payments disbursed by the Trustee or
Paying Agent from proceeds of the Certificate Insurance Policy shall not be
considered payment by the Trust, nor shall such payments discharge the
obligation of the Trust with respect to such Class A Certificates or the Class S
Certificates and the Certificate Insurer shall be entitled to receive the
Reimbursement Amount pursuant to Section 7.03(c)(ii)(B) hereof. Nothing
contained in this paragraph shall be construed so as to impose duties or
obligations on the Trustee that are different from or in addition to those
expressly set forth in this Agreement.
The rights of the Owners to receive distributions from the proceeds of
the Trust Estate, and all ownership interests of the Owners in such
distributions, shall be as set forth in this Agreement. In this regard, all
rights of the Owners of the Class R Certificates to receive distributions in
respect of the Class R Certificates, and all ownership interests of the Owners
of the Class R Certificates, the Base REMIC Residual Class in and to such
distributions, shall be subject and subordinate to the preferential rights of
the holders of the interests in the Base REMIC held by the Upper-Tier REMIC and
the Class A Certificates and the Class S Certificates in the Upper-Tier REMIC,
as applicable, to receive distributions thereon and the ownership interests of
such Owners in such distributions, as described herein. In accordance with the
foregoing, the ownership interests of the Owners of the Class R Certificates in
amounts deposited in the Accounts from time to time shall not vest unless and
until such amounts are distributed in respect of the Class R Certificates in
accordance with the terms of this Agreement. Notwithstanding anything contained
in this Agreement to the contrary, and the Owners of the Class R Certificate
shall not be required to refund any amount properly distributed on the Class R
Certificates pursuant to this Section 7.03.
Section 7.04 Pre-Funding Account and Capitalized Interest Account.
----------------------------------------------------
(a) On the Startup Day, the Trustee will deposit, on behalf of the
Owners of the Fixed Rate Certificates and the Certificate Insurer, in the
Pre-Funding Account the Original Aggregate Pre-Funded Amount from the proceeds
of the sale of the Fixed Rate Certificates.
(b) On any Subsequent Transfer Date, the Seller shall instruct the
Trustee to withdraw from the Pre-Funding Account an amount equal to 100% of the
aggregate Loan Balances of the Subsequent Home Equity Loans sold to the Trust on
such Subsequent Transfer Date and pay such amount to or upon the order of the
Seller upon satisfaction of the conditions set forth in Sections 3.05 and 3.07
hereof with respect to such transfer. In no event shall the Seller be permitted
to instruct the Trustee to release from the Pre-Funding Account to the
Certificate Account with respect to Subsequent Home Equity Loans an amount in
excess of the Original Pre-Funded Amount.
(c) If the Pre-Funded Amount has been reduced to $_______ or less prior
to the _____, 199__ Monthly Remittance Date, after giving effect to any
reductions in the Pre-Funded Amount on or before the such Monthly Remittance
Date, then the Trustee shall withdraw from the Pre-Funding Account the amount
(exclusive of any related Pre-Funding Account Earnings still on deposit therein)
remaining in the Pre-Funding Account and deposit such amount to the Certificate
Account on the Monthly Remittance Date; provided, however, that if the
Pre-Funded Amount is greater than $_______ on to _______, 199__, then the
Trustee shall withdraw on the Determination Date in _____ from the Pre-Funding
Account the amount (exclusive of any related Pre-Funding Account Earnings still
on deposit therein) remaining in the Pre-Funding Account and deposit such amount
to the Certificate Account, which will be distributed to the related Owner of
the Fixed Rate Certificates on the Payment Date in ________ 199__].
77
<PAGE>
(d) On the first two Payment Dates, the Trustee shall transfer from the
Pre-Funding Account to the Capitalized Interest Account the Pre-Funding Account
Earnings, if any, applicable to such Payment Date.
(e) On the first two Payment Dates, the Trustee shall transfer from the
Capitalized Interest Account to the Certificate Account for the benefit of the
Owners of the Fixed Rate Certificates the sum of any Capitalized Interest
Requirement, if any, and any Pre-Funding Account Earnings for such Payment Date.
(f) On each Subsequent Transfer Date the Trustee shall distribute the
Overfunded Interest Amount, if any, (calculated by the Trustee on the day prior
to such Subsequent Transfer Date) to the Seller Payment Date in _____ 199__, the
Trustee shall distribute to the Seller any amounts remaining in the Capitalized
Interest Account after taking into account the transfers on such Payment Date
described in clause (e) above. The Capitalized Interest Account shall be closed
at the end of the Funding Period. All amounts, if any, remaining in the
Capitalized Interest Account on such day shall be transferred to the Seller.
(g) Any amounts transferred to the Certificate Account from the
Pre-Funding Account on the _____ 199__ Determination Date shall be distributed
to the Owners of the Class A Certificates in accordance with Section
7.03(c)(iv)(D).
Section 7.05 Investment of Accounts.
-----------------------
(a) Consistent with any requirements of the Code, all or a portion of
any Account held by the Trustee for the benefit of the Owners shall be invested
and reinvested by the Trustee in the name of the Trust, as directed in writing
by the Seller, in one or more Eligible Investments bearing interest or sold at a
discount. The bank serving as Trustee or any affiliate thereof may be the
obligor on any investment which otherwise qualifies as an Eligible Investment.
No investment in any Account shall mature later than the Business Day
immediately preceding the next Payment Date.
(b) If any amounts are needed for disbursement from any Account held by
the Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account. No investments will be
liquidated prior to maturity unless the proceeds thereof are needed for
disbursement.
(c) Subject to Section 10.01 hereof, the Trustee shall not in any way
be held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any loss on any Eligible Investment included therein (except to
the extent that the bank serving as Trustee is the obligor thereon).
(d) The Trustee shall invest and reinvest funds in the Accounts held by
the Trustee, in accordance with the written instructions delivered to the
Trustee on the Startup Day, but only in one or more Eligible Investments bearing
interest or sold at a discount.
If the Seller shall have failed to give investment directions to the
Trustee then the Trustee shall invest in money market funds described in Section
7.07(k) to be redeemable without penalty no later than the Business Day
immediately preceding the next Payment Date.
(e) All income or other gain from investments in any Account held by
the Trustee shall be deposited in such Account immediately on receipt, and any
loss resulting from such investments shall be charged to such Account, as
appropriate, subject to the requirement of Section 8.08(b) that the Servicer
78
<PAGE>
contribute funds in an amount equal to such loss in the case of the Principal
and Interest Account. For federal income tax purposes, the earnings on the
Capitalized Interest Account and Pre-Funding Account shall be treated as income
of the Seller.
Section 7.06 Payment of Trust Expenses.
--------------------------
(a) The Trustee shall make demand on the Seller to pay and the Seller
shall pay the amount of the expenses of the Trust referred to in Section 2.05
(other than payments of premiums to the Certificate Insurer) (including
Trustee's fees and expenses not covered by Section 7.03(c)(i) and
7.03(c)(iv)(E)), and the Seller shall promptly pay such expenses directly to the
Persons to whom such amounts are due.
(b) The Seller shall pay directly on the Startup Day the reasonable
fees and expenses of counsel to the Trustee.
Section 7.07 Eligible Investments.
---------------------
The following are Eligible Investments:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of 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, FHLMC
senior debt obligations, and FNMA senior debt obligations, but excluding any of
such securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption;
(b) Federal Housing Administration debentures;
(c) FHLMC participation certificates which guaranty timely payment of
principal and interest and senior debt obligations;
(d) Consolidated senior debt obligations of any Federal Home Loan
Banks;
(e) FNMA mortgage-backed securities (other than stripped mortgage
securities which are valued greater than par on the portion of unpaid principal)
and senior debt obligations;
(f) Federal funds, certificates of deposit, time deposits, and bankers'
acceptances (having original maturities of not more than 365 days) of any
domestic bank, the short-term debt obligations of which have been rated A-1 by
Standard & Poor's and P-1 by Moody's;
(g) Deposits of any bank or savings and loan association (the long-term
deposit rating of which is Baa3 or better by Moody's and BBB by Standard &
Poor's) which has combined capital, surplus and undivided profits of at least
$50,000,000 which deposits are insured by the FDIC and held up to the limits
insured by the FDIC;
(h) Repurchase agreements collateralized by securities described in
(a), (c), or (e) above with any registered broker/dealer subject to the
Securities Investors Protection Corporation's jurisdiction and subject to
applicable limits therein promulgated by Securities Investors Protection
Corporation or any commercial bank, if such broker/dealer or bank has an
uninsured, unsecured and unguaranteed short-term or long-term obligation rated
P-1 or Aa2, respectively, or better by Moody's and A-1+ or AA, respectively, or
better by Standard & Poor's, provided:
79
<PAGE>
a. A master repurchase agreement or specific written
repurchase agreement governs the transaction, and
b. The securities are held free and clear of any lien by the
Trustee or an independent third party acting solely as agent for the
Trustee, and such third party is (a) a Federal Reserve Bank, (b) a bank
which is a member of the FDIC and which has combined capital, surplus
and undivided profits of not less than $125 million, or (c) a bank
approved in writing for such purpose by the Certificate Insurer, and
the Trustee shall have received written confirmation from such third
party that it holds such securities, free and clear of any lien, as
agent for the Trustee, and
c. A perfected first security interest under the Uniform
Commercial Code, or book entry procedures prescribed at 31 CFR 306.1 et
seq. or 31 CFR 350.0 et seq., in such securities is created for the
benefit of the Trustee, and
d. The repurchase agreement has a term of thirty days or less
and the Trustee will value the collateral securities no less frequently
than weekly and will liquidate the collateral securities if any
deficiency in the required collateral percentage is not restored within
two business days of such valuation, and
e. The fair market value of the collateral securities in
relation to the amount of the repurchase obligation, including
principal and interest, is equal to at least 106%.
(i) Commercial paper (having original maturities of not more than 270
days) rated in the highest short-term rating categories of Standard & Poor's and
Moody's;
(j) Investments in no load money market funds rated AAAm or AAAm-G by
Standard & Poor's and Aaa by Moody's; and
(k) Any other investment permitted by each of the Rating Agencies and
the Certificate Insurer.
provided that no instrument described above shall evidence either the right to
receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that all instruments described hereunder shall mature at par on or prior to the
next succeeding Payment Date unless otherwise provided in this Agreement and
that no instrument described hereunder may be purchased at a price greater than
par if such instrument may be prepaid or called at a price less than its
purchase price prior to stated maturity.
Section 7.08 Accounting and Directions by Trustee.
------------------------------------
By 12:00 noon New York time, on the Business Day preceding each Payment
Date (or such earlier period as shall be agreed by the Seller and the Trustee),
the Trustee shall notify (subject to the terms of Section 10.03(j) hereof, based
solely on information provided to the Trustee by the Servicer and upon which the
Trustee may rely) the Seller, the Depositor, each Owner and the Certificate
Insurer, of the following information with respect to the next Payment Date
(which notification may be given by facsimile, or by telephone promptly
confirmed in writing):
80
<PAGE>
(1) The aggregate amount on deposit in the Certificate Account
as of the related Determination Date;
(2) The Class A Distribution Amount and the Class S
Distribution Amount on the next Payment Date;
(3) The amount of any Subordination Increase Amount;
(4) The amount of any Insured Payment to be made by the
Certificate Insurer on such Payment Date;
(5) The application of the amounts described in clauses (1),
(3) and (4) above in respect of the distribution of the Class A
Distribution Amount and the Class S Distribution Amount on such Payment
Date in accordance with Section 7.03 hereof;
(6) The Class A Certificate Principal Balance, the aggregate
amount of the principal of each Class of the Class A Certificates to be
paid on such Payment Date and the remaining Certificate Principal
Balance of each Class of Class A Certificates following any such
payment;
(7) The amount, if any, of any Realized Losses for the related
Remittance Period;
(8) The amount of any Subordination Reduction Amount; and
(9) For the Payment Dates during the Funding Period, (A) the
Pre-Funded Amount previously used to purchase Subsequent Home Equity
Loans, (B) the Pre-Funded Amount distributed as a Class A Principal
Distribution Amount, (C) the Pre-Funding Account Earnings transferred
to the Capitalized Interest Account, (D) the amounts transferred from
the Capitalized Interest Account to the Certificate Account and the
amount transferred to the Seller, if any, and (E) the remaining
Pre-Funded Amount.
Section 7.09 Reports by Trustee to Owners and Certificate Insurer.
----------------------------------------------------
(a) On the Business Day preceding each Payment Date the Trustee shall
transmit a report in writing to each Owner, the Certificate Insurer, Standard &
Poor's and Moody's:
(i) the amount of the distribution with respect to such
Owners' Certificates (based on a Certificate in the original principal
amount of $1,000);
(ii) the amount of such Owner's distributions allocable to
principal, separately identifying the aggregate amount of any
prepayments in full or Prepayments or other recoveries of principal
included therein, with respect to the Fixed Rate Group and any
Pre-Funded Amounts distributed as a prepayment (based on a Certificate
in the original principal amount of $1,000) and any Subordination
Increase Amount with respect to the related Home Equity Loan Group;
(iii) the amount of such Owner's distributions allocable to
interest (based on a Certificate in the original principal amount of
$1,000);
(iv) if the distribution (net of any Insured Payment) to the
Owners of any Class of the Class A Certificates or the Class S
Certificates on such Payment Date was less than the related Class A
Distribution Amount or the Class S Distribution Amount as the case may
be, on such
81
<PAGE>
Payment Date, the related Carry Forward Amount or Class S Carry Forward
Amount and the allocation thereof to the related Classes of Class A
Certificates or the Class S Certificates resulting therefrom;
(v) the amount of any Insured Payment included in the
amounts distributed to the Owners of Class A Certificates or the Class
S Certificates on such Payment Date;
(vi) the principal amount of each Class of Class A
Certificate (based on a Certificate in the original principal amount of
$1,000) which will be Outstanding and the aggregate Loan Balance of
each Group after giving effect to any payment of principal on such
Payment Date;
(vii) the Subordinated Amount and Subordination Deficit, if
any, remaining after giving effect to all distributions and transfers
on such Payment Date;
(viii) based upon information furnished by the Servicer, such
information as may be required by Section 6049(d)(7)(C) of the Code and
the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(ix) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution with respect to
each Group;
(x) the weighted average Coupon Rate of the Home Equity
Loans with respect to each Group;
(xi) such other information as the Certificate Insurer or any
Owner may reasonably request with respect to Delinquent Home Equity
Loans;
(xii) the largest home equity loan balance outstanding in each
Group; and
(xiii) for Payment Dates during the Funding Period, the
remaining Pre-Funded Amount.
The Servicer shall provide to the Trustee the information described in
Section 8.08(d)(iii) and in clause (b) below to enable the Trustee to perform
its reporting obligations under this Section, and such obligations of the
Trustee under this Section are conditioned upon such information being received
and the information provided in clauses (ii), (ix) and (x) shall be based solely
upon information contained in the monthly servicing report provided by the
Servicer to the Trustee pursuant to Section 8.08 hereof.
(b) In addition, on the Business Day preceding each Payment Date the
Trustee will distribute to each Owner, the Certificate Insurer, Standard &
Poor's and Moody's, together with the information described in Subsection (a)
preceding, the following information with respect to each Home Equity Loan Group
which is hereby required to be prepared by the Servicer and furnished to the
Trustee for such purpose on or prior to the related Monthly Remittance Date:
82
<PAGE>
(i) the number and aggregate principal balances of
Home Equity Loans in each Group (a) 30-59 days Delinquent, (b) 60-89
days Delinquent and (c) 90 or more days Delinquent, as of the close of
business on the last Business Day of the calendar month immediately
preceding the Payment Date, (d) the numbers and aggregate Loan Balances
of all Home Equity Loans as of such Payment Date and (e) the percentage
that each of the amounts represented by clauses (a), (b) and (c)
represent as a percentage of the respective amounts in clause (d);
(ii) the status and the number and dollar amounts of
all Home Equity Loans in each Group in foreclosure proceedings as of
the close of business on the last Business Day of the calendar month
immediately preceding such Payment Date, separately stating, for this
purpose, all Home Equity Loans in each Group with respect to which
foreclosure proceedings were commenced in the immediately preceding
calendar month;
(iii) the number of Mortgagors and the Loan Balances
of Home Equity Loans in each Group (a) the related Mortgages involved
in bankruptcy proceedings as of the close of business on the last
Business Day of the calendar month immediately preceding such Payment
Date and (b) Home Equity Loans that are "balloon" loans;
(iv) the existence and status of any REO Properties
in each Group, as of the close of business of the last Business Day of
the month immediately preceding the Payment Date;
(v) the book value of any REO Property in each Group
as of the close of business on the last Business Day of the calendar
month immediately preceding the Payment Date;
(vi) the Cumulative Loss Percentage, the amount of
cumulative Realized Losses, the current period Realized Losses and the
Annual Loss Percentage (Rolling Twelve Month) for each Group; and
(vii) the 60+ Delinquency Percentage and the amount
of 60-Day Delinquent Loans in each Group.
Section 7.10 Reports by Trustee.
-------------------
(a) The Trustee shall report to the Depositor, the Seller, the
Certificate Insurer and each Owner, with respect to the amount on deposit in the
Certificate Account the amount therein relating to each Group and the identity
of the investments included therein, as the Depositor, the Seller, any Owner or
the Certificate Insurer may from time to time reasonably request. Without
limiting the generality of the foregoing, the Trustee shall, at the reasonable
request of the Depositor, the Seller, any Owner or the Certificate Insurer
transmit promptly to the Depositor, the Seller, any Owner and the Certificate
Insurer copies of all accountings of receipts in respect of the Home Equity
Loans furnished to it by the Servicer and shall notify the Seller and the
Certificate Insurer if any Monthly Remittance Amount has not been received by
the Trustee when due.
83
<PAGE>
(b) The Trustee shall report to the Certificate Insurer and each Owner
with respect to any written notices it may from time to time receive which
provide an Authorized Officer with actual knowledge that any of the statements
set forth in Section 3.04(b) hereof are inaccurate.
END OF ARTICLE VII
84
<PAGE>
ARTICLE VIII
SERVICING AND ADMINISTRATION
OF HOME EQUITY LOANS
Section 8.01 Servicer and Sub-Servicers.
---------------------------
Acting directly or through one or more Sub-Servicers as provided in
Section 8.03, the Servicer shall service and administer the Home Equity Loans in
accordance with this Agreement, the terms of the respective Home Equity Loans,
and the servicing standards set forth in the FNMA Guide and shall have full
power and authority, acting alone, to do or cause to be done any and all things
in connection with such servicing and administration which it may deem necessary
or desirable but without regard to: (i) any relationship that the Servicer, any
Sub-Servicer or any Affiliate of the Servicer or any Sub-Servicer may have with
the related Mortgagor; (ii) the ownership of any Certificate by the Servicer or
any Affiliate of the Servicer; (iii) the Servicer's obligation to make
Delinquency Advances or Servicing Advances; or (iv) the Servicer's or any
Sub-Servicer's right to receive compensation for its services hereunder or with
respect to any particular transaction. It is the intent of the parties hereto
that the Servicer shall have all of the servicing obligations hereunder which a
lender would have under the FNMA Guide (as such provisions relate to second lien
mortgages); provided, however, that to the extent that such standards, such
obligations or the FNMA Guide are amended by FNMA after the date hereof and the
effect of such amendment would be to impose upon the Servicer any material
additional costs or other burdens relating to such servicing obligations, the
Servicer may, at its option, in accordance with the servicing standards set
forth herein, determine not to comply with such amendment.
Subject to Section 8.03 hereof, the Servicer may, and is hereby
authorized to, perform any of its servicing responsibilities with respect to all
or certain of the Home Equity Loans through a Sub-Servicer as it may from time
to time designate, but no such designation of a Sub-Servicer shall serve to
release the Servicer from any of its obligations under this Agreement. Such
Sub-Servicer shall have the rights and powers of the Servicer which have been
delegated to such Sub-Servicer with respect to such Home Equity Loans under this
Agreement.
Without limiting the generality of the foregoing, but subject to
Sections 8.13 and 8.14, the Servicer in its own name or in the name of a
Sub-Servicer may be authorized and empowered pursuant to a power of attorney
executed and delivered by the Trustee to execute and deliver, and may be
authorized and empowered by the Trustee, to execute and deliver, on behalf of
itself, the Owners and the Trustee or any of them, (i) 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 Home Equity Loans and with
respect to the Properties, (ii) to institute foreclosure proceedings or obtain a
deed in lieu of foreclosure so as to effect ownership of any Property in the
name of the Servicer on behalf of the Trustee, and (iii) to hold title to any
Property upon such foreclosure or deed in lieu of foreclosure on behalf of the
Trustee; provided, however, that to the extent any instrument described in
clause (i) preceding would be delivered by the Servicer outside of its usual
procedures for home equity loans held in its own portfolio the Servicer shall,
prior to executing and delivering such instrument, obtain the prior written
consent of the Certificate Insurer, and provided further, however, that Section
8.13(a) and Section 8.14(a) shall each constitute a revocable power of attorney
from the Trustee to the Servicer to execute an instrument of satisfaction (or
assignment of mortgage without recourse) with respect to any Home Equity Loan
held by the Trustee hereunder paid in full or foreclosed (or with respect to
which payment in full has been escrowed). Revocation of the power of attorney
created by the final proviso of the preceding sentence shall take effect upon
(i) the receipt by the Servicer of written notice thereof from the Trustee, (ii)
a Servicer Termination Event or (iii) the termination of the Trust. The Trustee
shall execute
85
<PAGE>
any documentation furnished to it by the Servicer for recordation by the
Servicer in the appropriate jurisdictions, as shall be necessary to effectuate
the foregoing. Subject to Sections 8.13 and 8.14, the Trustee shall execute a
power of attorney to the Servicer or any Sub-Servicer and furnish them with any
other documents as the Servicer or such Sub-Servicer shall reasonably request to
enable the Servicer and such Sub-Servicer to carry out their respective
servicing and administrative duties hereunder.
Upon the request of the Trustee, the Servicer shall send to the
Trustee, the details concerning the servicing of the Home Equity Loans on
computer generated tape, diskette or other machine readable format.
The Servicer shall give prompt notice to the Trustee of any action, of
which the Servicer has actual knowledge, to (i) assert a claim against the Trust
or (ii) assert jurisdiction over the Trust.
Servicing Advances incurred by the Servicer or any Sub-Servicer in
connection with the servicing of the Home Equity Loans (including any penalties
in connection with the payment of any taxes and assessments or other charges) on
any Property shall be recoverable by the Servicer or such Sub-Servicer to the
extent described in Section 8.09(b) hereof.
Section 8.02 Collection of Certain Home Equity Loan Payments.
-----------------------------------------------
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Home Equity Loans, and shall,
to the extent such procedures shall be consistent with this Agreement and the
terms and provisions of any applicable Insurance Policy, follow collection
procedures for all Home Equity Loans at least as rigorous as those described in
the FNMA Guide. Consistent with the foregoing, the Servicer may in its
discretion waive or permit to be waived any late payment charge, prepayment
charge, assumption fee or any penalty interest in connection with the prepayment
of a Home Equity Loan or any other fee or charge which the Servicer would be
entitled to retain hereunder as servicing compensation. In the event the
Servicer shall consent to the deferment of the due dates for payments due on a
Note, the Servicer shall nonetheless make payment of any required Delinquency
Advance with respect to the payments so extended to the same extent as if such
installment were due, owing and Delinquent and had not been deferred, and shall
be entitled to reimbursement therefor in accordance with Section 8.09(a) hereof.
Section 8.03 Sub-Servicing Agreements Between Servicer and
Sub-Servicers.
----------------------------------------------
The Servicer may, with the consent of the Certificate Insurer, enter
into Sub-Servicing Agreements for any servicing and administration of Home
Equity Loans with any institution which is acceptable to the Certificate Insurer
and which, (x) is in compliance with the laws of each state necessary to enable
it to perform its obligations under such Sub-Servicing Agreement, (y) has
experience servicing home equity loans that are similar to the Home Equity Loans
and (z) has equity of not less than $5,000,000 (as determined in accordance with
generally accepted accounting principles). The Servicer shall give notice to the
Trustee, the Owners, the Certificate Insurer and the Rating Agencies of the
appointment of any Sub-Servicer (and shall receive the confirmation of the
Rating Agencies that such Sub- Servicer shall not result in a withdrawal or
downgrading by any Rating Agency of the rating or the shadow rating of the Class
A Certificates). For purposes of this Agreement, the Servicer shall be deemed to
have received payments on Home Equity Loans when any Sub-Servicer has received
such payments. Each Sub-Servicer shall be required to service the Home Equity
Loans in accordance with this Agreement and any such Sub-Servicing Agreement
shall be consistent with and not violate the provisions of this Agreement. Each
Sub-Servicing Agreement shall provide that the Trustee (if acting as successor
Servicer) or any other successor Servicer shall have the option to terminate
such agreement without
86
<PAGE>
payment of any fees if the original Servicer is terminated or resigns. The
Servicer shall deliver to the Trustee and the Certificate Insurer copies of all
Sub-Servicing Agreements, and any amendments or modifications thereof promptly
upon the Servicer's execution and delivery of such instrument.
Section 8.04 Successor Sub-Servicers.
------------------------
The Servicer shall be entitled to terminate any Sub-Servicing Agreement
in accordance with the terms and conditions of such Sub-Servicing Agreement and
to either itself directly service the related Home Equity Loans or enter into a
Sub-Servicing Agreement with a successor Sub-Servicer which qualifies under
Section 8.03.
Section 8.05 Liability of Servicer; Indemnification.
---------------------------------------
(a) The Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Sub-Servicer and the Servicer shall be obligated to the same extent and
under the same terms and conditions as if it alone were servicing and
administering the Home Equity Loans. The Servicer shall be entitled to enter
into any agreement with a Sub-Servicer for indemnification of the Servicer by
such Sub-Servicer and nothing contained in such Sub-Servicing Agreement shall be
deemed to limit or modify this Agreement.
(b) The Servicer (except _______________ if it is required to succeed
the Servicer hereunder) agrees to indemnify and hold the Trustee, the
Certificate Insurer and each Owner harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Depositor, the Certificate
Insurer and any Owner may sustain in any way related to the failure of the
Servicer to perform its duties and service the Home Equity Loans in compliance
with the terms of this Agreement. The Servicer shall immediately notify the
Trustee, the Depositor, the Certificate Insurer and each Owner if a claim is
made by a third party with respect to this Agreement, and the Servicer shall
assume (with the consent of the Trustee and the Certificate Insurer) the defense
of any such claim and pay all expenses in connection therewith, including
reasonable counsel fees, and promptly pay, discharge and satisfy any judgment or
decree which may be entered against the Servicer, the Trustee, the Depositor,
the Certificate Insurer and/or Owner in respect of such claim. The Trustee
shall, in accordance with instructions received from the Servicer, reimburse the
Servicer only from amounts otherwise distributable on the Class R Certificates
for all amounts advanced by it pursuant to the preceding sentence, except when a
final nonpayable adjudication determines that the claim relates directly to the
failure of the Servicer to perform its duties in compliance with the Agreement.
The provisions of this Section 8.05(b) shall survive the termination of this
Agreement and the payment of the outstanding Certificates.
Section 8.06 No Contractual Relationship Between Sub-Servicer, Trustee
or the Owners.
---------------------------------------------------------
Any Sub-Servicing Agreement and any other transactions or services
relating to the Home Equity Loans involving a Sub-Servicer shall be deemed to be
between the Sub-Servicer and the Servicer alone and the Trustee and the Owners
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to any Sub-Servicer except as
set forth in Section 8.07.
87
<PAGE>
Section 8.07 Assumption or Termination of Sub-Servicing Agreement by
Trustee.
--------------------------------------------------------
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Servicer hereunder by
the Trustee pursuant to Section 8.20, it is understood and agreed that the
Servicer's rights and obligations under any Sub-Servicing Agreement then in
force between the Servicer and a Sub-Servicer shall be assumed simultaneously by
the Trustee without act or deed on part of the Trustee; provided, however, that
the Trustee (if acting as successor Servicer) or any other successor Servicer
may terminate the Sub-Servicer as provided in Section 8.03.
The Servicer shall, upon the reasonable request of the Trustee, but at
the expense of the Servicer, deliver to the assuming party documents and records
relating to each Sub-Servicing Agreement and an accounting of amounts collected
and held by it and otherwise use its best reasonable efforts to effect the
orderly and efficient transfer of the Sub-Servicing Agreements to the assuming
party.
Section 8.08 Principal and Interest Account.
-------------------------------
(a) The Servicer shall establish and maintain at one or more Designated
Depository Institutions the Principal and Interest Account to be held as a trust
account. Each Principal and Interest Account shall be identified on the records
of the Designated Depository Institution as follows: _______________, as Trustee
on behalf of the Owners of the IMC Home Equity Loan Trust 199___ Home Equity
Loan Pass-Through Certificates. If the institution at any time holding the
Principal and Interest Account ceases to be eligible as a Designated Depository
Institution hereunder, then the Servicer shall immediately be required to name a
successor institution meeting the requirements for a Designated Depository
Institution hereunder. If the Servicer fails to name such a successor
institution, then the Principal and Interest Account shall thenceforth be held
as a trust account with a qualifying Designated Depository Institution selected
by the Trustee. The Servicer shall notify the Trustee, the Certificate Insurer
and the Owners if there is a change in the name, account number or institution
holding the Principal and Interest Account.
Subject to Subsection (c) below, the Servicer shall deposit all
receipts required pursuant to Subsection (c) below and related to the Home
Equity Loans to the Principal and Interest Account on a daily basis (but no
later than the first Business Day after receipt).
(b) All funds in the Principal and Interest Account shall be held (i)
uninvested or (ii) invested in Eligible Investments. Any investments of funds in
the Principal and Interest Account shall mature or be withdrawable at par on or
prior to the immediately succeeding Monthly Remittance Date. The Principal and
Interest Account shall be held in trust in the name of the Trust for the benefit
of the Owners. Any investment earnings on funds held in the Principal and
Interest Account shall be for the account of the Servicer and may only be
withdrawn from the Principal and Interest Account by the Servicer immediately
following the remittance of the Monthly Remittance Amount (and the Total Monthly
Excess Spread included therein) by the Servicer. Any investment losses on funds
held in the Principal and Interest Account shall be for the account of the
Servicer and promptly upon the realization of such loss shall be contributed by
the Servicer to the Principal and Interest Account. Any references herein to
amounts on deposit in the Principal and Interest Account shall refer to amounts
net of such investment earnings.
(c) The Servicer shall deposit to the Principal and Interest Account on
the Business Day after receipt all principal and interest collections on the
Home Equity Loans due after the Cut-Off Date, including any Prepayments and Net
Liquidation Proceeds, other recoveries or amounts related to the
88
<PAGE>
Home Equity Loans received by the Servicer and any income from REO Properties,
but net of (i) Net Liquidation Proceeds to the extent such Net Liquidation
Proceeds exceed the sum of (I) the Loan Balance of the related Home Equity Loan
immediately prior to liquidation, plus (II) accrued and unpaid interest on such
Home Equity Loan (net of the Servicing Fee) to the date of such liquidation and
(III) any Realized Losses incurred during the related Remittance Period, (ii)
principal and interest due (and Prepayments collected) on the Home Equity Loans
on or prior to the Cut-Off Date or related Subsequent Cut-Off Date, as the case
may be, (iii) reimbursements for Delinquency Advances and (iv) reimbursements
for amounts deposited in the Principal and Interest Account representing
payments of principal and/or interest on a Note by a Mortgagor which are
subsequently returned by a depository institution as unpaid (all such net amount
herein referred to as "Daily Collections").
(d) (i) The Servicer may make withdrawals for its own account from the
Principal and Interest Account with respect to each Home Equity Loan Group, only
in the following priority and for the following purposes:
(A) on each Monthly Remittance Date, to pay itself the Servicing
Fee;
(B) to withdraw investment earnings on amounts on deposit in the
Principal and Interest Account;
(C) to withdraw amounts that have been deposited to the Principal
and Interest Account in error;
(D) to reimburse itself pursuant to Section 8.09(a) for
unrecovered Delinquency Advances and to retain any excess
Compensating Interest received by it pursuant to Section
8.10(a) hereof; and
(E) to clear and terminate the Principal and Interest Account
following the termination of the Trust pursuant to Article IX.
(ii) The Servicer shall (a) remit to the Trustee for deposit in the
Certificate Account by wire transfer, or otherwise make funds available in
immediately available funds, without duplication, the Daily Collections
allocable to a Remittance Period not later than the related Monthly Remittance
Date and Loan Purchase Prices and Substitution Amounts two Business Days
following the related purchase or substitution, and (b) on each Monthly
Remittance Date, deliver to the Trustee and the Certificate Insurer, a monthly
servicing report, with respect to each Home Equity Loan Group, containing
(without limitation) the following information: principal and interest collected
in respect of the Home Equity Loans, scheduled principal and interest that was
due on the Home Equity Loans, relevant information with respect to Liquidated
Loans, if any, summary and detailed delinquency reports, Liquidation Proceeds
and other similar information concerning the servicing of the Home Equity Loans.
In addition, the Servicer shall inform the Trustee and the Certificate Insurer
on each Monthly Remittance Date with respect to each Home Equity Loan Group, of
the amounts of any Loan Purchase Prices or Substitution Amounts so remitted
during the related Remittance Period, and of the Loan Balance of the Home Equity
Loan having the largest Loan Balance as of such date.
(iii) The Servicer shall provide to the Trustee the information
described in Section 8.08(d)(ii)(b) and in Section 7.09(b) to enable the Trustee
to perform its reporting requirements under Section 7.09.
89
<PAGE>
Section 8.09 Delinquency Advances and Servicing Advances.
-------------------------------------------
(a) On each Monthly Remittance Date, the Servicer shall be required to
remit to the Trustee for deposit to the Certificate Account out of the
Servicer's own funds any Delinquent payment of interest with respect to each
Delinquent Home Equity Loan, which payment was not received on or prior to the
related Remittance Date and was not theretofore advanced by the Servicer. Such
amounts of the Servicer's own funds so deposited are "Delinquency Advances".
The Servicer shall be permitted to reimburse itself on any Business Day
for any Delinquency Advances paid from the Servicer's own funds, from
collections on any Home Equity Loans in the related Home Equity Loan Group that
are not required to be distributed on the Payment Date occurring during the
month in which such reimbursement is made or as provided in Section
7.03(c)(iii)(C).
Notwithstanding the foregoing, in the event that the Servicer
determines in its reasonable business judgment in accordance with the servicing
standards set out herein that any proposed Delinquency Advance would not be
recoverable, the Servicer shall not be required to make Delinquency Advances
with respect to such Home Equity Loan. To the extent that the Servicer
previously has made Delinquency Advances with respect to a Home Equity Loan that
the Servicer subsequently determines will be nonrecoverable, the Servicer shall
be entitled to reimbursement for such aggregate unreimbursed Delinquency
Advances as provided in the prior paragraph. The Servicer shall give written
notice of such determination as to why such amount would not be recoverable to
the Trustee and the Certificate Insurer; the Trustee shall promptly furnish a
copy of such notice to the Owners of the Class R Certificates; provided,
further, that the Servicer shall be entitled to recover any unreimbursed
Delinquency Advances from Liquidation Proceeds for the related Home Equity Loan.
(b) The Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, (i) Preservation Expenses, (ii) the cost of any enforcement or
judicial proceedings, including foreclosures, (iii) the cost of the management
and liquidation of REO Property and (iv) advances required by Section 8.13(a),
except to the extent that such amounts are determined by the Servicer in its
reasonable business judgment not to be recoverable. Such costs will constitute
"Servicing Advances". The Servicer may recover a Servicing Advance (x) from the
Mortgagors to the extent permitted by the Home Equity Loans or, if not
theretofore recovered from the Mortgagor on whose behalf such Servicing Advance
was made, from Liquidation Proceeds realized upon the liquidation of the related
Home Equity Loan and (y) as provided in Section 7.03(c)(iii)(C). The Servicer
shall be entitled to recover the Servicing Advances from the aforesaid
Liquidation Proceeds prior to the payment of the Liquidation Proceeds to any
other party to this Agreement. Except as provided in the previous sentence, in
no case may the Servicer recover Servicing Advances from the principal and
interest payments on any other Home Equity Loan except as provided in Section
7.03(c)(iii)(C).
Section 8.10 Compensating Interest; Repurchase of Home Equity Loans.
------------------------------------------------------
(a) If a prepayment in full of a Home Equity Loan or a Prepayment of at
least six times a Mortgagor's Monthly Payment occurs during any calendar month,
any difference between (x) the interest collected from the Mortgagor in
connection with such payoff, and (y) the full month's interest at the Coupon
Rate that would be due on the related Due Date for such Home Equity Loan
("Compensating Interest") (but not in excess of the aggregate Servicing Fee for
the related Remittance Period) shall be deposited by the Servicer to the
Principal and Interest Account (or if such difference is an excess, the Servicer
shall retain such excess) on the next succeeding Monthly Remittance Date and
shall be included
90
<PAGE>
in the Monthly Remittance Amount to be made available to the Trustee on such
Monthly Remittance Date.
(b) Subject to the clause (c) below, the Servicer has the right and the
option, but not the obligation, to purchase for its own account any Home Equity
Loan which becomes Delinquent, in whole or in part, as to at least three
consecutive monthly installments or any Home Equity Loan as to which enforcement
proceedings have been brought by the Servicer pursuant to Section 8.13;
provided, however, that the Servicer may not purchase any such Home Equity Loan
unless the Servicer has delivered to the Trustee at the Servicer's expense, an
opinion of counsel acceptable to the Certificate Insurer and the Trustee to the
effect that such a purchase would not constitute a Prohibited Transaction for
the Trust or otherwise subject the Trust to tax and would not jeopardize the
status of the Base REMIC or the Upper- Tier REMIC as a REMIC. Any such Home
Equity Loan so purchased shall be purchased by the Servicer on a Monthly
Remittance Date at a purchase price equal to the Loan Purchase Price thereof,
which purchase price shall be deposited in the Principal and Interest Account.
(c) If a Home Equity Loan to be repurchased by the Servicer pursuant to
clause (b) above, is the greatest number of days Delinquent of all then
Delinquent Home Equity Loans, the Servicer may repurchase such Home Equity Loans
without having first notified the Certificate Insurer of such repurchase. In all
other cases, the Servicer must notify the Certificate Insurer, in writing, of
its intent to repurchase a Home Equity Loan and the Servicer may not repurchase
such Home Equity Loan without the written consent of the Certificate Insurer;
provided, that the Certificate Insurer shall be deemed to have consented to such
repurchase unless it notifies the Servicer, in writing, of its objection to such
repurchase within 5 days after its receipt of the notice of proposed repurchase.
(d) The Net Liquidation Proceeds from the disposition of any REO
Property shall be deposited in the Principal and Interest Account and remitted
to the Trustee as part of the Daily Collections remitted by the Servicer to the
Trustee.
Section 8.11 Maintenance of Insurance.
-------------------------
(a) The Servicer shall cause to be maintained with respect to each Home
Equity Loan a hazard insurance policy with a carrier generally acceptable to the
Servicer that provides for fire and extended coverage, and which provides for a
recovery by the Trust of insurance proceeds relating to such Home Equity Loan in
an amount not less than the least of (i) the outstanding principal balance of
the Home Equity Loan (plus the related senior lien loan, if any), (ii) the
minimum amount required to compensate for damage or loss on a replacement cost
basis and (iii) the full insurable value of the premises. The Servicer shall
maintain the insurance policies required hereunder in the name of the mortgagee,
its successors and assigns, as loss payee. The policies shall require the
insurer to provide the mortgagee with 30 days' notice prior to any cancellation
or as otherwise required by law. The Servicer may also maintain a blanket hazard
insurance policy or policies if the insurer or insurers of such policies are
rated investment grade by Moody's and Standard & Poor's.
(b) If the Home Equity Loan at the time of origination (or if required
by federal law, at any time thereafter) relates to a Property in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards, the Servicer will cause to be maintained with
respect thereto a flood insurance policy in a form meeting the requirements of
the then current guidelines of the Federal Insurance Administration with a
carrier generally acceptable to the Servicer in an amount representing coverage,
and which provides for a recovery by the Trust of insurance proceeds relating to
such Home Equity Loan of not less than the least of (i) the outstanding
principal balance of the Home Equity Loan (plus the related senior lien loan, if
any), (ii) the minimum amount required to
91
<PAGE>
compensate for damage or loss on a replacement cost basis and (iii) the maximum
amount of insurance that is available under the Flood Disaster Protection Act of
1973. The Servicer shall indemnify the Trust out of the Servicer's own funds for
any loss to the Trust resulting from the Servicer's failure to advance premiums
for such insurance required by this Section when so permitted by the terms of
the Mortgage as to which such loss relates.
Section 8.12 Due-on-Sale Clauses; Assumption and Substitution
Agreements.
-------------------------------------------------
When a Property has been or is about to be conveyed by the Mortgagor,
the Servicer shall, to the extent it has knowledge of such conveyance or
prospective conveyance, exercise its rights to accelerate the maturity of the
related Home Equity Loan under any "due-on-sale" clause contained in the related
Mortgage or Note; provided, however, that the Servicer shall not exercise any
such right if the "due-on-sale" clause, in the reasonable belief of the
Servicer, is not enforceable under applicable law. An opinion of counsel,
provided at the expense of the Servicer, to the foregoing effect shall
conclusively establish the reasonableness of such belief. In such event, the
Servicer shall enter into an assumption and modification agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Note and, unless prohibited by
applicable law or the Mortgage Documents, the Mortgagor remains liable thereon.
If the foregoing is not permitted under applicable law, the Servicer is
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 Mortgagor and becomes liable under the Note; provided,
however, that to the extent any such substitution of liability agreement would
be delivered by the Servicer outside of its usual procedures for home equity
loans held in its own portfolio the Servicer shall, prior to executing and
delivering such agreement, obtain the prior written consent of the Certificate
Insurer. The Home Equity Loan, as assumed, shall conform in all material
respects to the requirements, representations and warranties of this Agreement.
The Servicer shall notify the Trustee that any such assumption or substitution
agreement has been completed by forwarding to the Trustee the original copy of
such assumption or substitution agreement (indicating the File to which it
relates) which copy shall be added by the Trustee to the related File and which
shall, for all purposes, be considered a part of such File to the same extent as
all other documents and instruments constituting a part thereof. The Servicer
shall be responsible for recording any such assumption or substitution
agreements. In connection with any such assumption or substitution agreement, no
material term of the Home Equity Loan (including, without limitation, the
required monthly payment on the related Home Equity Loan, the stated maturity,
the outstanding principal amount or the Coupon Rate) shall be changed nor shall
any required monthly payments of principal or interest be deferred or forgiven.
Any fee collected by the Servicer or the Sub-Servicer for consenting to any such
conveyance or entering into an assumption or substitution agreement shall be
retained by or paid to the Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the 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
Home Equity Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 8.13 Realization Upon Defaulted Home Equity Loans; Workout of
Home Equity Loans.
--------------------------------------------------------
(a) The Servicer shall foreclose upon or otherwise comparably effect
the ownership in the name of the Trustee on behalf of the Trust of Properties
relating to defaulted Home Equity Loans as to which no satisfactory arrangements
can be made for collection of Delinquent payments and which the Servicer has not
purchased pursuant to Section 8.10(b). In connection with such foreclosure or
other
92
<PAGE>
conversion, the Servicer shall exercise such of the rights and powers vested in
it hereunder, and use the same degree of care and skill in their exercise or
use, as prudent mortgage lenders would exercise or use under the circumstances
in the conduct of their own affairs and consistent with the servicing standards
set forth in the FNMA Guide, including, but not limited to, advancing funds for
the payment of taxes, amounts due with respect to Senior Liens, and insurance
premiums. Any amounts so advanced shall constitute "Servicing Advances" within
the meaning of Section 8.09(b) hereof. The Servicer shall sell any REO Property
within 23 months of its acquisition by the Trust, at such price as the Servicer
deems necessary to comply with this covenant unless the Servicer obtains for the
Certificate Insurer and the Trustee, an opinion of counsel (the expense of which
opinion shall be a Servicing Advance) experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee, addressed to the
Certificate Insurer, the Trustee and the Servicer, to the effect that the
holding by the Trust of such REO Property for any greater period will not result
in the imposition of taxes on "Prohibited Transactions" of the Trust or any
REMIC therein as defined in Section 860F of the Code or cause the Base REMIC or
Upper-Tier REMIC to fail to qualify as a REMIC under the REMIC Provisions at any
time that any Certificates are outstanding. Notwithstanding the generality of
the foregoing provisions, the Servicer shall manage, conserve, protect and
operate each REO Property for the Owners 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) of
the Code or result in the receipt by the Base REMIC or Upper-Tier REMIC 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 Servicer shall either itself or through an agent selected by the
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 Owners,
rent the same, or any part thereof, as the Servicer deems to be in the best
interest of the Owners for the period prior to the sale of such REO Property.
The Servicer shall take into account the existence of any hazardous substances,
hazardous wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act of 1976, or other federal, state or local environmental
legislation, on a Property in determining whether to foreclose upon or otherwise
comparably convert the ownership of such Property. The Servicer shall not take
any such action with respect to any Property known by the Servicer to contain
such wastes or substances or to be within one mile of the site of such wastes or
substances, without the prior written consent of the Certificate Insurer.
(b) The Servicer shall determine, with respect to each defaulted Home
Equity Loan and in accordance with the procedures set forth in the FNMA Guide,
when it has recovered, whether through trustee's sale, foreclosure sale or
otherwise, all amounts it expects to recover from or on account of such
defaulted Home Equity Loan, whereupon such Home Equity Loan shall become a
"Liquidated Loan".
(c) The Servicer shall not agree to any modification, waiver or
amendment of any provision of any Home Equity Loan unless, in the Servicer's
good faith judgment, such modification, waiver or amendment would minimize the
loss that might otherwise be experienced with respect to such Home Equity Loan
and only in the event of a payment default with respect to such Home Equity Loan
or in the event that a payment default with respect to such Home Equity Loan is
reasonably foreseeable by the Servicer; provided, however, that no such
modification, waiver or amendment shall extend the maturity date of such Home
Equity Loan beyond the Remittance Period related to the Final Scheduled Payment
Date of the Class A-8 Certificates. Notwithstanding anything set out in this
Section 8.13(c) or elsewhere in this Agreement to the contrary, the Servicer
shall be permitted to modify, waive or amend any provision of a Home Equity Loan
if required by statute or a court of competent jurisdiction to do so.
93
<PAGE>
(d) The Servicer shall provide written notice to the Trustee and the
Certificate Insurer prior to the execution of any modification, waiver or
amendment of any provision of any Home Equity Loan; provided that if the
Certificate Insurer does not object in writing to the modification, waiver or
amendment specified in such notice within 5 Business Days after its receipt
thereof, the Servicer may effectuate such modification, waiver or amendment and
shall deliver to the Custodian, on behalf of the Trustee for deposit in the
related File, an original counterpart of the agreement relating to such
modification, waiver or amendment, promptly following the execution thereof.
Section 8.14 Trustee to Cooperate; Release of Files.
--------------------------------------
(a) Upon the payment in full of any Home Equity Loan (including any
liquidation of such Home Equity Loan through foreclosure or otherwise), or the
receipt by the Servicer of a notification that payment in full will be escrowed
in a manner customary for such purposes, the Servicer shall deliver to the
Custodian, on behalf of the Trustee the FNMA "Request for Release of Documents"
(FNMA Form 2009). Upon receipt of such Request for Release of Documents, the
Custodian, on behalf of the Trustee shall promptly release the related File, in
trust, in its reasonable discretion to (i) the Servicer, (ii) an escrow agent or
(iii) any employee, agent or attorney of the Trustee. Upon any such payment in
full, or the receipt of such notification that such funds have been placed in
escrow, the Servicer is authorized to give, as attorney-in-fact for the Trustee
and the mortgagee under the Mortgage which secured the Note, an instrument of
satisfaction (or assignment of Mortgage without recourse) regarding the Property
relating to such Mortgage, which instrument of satisfaction or assignment, as
the case may be, shall be delivered to the Person or Persons entitled thereto
against receipt therefor of payment in full, it being understood and agreed that
no expense incurred in connection with such instrument of satisfaction or
assignment, as the case may be, shall be chargeable to the Principal and
Interest Account or to the Trustee. In lieu of executing any such satisfaction
or assignment, as the case may be, the Servicer may prepare and submit to the
Custodian, on behalf of the Trustee, a satisfaction (or assignment without
recourse, if requested by the Person or Persons entitled thereto) in form for
execution by the Trustee with all requisite information completed by the
Servicer; in such event, the Custodian, on behalf of the Trustee shall execute
and acknowledge such satisfaction or assignment, as the case may be, and deliver
the same with the related File, as aforesaid.
(b) The Servicer shall have the right (upon receiving the consent of
the Certificate Insurer) to accept applications of Mortgagors for consent to (i)
partial releases of Mortgages, (ii) alterations and (iii) removal, demolition or
division of properties subject to Mortgages. No application for approval shall
be considered by the Servicer unless: (x) the provisions of the related Note and
Mortgage have been complied with; (y) the Loan-to-Value Ratio and debt-to-income
ratio after any release does not exceed the Loan-to-Value Ratio and
debt-to-income ratio of such Note on the Cut-Off Date and any increase in the
Loan-to-Value Ratio shall not exceed 5% unless approved in writing by the
Certificate Insurer; and (z) the lien priority of the related Mortgage is not
affected. Upon receipt by the Trustee of an Officer's Certificate executed on
behalf of the Servicer setting forth the action proposed to be taken in respect
of a particular Home Equity Loan and certifying that the criteria set forth in
the immediately preceding sentence have been satisfied, the Trustee shall
execute and deliver to the Servicer the consent or partial release so requested
by the Servicer. A proposed form of consent or partial release, as the case may
be, shall accompany any Officer's Certificate delivered by the Servicer pursuant
to this paragraph. The Servicer shall notify the Certificate Insurer and the
Rating Agencies if an application is approved under clause (y) above without
approval in writing by the Certificate Insurer.
94
<PAGE>
Section 8.15 Servicing Compensation.
-----------------------
As compensation for its activities hereunder, the Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Home
Equity Loan. Additional servicing compensation in the form of prepayment
charges, release fees, bad check charges, assumption fees, late payment charges,
prepayment penalties, or any other servicing-related fees, Net Liquidation
Proceeds not required to be deposited in the Principal and Interest Account
pursuant to Section 8.08(c)(ii) and similar items may, to the extent collected
from Mortgagors, be retained by the Servicer, unless a successor Servicer is
appointed pursuant to Section 8.20 hereof, in which case the successor Servicer
shall be entitled to such fees as are agreed upon by the Trustee, the successor
Servicer and the majority of the Percentage Interests of the Class R
Certificates.
The right to receive the Servicing Fee may not be transferred in whole
or in part except in connection with the transfer of all of the Servicer's
responsibilities and obligations under this Agreement.
Section 8.16 Annual Statement as to Compliance.
---------------------------------
The Servicer, at its own expense, will deliver to the Trustee, the
Certificate Insurer, the Depositor, and the Rating Agencies, on or before _____
30 of each year, commencing in 199_, an Officer's Certificate stating, as to
each signer thereof, that (i) a review of the activities of the Servicer during
such preceding calendar year and of 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 Servicer has fulfilled all its obligations
under this Agreement for such year, or, if there has been a default in the
fulfillment of all such obligations, specifying each such default known to such
officers and the nature and status thereof including the steps being taken by
the Servicer to remedy such default.
Section 8.17 Annual Independent Certified Public Accountants' Reports.
--------------------------------------------------------
On or before _____ 30 of each year, commencing in 199_, the Servicer,
at its own expense (or if the Trustee is then acting as Servicer, at the expense
of the Seller, which in no event shall exceed $1,000 per annum), shall cause to
be delivered to the Trustee, the Certificate Insurer, the Depositor, and the
Rating Agencies a letter or letters of a firm of independent, nationally
recognized certified public accountants reasonably acceptable to the Certificate
Insurer stating that such firm has examined the Servicer's overall servicing
operations in accordance with the requirements of the Uniform Single Audit
Procedure for Mortgage Bankers, and stating such firm's conclusions relating
thereto.
Section 8.18 Access to Certain Documentation and Information
Regarding the Home Equity Loans.
-----------------------------------------------
The Servicer shall provide to the Trustee, the Certificate Insurer, the
Office of Thrift Supervision (the "OTS"), the FDIC and the supervisory agents
and examiners of each of the FDIC and the OTS (which, in the case of supervisory
agents and examiners, may be required by applicable state and federal
regulations) access to the documentation regarding the Home Equity Loans, such
access being afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Servicer designated by it.
95
<PAGE>
Section 8.19 Assignment of Agreement.
------------------------
Other than with respect to entering into Sub-Servicing Agreements
pursuant to Section 8.03 hereof, the Servicer may not assign its obligations
under this Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Trustee and the Certificate Insurer, which such
consent shall not be unreasonably withheld; provided, however, that any assignee
must meet the eligibility requirements set forth in Section 8.20(g) hereof for a
successor servicer.
Section 8.20 Removal of Servicer; Retention of Servicer; Resignation
of Servicer.
-------------------------------------------------------
(a) The Certificate Insurer or the Trustee (or, except in the case of
item (vi) below, the Owners, with the consent of the Certificate Insurer
pursuant to Section 6.11 hereof) may remove the Servicer upon the occurrence of
any of the following events (each a "Servicer Termination Event"):
(i) The Servicer shall (I) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian or
similar entity with respect to itself or its property, (II) admit in
writing its inability to pay its debts generally as they become due,
(III) make a general assignment for the benefit of creditors, (IV) be
adjudicated a bankrupt or insolvent, (V) commence a voluntary case
under the federal bankruptcy laws of the United States of America or
file a voluntary petition or answer seeking reorganization, an
arrangement with creditors or an order for relief or seeking to take
advantage of any insolvency law or file an answer admitting the
material allegations of a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding or (VI) take corporate action
for the purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent
of the Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Servicer an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of
a trustee, receiver, liquidator or custodian or similar entity with
respect to the Servicer or of all or any substantial part of its
assets, or other like relief in respect thereof under any bankruptcy or
insolvency law, and, if such proceeding is being contested by the
Servicer in good faith, the same shall (A) result in the entry of an
order for relief or any such adjudication or appointment or (B)
continue undismissed or pending and unstayed for any period of
seventy-five (75) consecutive days; or
(iii) The Servicer shall fail to perform any one or
more of its obligations hereunder and shall continue in default thereof
for a period of thirty (30) days (one (1) Business Day in the case of a
delay in making a payment required of the Servicer under this
Agreement) after the earlier of (a) actual knowledge of an officer of
the Servicer or (b) receipt of notice from the Trustee or the
Certificate Insurer of said failure; provided, however, that if the
Servicer can demonstrate to the reasonable satisfaction of the
Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(iv) The Servicer shall fail to cure any breach of
any of its representations and warranties set forth in Section 3.02
which materially and adversely affects the interests of the Owners or
the Certificate Insurer for a period of sixty (60) days after the
earlier of the Servicer's
96
<PAGE>
discovery or receipt of notice thereof; provided, however, that if the
Servicer can demonstrate to the reasonable satisfaction of the
Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(v) The merger, consolidation or other combination of
the Servicer with or into any other entity, unless (1) the Servicer or
an Affiliate of the Servicer is the surviving entity of such
combination or (2) the surviving entity (A) is servicing at least
$300,000,000 of home equity loans that are similar to the Home Equity
Loans and (B) has equity of not less than $10,000,000 (as determined in
accordance with generally acceptable account principles); or
(vi) The failure of the Servicer (except the Trustee
in its capacity as successor Servicer) to satisfy the Servicer
Termination Test.
(b) Upon the occurrence of a Servicer Termination Event, the Servicer
shall act as servicer under this Agreement, subject to the right of removal set
forth in subsection (a) hereof, for an initial period commencing on the date on
which such Servicer Termination Event occurred and ending on the last day of the
calendar quarter in which such Servicer Termination Event occurred, which period
shall be extended for a succeeding quarterly period on June 30, September 30,
December 31, and ____ 31 of each year as provided below (each such quarterly
period for which the Servicer shall be designated to act as servicer hereunder,
a "Term of Service"); provided that nothing in this Section 8.20(b) shall
prohibit the Certificate Insurer or the Trustee from removing the Servicer
pursuant to Section 8.20(a). Notwithstanding the foregoing, the Certificate
Insurer may, in its sole discretion, extend the period for which the Servicer is
to act as such for a period in excess of one quarter (provided such extension
shall be an additional one or more quarters), but any such extension shall be
revocable at any time by the Certificate Insurer upon written notice delivered
to the Trustee and the Servicer at least fifteen days prior to the expiration of
the related quarterly period.
(c) The Certificate Insurer agrees to use its best efforts to inform
the Trustee of any materially adverse information regarding the Servicer's
servicing activities that comes to the attention of the Certificate Insurer from
time to time.
(d) The Servicer shall not resign from the obligations and duties
hereby imposed on it, except upon determination that its duties hereunder are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it, the other activities
of the Servicer so causing such a conflict being of a type and nature carried on
by the Servicer at the date of this Agreement. Any such determination permitting
the resignation of the Servicer shall be evidenced by an opinion of counsel
acceptable to the Trustee at the expense of the Servicer to such effect which
shall be delivered to the Trustee and the Certificate Insurer.
(e) No removal or resignation of the Servicer shall become effective
until the Trustee or a successor Servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with this Section.
(f) Upon removal or resignation of the Servicer, the Servicer at its
own expense also shall promptly deliver or cause to be delivered to a successor
servicer or the Trustee all the books and records (including, without
limitation, records kept in electronic form) that the Servicer has maintained
for the Home Equity Loans, including all tax bills, assessment notices,
insurance premium notices and all other documents as well as all original
documents then in the Servicer's possession.
97
<PAGE>
(g) Any collections then being held by the Servicer prior to its
removal and any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Trustee and remitted directly and
immediately to the Trustee or the successor Servicer.
(h) Upon removal or resignation of the Servicer, the Trustee may (A)
solicit bids for a successor servicer as described below or (B) shall appoint
the Backup Servicer as Servicer. If the Trustee elects to solicit bids for a
successor Servicer, the Trustee agrees to act as Backup Servicer during the
solicitation process. The Trustee shall, if it is unable to obtain a qualifying
bid and is prevented by law from acting as Servicer, appoint, or petition a
court of competent jurisdiction to appoint, any housing and home finance
institution, bank or mortgage servicing institution which has been designated as
an approved seller-servicer by FNMA or FHLMC for first and second home equity
loans and having equity of not less than $5,000,000 (or such lower level as may
be acceptable to the Certificate Insurer), as determined in accordance with
generally accepted accounting principles and acceptable to the Certificate
Insurer as the successor to the Servicer hereunder in the assumption of all or
any part of the responsibilities, duties or liabilities of the Servicer
hereunder. The compensation of any successor Servicer (other than the Trustee in
its capacity as successor Servicer) so appointed shall be the amount agreed to
between the successor Servicer, the Certificate Insurer and the majority of the
Percentage Interests of the Class R Certificates, together with the other
servicing compensation in the form of assumption fees, late payment charges or
otherwise as provided in Sections 8.08 and 8.15; provided, however, that if the
Trustee becomes the successor Servicer it shall receive as its compensation the
same compensation paid to the Servicer immediately prior to the Servicer's
removal or resignation; provided, further, however, that if the Trustee acts as
successor Servicer then the Seller agrees to pay to the Trustee at such time
that the Trustee becomes such successor Servicer a set-up fee of ___________
dollars ($_____) for each Home Equity Loan then included in the Trust Estate.
The amount payable in excess of ___________ dollars ($_____) per Home Equity
Loan, if any, shall be payable to the successor Servicer and reimbursable
pursuant to Section 7.03(c)(iv)(E) hereof. The Trustee shall be obligated to
serve as successor Servicer whether or not the fee described in this section is
paid by the Seller, but shall in any event be entitled to receive, and to
enforce payment of, such fee from the Seller.
(i) In the event the Trustee elects to solicit bids as provided above,
the Trustee shall solicit, by public announcement, bids from housing and home
finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Servicer shall be entitled to servicing compensation in accordance
with clause (g) above, together with the other servicing compensation in the
form of assumption fees, late payment charges or otherwise as provided in
Sections 8.08 and 8.15. Within thirty days after any such public announcement,
the Trustee shall negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder to the qualified party
submitting the highest satisfactory bid as to the price they will pay to obtain
servicing. The Trustee shall deduct from any sum received by the Trustee from
the successor to the Servicer in respect of such sale, transfer and assignment
all costs and expenses of any public announcement and of any sale, transfer and
assignment of the servicing rights and responsibilities hereunder. After such
deductions, the remainder of such sum less any amounts due the Trustee or the
Trust from the Servicer shall be paid by the Trustee to the Servicer at the time
of such sale, transfer and assignment to the Servicer's successor.
(j) The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession,
including the notification to all Mortgagors of the transfer of servicing. The
Servicer agrees to cooperate with the Trustee and any successor Servicer in
effecting the termination of the Servicer's servicing responsibilities and
rights hereunder and shall promptly provide the Trustee or such successor
Servicer, as applicable, all documents and records reasonably requested by it to
enable it to assume the Servicer's functions hereunder and shall promptly
98
<PAGE>
also transfer to the Trustee or such successor Servicer, as applicable, all
amounts which then have been or should have been deposited in the Principal and
Interest Account by the Servicer or which are thereafter received with respect
to the Home Equity Loans. Neither the Trustee nor any other successor Servicer
shall be held liable by reason of any failure to make, or any delay in making,
any distribution hereunder or any portion thereof caused by (i) the failure of
the Servicer to deliver, or any delay in delivering, cash, documents or records
to it, or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Servicer. If the Servicer resigns or is replaced
hereunder, the Seller agrees to reimburse the Trust, the Owners and the
Certificate Insurer for the costs and expenses associated with the transfer of
servicing to the replacement Servicer, but subject to a maximum reimbursement to
all such parties in the amount of ___________ dollars ($_____) for each Home
Equity Loan then included in the Trust Estate. The amount payable in excess of
___________ dollars ($_____) per Home Equity Loan, if any, shall be payable to
the successor Servicer and reimbursable pursuant to Section 7.03(c)(iv)(E)
hereof.
(k) The Trustee or any other successor Servicer, upon assuming the
duties of Servicer hereunder, shall immediately (i) record all assignments of
Home Equity Loans not previously recorded in the name of the Trustee pursuant to
Section 3.05(b)(ii) as a result of an opinion of counsel and (ii) make all
Delinquency Advances and Compensating Interest payments and deposit them to the
Principal and Interest Account which the Servicer has theretofore failed to
remit with respect to the Home Equity Loans; provided, however, that if the
Trustee is acting as successor Servicer, the Trustee shall only be required to
make Delinquency Advances (including the Delinquency Advances described in this
clause (j)) if, in the Trustee's reasonable good faith judgment, such
Delinquency Advances will ultimately be recoverable from the Home Equity Loans.
(l) The Servicer which is being removed or is resigning shall give
notice to the Mortgagors, to Moody's and to Standard & Poor's of the transfer of
the servicing to the successor.
(m) The Trustee shall give notice to the Certificate Insurer, the
Owners, the Trustee, the Seller, Moody's and Standard & Poor's of the occurrence
of any event described in paragraphs (a) above of which the Trustee is aware.
Section 8.21 Inspections by Certificate Insurer; Errors and Omissions
Insurance.
--------------------------------------------------------
(a) At any reasonable time and from time to time upon reasonable
notice, the Trustee, the Certificate Insurer, any Owner of a Class R
Certificate, or any agents thereof may inspect the Servicer's servicing
operations and discuss the servicing operations of the Servicer during the
Servicer's normal business hours with any of its officers or directors;
provided, however, that the costs and expenses incurred by the Servicer or its
agents or representatives in connection with any such examinations or
discussions shall be paid by the Servicer.
(b) The Servicer (including the Trustee if it shall become the Servicer
hereunder) agrees to maintain errors and omissions coverage and a fidelity bond,
each at least to the extent required by Section 305 of Part I of FNMA Guide or
any successor provision thereof; provided, however, that in any event that the
fidelity bond or the errors and omissions coverage is no longer in effect, the
Trustee shall promptly give such notice to the Certificate Insurer and the
Owners.
99
<PAGE>
Section 8.22 Additional Servicing Responsibilities for Second
Mortgage Loans.
-------------------------------------------------
The Servicer must notify any superior lienholder in writing of the
existence of the Second Mortgage Loan and request notification of any action (as
described below) to be taken against the Mortgagor or the Mortgaged Property by
the superior lienholder.
If the Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations under a First Mortgage
Loan, or has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the Mortgaged Property sold or foreclosed, the Servicer shall take, on
behalf of the Trust, whatever actions are necessary to protect the interests of
the Owners and the Certificate Insurer, and/or to preserve the security of the
related Home Equity Loan, subject to the application of the REMIC Provisions.
The Servicer shall advance the necessary funds to cure the default or reinstate
the lien securing a First Mortgage Loan, if such advance is in the best
interests of the Certificate Insurer and the Owners; provided, however, that no
such additional advance need be made if such advance would be nonrecoverable.
The Servicer shall thereafter take such action as is necessary to recover the
amount so advanced. Any expenses incurred by the Servicer pursuant to this
Section 8.22 shall be Servicing Advances.
END OF ARTICLE VIII
100
<PAGE>
ARTICLE IX
TERMINATION OF TRUST
Section 9.01 Termination of Trust.
---------------------
The Trust created hereunder and all obligations created by this
Agreement will terminate upon the payment to the Owners of all Certificates from
amounts other than those available under the Certificate Insurance Policy of all
amounts held by the Trustee and required to be paid to such Owners pursuant to
this Agreement upon the later to occur of (a) the final payment or other
liquidation (or any advance made with respect thereto) of the last Home Equity
Loan in the Trust Estate, (b) the disposition of all property acquired in
respect of any Home Equity Loan remaining in the Trust Estate and (c) at any
time when a Qualified Liquidation of both Home Equity Loan Groups included
within the Trust is effected as described in Section 9.02. To effect a
termination of this Agreement pursuant to clause (c) above, the Owners of all
Certificates then Outstanding shall provide to the Trustee, at their expense, an
opinion of counsel experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee to the effect that each such liquidation
constitutes a Qualified Liquidation, and the Servicer either shall sell the Home
Equity Loans and the Trustee shall distribute the proceeds of the liquidation of
the Trust Estate, or the Servicer shall distribute equitably in kind all of the
assets of the Trust Estate to the remaining Owners of the Certificates to the
effect that each such liquidation constitutes a Qualified Liquidation. In no
event, however, will the Trust created by this Agreement continue beyond the
expiration of twenty-one (21) years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the United Kingdom, living on the date hereof. The Trustee shall give written
notice of termination of the Agreement to each Owner in the manner set forth in
Section 11.05.
Section 9.02 Termination Upon Option of Owners of Class R Certificates.
---------------------------------------------------------
(a) On any Monthly Remittance Date after the Clean-Up Call Date, the
Owners of a majority of the Percentage Interests represented by the Class R
Certificates then outstanding may determine to purchase, in whole only, and may
cause the purchase from the Trust of all (but not fewer than all) Home Equity
Loans in both Home Equity Loan Groups and all property theretofore acquired in
respect of any Home Equity Loan by foreclosure, deed in lieu of foreclosure, or
otherwise then remaining in the Trust Estate (i) on terms agreed upon between
the Certificate Insurer and such Owners of the Class R Certificates, or (ii) in
the absence of such an agreement, at a price equal to (x) in the case of Home
Equity Loans 100% of the aggregate Loan Balances of the related Home Equity
Loans and (y) in the case of REO Properties, the appraised value of such
properties (such appraisal to be conducted by an appraiser mutually agreed upon
by the Servicer and the Trustee) as of the day of purchase minus amounts
remitted from the Principal and Interest Account to the Certificate Account
representing collections of principal on the Home Equity Loans during the
current Remittance Period, plus one month's interest on such amount computed at
the Adjusted Pass-Through Rate, plus all accrued and unpaid Servicing Fees plus
the aggregate amount of any unreimbursed Delinquency Advances and Servicing
Advances and Delinquency Advances which the Servicer has theretofore failed to
remit; provided, that in any case such price shall not be less than the then
outstanding Class A Certificate Principal Balance. In connection with such
purchase, the Servicer shall remit to the Trustee all amounts then on deposit in
the Principal and Interest Account for deposit to the Certificate Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
101
<PAGE>
(b) In the event that the Owners of the Class R Certificates purchase
all Home Equity Loans and each REO Property remaining in the Trust Estate
pursuant to Section 9.02(a), the Trust Estate shall be terminated in accordance
with the following additional requirements:
(i) The Trustee shall specify the first day in the 90-day
liquidation period in a statement attached to the Trust Estate's final
Tax Return pursuant to Treasury regulation Section 1.860F-1 and shall
satisfy all requirements of a qualified liquidation under Section 860F
of the Code and any regulations thereunder,
(ii) During such 90-day liquidation period, and at or prior to
the time of making the final payment on the Certificates, the Trustee
shall sell all of the assets of the Trust Estate to the Owner 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 owners of the Class R Certificates all
cash on hand in the Trust Estate (other than cash retained to meet
claims), and the Trust Estate shall terminate at that time.
(c) By their acceptance of the Certificates, the Owners thereof hereby
agree to authorize the Trustee to specify the first day in the 90-day
liquidation period in a statement attached to the Trust Estate's final Tax
Return, which shall be binding upon all successor Owners.
(d) In connection with any such purchase, such Owners of the Class R
Certificates shall provide to the Trustee and the Certificate Insurer an opinion
of counsel at the expense of such Owners experienced in federal income tax
matters acceptable to the Certificate Insurer and the Trustee to the effect that
such purchase and liquidation constitutes a Qualified Liquidation of the Base
REMIC and the Upper-Tier REMIC.
(e) Promptly following any purchase described in this Section 9.02, the
Trustee will release the Files to the Owners of such Class R Certificates or the
Certificate Insurer, as the case may be, or otherwise upon their order, in a
manner similar to that described in Section 8.14 hereof.
Section 9.03 Termination Upon Loss of REMIC Status.
-------------------------------------
(a) Following a final determination by the Internal Revenue Service or
by a court of competent jurisdiction, in either case from which no appeal is
taken within the permitted time for such appeal, or if any appeal is taken,
following a final determination of such appeal from which no further appeal can
be taken, to the effect that either the Base REMIC or the Upper-Tier REMIC does
not and will no longer qualify as a REMIC pursuant to Section 860D of the Code
(the "Final Determination"), at any time on or after the date which is 30
calendar days following such Final Determination (i) the Certificate Insurer or
the Owners of a majority in Percentage Interests represented by the Class A
Certificates then Outstanding with the consent of the Certificate Insurer may
direct the Trustee on behalf of the Trust to adopt a plan of complete
liquidation, as contemplated by Section 860F(a)(4) of the Code and (ii) the
Certificate Insurer may notify the Trustee of the Certificate Insurer's
determination to purchase from the Trust all (but not fewer than all) Home
Equity Loans and all property theretofore acquired by foreclosure, deed in lieu
of foreclosure, or otherwise in respect of any Home Equity Loan then remaining
in the Trust Estate at a price equal to the sum of (x) the greater of (i) 100%
of the aggregate Loan Balances of the Home Equity Loans as of the day of
purchase minus amounts remitted from the Principal and Interest Account
representing collections of principal on the Home Equity Loans during the
current Remittance Period, and (ii) the fair market value of such Home Equity
Loans (dis-
102
<PAGE>
regarding accrued interest), (y) one month's interest on such amount computed at
the Adjusted Pass- Through Rate and (z) the aggregate amount of any unreimbursed
Delinquency Advances and Servicing Advances and any Delinquency Advances which
the Servicer has theretofore failed to remit.
Upon receipt of such direction from the Certificate Insurer, the
Trustee shall notify the Owners of the Class R Certificates of such election to
liquidate or such determination to purchase, as the case may be (the
"Termination Notice"). The Owners of a majority of the Percentage Interest of
the Class R Certificates then Outstanding may, within 60 days from the date of
receipt of the Termination Notice (the "Purchase Option Period"), at their
option, purchase from the Trust all (but not fewer than all) Home Equity Loans
and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise in respect of any Home Equity Loan then remaining in
the Trust Estate at a purchase price equal to the aggregate Loan Balances of all
Home Equity Loans as of the date of such purchase, plus (a) one month's interest
on such amount at the Adjusted Pass-Through Rate, (b) the aggregate amount of
any unreimbursed Delinquency Advances and Servicing Advances and (c) any
Delinquency Advances which the Servicer has theretofore failed to remit. If,
during the Purchase Option Period, the Owners of the Class R Certificates have
not exercised the option described in the immediately preceding paragraph, then
upon the expiration of the Purchase Option Period (i) in the event that the
Certificate Insurer or the Owners of the Class A Certificates with the consent
of the Certificate Insurer have given the Trustee the direction described in
clause (a)(i) above, the Servicer shall sell the Home Equity Loans and
distribute the proceeds of the liquidation of the Trust Estate, each in
accordance with the plan of complete liquidation, such that, if so directed, the
liquidation of the Trust Estate, the distribution of the proceeds of the
liquidation and the termination of this Agreement occur no later than the close
of the 60th day, or such later day as the Certificate Insurer or the Owners of
the Class A Certificates with the consent of the Certificate Insurer shall
permit or direct in writing, after the expiration of the Purchase Option Period
and (ii) in the event that the Certificate Insurer has given the Trustee notice
of the Certificate Insurer's determination to purchase the Trust Estate
described in clause (a)(ii) preceding the Certificate Insurer shall, within 60
days, purchase all (but not fewer than all) Home Equity Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure or otherwise in
respect of any Home Equity Loan then remaining in the Trust Estate. In
connection with such purchase, the Servicer shall remit to the Trustee all
amounts then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase.
(b) Following a Final Determination, the Owners of a majority of the
Percentage Interest of the Class R Certificates then Outstanding may, at their
option and upon delivery to the Certificate Insurer of an opinion of counsel
experienced in federal income tax matters, acceptable to the Certificate Insurer
and selected by the Owners of the Class R Certificates, which opinion shall be
reasonably satisfactory in form and substance to the Certificate Insurer, to the
effect that the effect of the Final Determination is to increase substantially
the probability that the gross income of the Trust will be subject to federal
taxation, purchase from the Trust all (but not fewer than all) Home Equity Loans
and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise in respect of any Home Equity Loan then remaining in
the Trust Estate at a purchase price equal to the aggregate Loan Balances of all
Home Equity Loans as of the date of such purchase, plus (a) one month's interest
on such amount computed at the Adjusted Pass-Through Rate, (b) the aggregate
amount of unreimbursed Delinquency Advances and (c) any Delinquency Advances
which the Servicer has theretofore failed to remit. In connection with such
purchase, the Servicer shall remit to the Trustee all amounts then on deposit in
the Principal and Interest Account for deposit to the Certificate Account, which
deposit shall be deemed to have occurred immediately preceding such purchase.
The foregoing opinion shall be deemed satisfactory unless the Certificate
Insurer gives the Owners of a majority of the Percentage Interest of the Class R
Certificates notice that such opinion is not satisfactory within thirty days
after receipt of such opinion.
103
<PAGE>
Section 9.04 Disposition of Proceeds.
------------------------
The Trustee shall, upon receipt thereof, deposit the proceeds of any
liquidation of the Trust Estate pursuant to this Article IX to the Certificate
Account; provided, however, that any amounts representing unreimbursed
Delinquency Advances and Servicing Advances theretofore funded by the Servicer
from the Servicer's own funds shall be paid by the Trustee to the Servicer from
the proceeds of the Trust Estate.
END OF ARTICLE IX
104
<PAGE>
ARTICLE X
THE TRUSTEE
Section 10.01 Certain Duties and Responsibilities.
------------------------------------
(a) The Trustee (i) (A) undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Trustee and (B) the
banking institution that is the Trustee shall serve as the Trustee at all times
under this Agreement, and (ii) in the absence of bad faith on its part, may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions or any other
resolutions, statements, reports, documents, orders or other instruments
furnished pursuant to and conforming to the requirements of this Agreement; but
in the case of any such certificates or opinions or any other resolutions,
statements, reports, documents, orders or other instruments which by any
provision hereof are specifically required to be furnished to the Trustee, shall
be under a duty to examine the same to determine whether or not they conform to
the requirements of this Agreement; provided, however, that the Trustee shall
not be responsible for the accuracy or content of any resolution, certificate,
statement, opinion, report, document, order or other instrument furnished by the
Servicer, the Certificate Insurer, the Seller or the Depositor hereunder. If any
such instrument is found not to conform in any material respect to the
requirements of this Agreement, the Trustee shall notify the Owners of the
Certificates of such instrument in the event that the Trustee, after so
requesting, does not receive a satisfactorily corrected instrument.
(b) Notwithstanding the appointment of the Servicer hereunder, the
Trustee is hereby empowered to perform the duties of the Servicer it being
expressly understood, however, that the foregoing describes a power and not an
obligation of the Trustee, and that all parties hereto agree that, prior to any
termination of the Servicer, the Servicer and, thereafter, the Trustee or any
other successor servicer shall perform such duties. Specifically, and not in
limitation of the foregoing, the Trustee shall upon termination or resignation
of the Servicer, and pending the appointment of any other Person as successor
Servicer have the power and duty during its performance as Successor Servicer:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Home Equity Loans;
(iii) to enforce due-on-sale clauses and to enter into assumption
and substitution agreements as permitted by Section 8.12
hereof;
(iv) to deliver instruments of satisfaction pursuant to Section
8.14;
(v) to enforce the Home Equity Loans; and
(vi) to make Delinquency Advances and Servicing Advances and to
pay Compensating Interest.
(c) 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, except that:
(i) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
105
<PAGE>
(ii) the Trustee shall not be personally liable for any error of
judgment made in good faith by an Authorized Officer, unless
it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in
accordance with the direction of the Certificate Insurer or
of the Owners of a majority in Percentage Interest of the
Certificates of the affected Class or Classes and the
Certificate Insurer 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 relating to such Certificates;
(iv) The Trustee shall not be required to take notice or be deemed
to have notice or knowledge of any default unless an
Authorized Officer of the Trustee shall have received written
notice thereof. In the absence of receipt of such notice, the
Trustee may conclusively assume that there is no default; and
(v) Subject to the other provisions of this Agreement and without
limiting the generality of this Section 10.01, the Trustee
shall have no duty (A) to see to any recording, filing, or
depositing of this Agreement or any agreement referred to
herein or any financing statement or continuation statement
evidencing a security interest, or to see to the maintenance
of any such recording or filing or depositing or to any
rerecording, refiling or redepositing of any thereof, (B) to
see to any insurance or (C) to see to the payment or
discharge of any tax, assessment, or other governmental
charge or any lien or encumbrance of any kind owing with
respect to, assessed or levied against, any part of the Trust
Estate from funds available in the Certificate Account.
(d) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
(e) No provision of this Agreement shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it. None of the provisions contained in this Agreement
shall in any event require the Trustee to perform, or be responsible for the
manner of performance of, any of the obligations of the Servicer under this
Agreement, except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges of,
the Servicer in accordance with the terms of this Agreement.
(f) The permissive right of the Trustee to take actions enumerated in
this Agreement shall not be construed as a duty and the Trustee shall not be
answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any suit, or
to take any remedial proceeding under this Agreement, or to take any steps in
the execution of the trusts hereby created or in the enforcement of any rights
and powers hereunder until it shall be indemnified to its satisfaction against
any and all costs and expenses, outlays and counsel fees and other reasonable
disbursements and against all liability, except liability which is adjudicated
to have resulted from its negligence or willful misconduct, in connection with
any action so taken.
106
<PAGE>
Section 10.02 Removal of Trustee for Cause.
----------------------------
(a) The Trustee may be removed pursuant to paragraph (b) hereof upon
the occurrence of any of the following events (whatever the reason for such
event and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners
entitled hereto on any Payment Date any amounts available for
distribution that it has received in accordance with the terms hereof;
(provided, however, that any such failure which is due to circumstances
beyond the control of the Trustee shall not be a cause for removal
hereunder); or
(2) the Trustee shall fail in the performance of, or breach,
any covenant or agreement of the Trustee in this Agreement, or if any
representation or warranty of the Trustee made in this Agreement or in
any certificate or other writing delivered pursuant hereto or in
connection herewith shall prove to be incorrect in any material respect
as of the time when the same shall have been made, and such failure or
breach shall continue or not be cured for a period of 30 days after
there shall have been given, by registered or certified mail, to the
Trustee by the Seller, the Certificate Insurer, or by the Owners of at
least 25% of the aggregate Percentage Interests in the Trust Estate
represented by the Class A Certificates then Outstanding, or, if there
are no Class A Certificates then Outstanding, by such Percentage
Interests represented by the Class R Certificates, a written notice
specifying such failure or breach and requiring it to be remedied; or
(3) a decree or order of a court or agency or supervisory
authority having jurisdiction for 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 Trustee, and such decree or order shall have remained in
force undischarged or unstayed for a period of 75 days; or
(4) a conservator or receiver or liquidator or sequestrator
or custodian of the property of the Trustee is appointed in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings of or relating to the Trustee or relating to all
or substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors, voluntarily suspend payment of its
obligations, or take corporate action for the purpose of any of the
foregoing.
The Depositor shall give to the Certificate Insurer, Moody's and
Standard & Poor's notice of the occurrence of any such event of which the
Depositor is aware.
(b) If any event described in Paragraph (a) occurs and is continuing,
then and in every such case (i) the Certificate Insurer or (ii) with the prior
written consent (which shall not be unreasonably withheld) of the Certificate
Insurer, the Depositor and the Owners of a majority of the Percentage Interests
represented by the Class A Certificates or if there are no Class A Certificates
then outstanding by such majority of the Percentage Interests represented by the
Class R Certificates, may, whether or not the Trustee resigns pursuant to
Section 10.09(b) hereof, immediately, concurrently with the giving of notice
107
<PAGE>
to the Trustee, and without delaying the 30 days required for notice therein,
appoint a successor Trustee pursuant to the terms of Section 10.09 hereof.
(c) The Servicer shall not be liable for any costs relating to the
removal of the Trustee or the appointment of a new Trustee.
Section 10.03 Certain Rights of the Trustee.
-----------------------------
Except as otherwise provided in Section 10.01 hereof:
(a) the Trustee (acting as Trustee or Tax Matters Person) may request
and may rely and shall be protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, note or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request or direction of the Depositor, the Seller, the
Certificate Insurer, or the Owners of any Class of Certificates mentioned herein
shall be sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel, and the advice of such
counsel (selected in good faith by the Trustee) shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request or direction of
any of the Owners pursuant to this Agreement, unless such Owners shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document, unless requested in writing to do so by the Owners; 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 cost, expense or liability
as a condition to taking any such action;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys
or custodian;
(h) the Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized by the
Authorized Officer of any Person or within its rights or powers under this
Agreement other than as to validity and sufficiency of its authentication of the
Certificates;
108
<PAGE>
(i) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the Trustee
shall not be answerable for other than its negligence or willful misconduct in
the performance of such act;
(j) pursuant to the terms of this Agreement, the Servicer is required
to furnish to the Trustee from time to time certain information and make various
calculations which are relevant to the performance of the Trustee's duties under
the Agreement. The Trustee shall be entitled to rely in good faith on any such
information and calculations in the performance of its duties hereunder, (i)
unless and until an Authorized Officer of the Trustee has actual knowledge, or
is advised by any Owner of a Certificate (either in writing or orally with
prompt written or telecopy confirmations), that such information or calculations
is or are incorrect, or (ii) unless there is a manifest error in any such
information; and
(k) the Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust Estate created hereby or the powers
granted hereunder.
Section 10.04 Not Responsible for Recitals or Issuance of Certificates.
--------------------------------------------------------
The recitals and representations contained herein and in the
Certificates, except the execution and authentication of the Certificates, shall
be taken as the statements of the Seller, and the Trustee assumes no
responsibility for their correctness (other than with respect to such execution
and authentication). The Trustee makes no representation as to the validity or
sufficiency of this Agreement, of the Certificates, or any Home Equity Loan or
document related thereto other than as to validity and sufficiency of its
authentication of the Certificates. The Trustee shall not be accountable for the
use or application by the Seller of any of the Certificates or of the proceeds
of such Certificates, or for the use or application of any funds paid to the
Depositor, the Seller or the Servicer in respect of the Home Equity Loans or
deposited into or withdrawn from the Principal and Interest Account or the
Certificate Account by the Depositor, the Servicer or the Seller, and shall have
no responsibility for filing any financing or continuation statement in any
public office at any time or otherwise to perfect or maintain the perfection of
any security interest or lien or to prepare or file any tax returns or
Securities and Exchange Commission filings for the Trust or to record this
Agreement. The Trustee shall not be required to take notice or be deemed to have
notice or knowledge of any default unless an Authorized Officer of the Trustee
shall have received written notice thereof or an Authorized Officer has actual
knowledge thereof. In the absence of receipt of such notice, the Trustee may
conclusively assume that no default has occurred.
Section 10.05 May Hold Certificates.
----------------------
The Trustee, any Paying Agent, Registrar or any other agent of the
Trust, in its individual or any other capacity, may become an Owner or pledgee
of Certificates and may otherwise deal with the Trust with the same rights it
would have if it were not Trustee, any Paying Agent, Registrar or such other
agent.
Section 10.06 Money Held in Trust.
--------------------
Money held by the Trustee in trust hereunder need not be segregated
from other trust funds except to the extent required herein or required by law.
The Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Seller and except to the extent of
income or other gain on investments which are deposits in or certificates of
deposit of the Trustee in its commercial capacity.
109
<PAGE>
Section 10.07 Compensation and Reimbursement.
------------------------------
The Trustee shall receive compensation for fees and reimbursement for
expenses pursuant to Section 2.05, Section 6.12, Section 7.03(c)(i), Section
7.06 and Section 10.13 hereof. 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 and held harmless against any loss, liability, or
"unanticipated out-of-pocket" expense incurred or paid to third parties (which
expenses shall not include salaries paid to employees, or allocable overhead, of
the Trustee) in connection with the acceptance or administration of its trusts
hereunder 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 hereunder or by reason of reckless disregard of
obligations and duties hereunder. All such amounts described in the preceding
sentence shall be payable as provided in (A) Section 7.03(c)(i) with respect to
the first $50,000 of such amounts and (B) Section 7.03(c)(iv)(E) with respect to
the remainder of such amounts, subject in the case of clause (B), to Sections
10.01(e) and 10.01(g). The Trustee and any director, officer, employee or agent
of the Trustee shall be indemnified by the Seller and held harmless against any
loss, liability or reasonable expenses incurred by the Trustee in performing its
duties as Tax Matters Person for the Base REMIC and the Upper-Tier REMIC under
this Agreement, other than any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of its duties as
Tax Matters Person for the Base REMIC and Upper-Tier REMIC. The provisions of
this Section 10.07 shall survive the termination of this Agreement.
Section 10.08 Corporate Trustee Required; Eligibility.
----------------------------------------
There shall at all times be a Trustee hereunder which shall be a
corporation or association organized and doing business under the laws of the
United States of America or of any State authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000 subject to supervision or examination by the United States of
America, acceptable to the Certificate Insurer and the Owners of a majority of
the Percentage Interests of the Class A Certificates and having a deposit rating
of at least A- from Standard & Poor's and A2 by Moody's. If such Trustee
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
or association shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall, upon the request of the Seller with the consent of the
Certificate Insurer (which consent shall not be unreasonably withheld) or of the
Certificate Insurer, resign immediately in the manner and with the effect
hereinafter specified in this Article X.
Section 10.09 Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until the
acceptance of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
resign at any time by giving written notice of resignation to the Depositor and
by mailing notice of resignation by first-class mail, postage prepaid, to the
Certificate Insurer and the Owners at their addresses appearing on the Register.
A copy of such notice shall be sent by the resigning Trustee to the Rating
Agencies. Upon receiving notice of resignation, the Depositor shall promptly
appoint a successor trustee or trustees acceptable to the Certificate Insurer by
written instrument, in duplicate, executed on behalf of the Trust by an
Authorized Officer of the Seller, one copy of which instrument shall be
delivered to the Trustee
110
<PAGE>
so resigning and one copy to the successor trustee or trustees. If no successor
trustee shall have been appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or any Owner may, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
appropriate, appoint a successor trustee.
(c) If at any time the Trustee shall cease to be eligible under Section
10.08 hereof and shall fail to resign after written request therefor by the
Depositor or by the Certificate Insurer, the Certificate Insurer or the
Depositor with the written consent of the Certificate Insurer may remove the
Trustee and appoint a successor trustee acceptable to the Certificate Insurer by
written instrument, in duplicate, executed on behalf of the Trust by an
Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(d) The Owners of a majority of the Percentage Interests represented by
the Class A Certificates with the consent of the Certificate Insurer, or, if
there are no Class A Certificates then Outstanding, by such majority of the
Percentage Interests represented by the Class R Certificates, may at any time
remove the Trustee and appoint a successor trustee acceptable to the Certificate
Insurer by delivering to the Trustee to be removed, to the successor trustee so
appointed, to the Depositor, to the Servicer and to the Certificate Insurer,
copies of the record of the act taken by the Owners, as provided for in Section
12.03 hereof.
(e) If the Trustee fails to perform its duties in accordance with the
terms of this Agreement, or becomes ineligible pursuant to Section 10.08 to
serve as Trustee, the Certificate Insurer may remove the Trustee and appoint a
successor trustee by written instrument, in triplicate, signed by the
Certificate Insurer duly authorized, one complete set of which instruments shall
be delivered to the Depositor, one complete set to the Trustee so removed and
one complete set to the successor Trustee so appointed.
(f) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
the Seller shall promptly appoint a successor trustee acceptable to the
Certificate Insurer and the Owner of the majority of Percentage Interests of the
Class A Certificates then Outstanding. If within one year after such
resignation, removal or incapability or the occurrence of such vacancy, a
successor trustee shall be appointed by act of the Certificate Insurer or the
Owners of a majority of the Percentage Interests represented by the Class A
Certificates then Outstanding with the consent of the Certificate Insurer, the
successor trustee so appointed shall forthwith upon its acceptance of such
appointment become the successor trustee and supersede the successor trustee
appointed by the Depositor. If no successor trustee shall have been so appointed
by the Depositor or the Owners and shall have accepted appointment in the manner
hereinafter provided, any Owner may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor trustee.
(g) The Seller shall give notice of any removal of the Trustee by
mailing notice of such event by first-class mail, postage prepaid, to the
Certificate Insurer, to the Rating Agencies and to the Owners as their names and
addresses appear in the Register. Each notice shall include the name of the
successor Trustee and the address of its corporate trust office.
111
<PAGE>
Section 10.10 Acceptance of Appointment by Successor Trustee.
----------------------------------------------
Every successor trustee appointed hereunder shall execute, acknowledge
and deliver to the Depositor on behalf of the Trust and to its predecessor
Trustee an instrument accepting such appointment hereunder and stating its
eligibility to serve as Trustee 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 vested with
all the rights, powers, trusts, duties and obligations of its predecessor
hereunder; but, on request of the Depositor or the successor Trustee, such
predecessor Trustee shall, upon payment of its charges then unpaid, execute and
deliver an instrument transferring to such successor trustee all of the rights,
powers and trusts of the Trustee so ceasing to act, and shall duly assign,
transfer and deliver to such successor trustee all property and money held by
such Trustee so ceasing to act hereunder. Upon request of any such successor
trustee, the Depositor on behalf of the Trust shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor trustee all such rights, powers and trusts.
Upon acceptance of appointment by a successor Trustee as provided in
this Section, the Depositor shall mail notice thereof by first-class mail,
postage prepaid, to the Owners at their last addresses appearing upon the
Register. The Depositor shall send a copy of such notice to the Rating Agencies.
If the Depositor 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 Trust.
No successor trustee shall accept its appointment unless at the time of
such acceptance such successor shall be qualified and eligible under this
Article X.
Section 10.11 Merger, Conversion, Consolidation or Succession to
Business of the Trustee.
---------------------------------------------------
Any corporation or association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee 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 such corporation or association shall be otherwise qualified and eligible
under this Article X. In case any Certificates have been executed, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such Trustee may adopt such execution and deliver the
Certificates so executed with the same effect as if such successor Trustee had
itself executed such Certificates.
Section 10.12 Reporting; Withholding.
-----------------------
(a) The Trustee shall timely provide to the Owners the Internal Revenue
Service's Form 1099 and any other statement required by applicable Treasury
regulations as determined by the Tax Matters Person, and shall withhold, as
required by applicable law, federal, state or local taxes, if any, applicable to
distributions to the Owners, including but not limited to backup withholding
under Section 3406 of the Code and the withholding tax on distributions to
foreign investors under Sections 1441 and 1442 of the Code.
(b) As required by law or upon request of the Tax Matters Person and
except as otherwise specifically set forth in (a) preceding, the Trustee shall
timely file all reports prepared by the Seller and required to be filed by the
Trust with any federal, state or local governmental authority having
jurisdiction over the Trust, including other reports that must be filed with the
Owners, such as the
112
<PAGE>
Internal Revenue Service's Form 1066 and Schedule Q and the form required under
Section 6050K of the Code, if applicable to REMICs. Furthermore, the Trustee
shall report to Owners, if required, with respect to the allocation of expenses
pursuant to Section 212 of the Code in accordance with the specific instructions
to the Trustee by the Seller with respect to such allocation of expenses. The
Trustee shall, upon request of the Seller, collect any forms or reports from the
Owners determined by the Seller to be required under applicable federal, state
and local tax laws.
(c) Except as otherwise provided, the Trustee shall have the
responsibility for preparation and execution of those returns, forms, reports
and other documents referred to in this Section.
(d) The Seller covenants and agrees that it shall provide to the
Trustee any information necessary to enable the Trustee to meet its obligations
under subsections (a), (b) and (c) above.
Section 10.13 Liability of the Trustee.
--------------------------
The Trustee shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by the Trustee
herein. Neither the Trustee nor any of the directors, officers, employees or
agents of the Trustee shall be under any liability on any Certificate or
otherwise to the Certificate Account, the Depositor, the Seller, the Servicer or
any Owner 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 Trustee, its directors,
officers, employees or agents or any such Person against any liability which
would otherwise be imposed by reason of negligent action, negligent failure to
act or willful misconduct in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. Subject to the foregoing
sentence, the Trustee shall not be liable for losses on investments of amounts
in the Certificate Account (except for any losses on obligations on which the
bank serving as Trustee is the obligor). In addition, the Depositor, the Seller
and Servicer covenant and agree to indemnify the Trustee and the Servicer (if
the Servicer is also the Trustee) from, and hold it harmless against, any and
all losses, liabilities, damages, claims or expenses (including legal fees and
expenses) of whatsoever kind arising out of or in connection with the
performance of its duties hereunder other than those resulting from the
negligence or bad faith of the Trustee, and the Seller shall pay all amounts not
otherwise paid or reimbursed pursuant to Sections 2.05, 6.12 and 7.06 hereof.
The Trustee and any director, officer, employee or agent of the Trustee may rely
and shall be protected in acting or refraining from acting in good faith on any
certificate, notice or other document of any kind prima facie properly executed
and submitted by the Authorized Officer of any Person respecting any matters
arising hereunder. The provisions of this Section 10.13 shall survive the
termination of this Agreement and the payment of the outstanding Certificates.
Section 10.14 Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Estate or Property may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee and reasonably acceptable to the Certificate Insurer to act as
Co-Trustee or Co-Trustees, jointly with the Trustee, of all or any part of the
Trust Estate or separate Trustee or separate Trustees of any part of the Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Owners, such title to the Trust Estate, or any part thereof, and,
subject to the other provisions of this Section 10.14, such powers, duties,
obligations, rights and trusts as the Servicer and the Trustee may consider
necessary or desirable. If the Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, or in
the case any event indicated in Section 8.20(a) shall have occurred and be
continuing, the
113
<PAGE>
Trustee subject to reasonable approval of the Certificate Insurer alone shall
have the power to make such appointment. No Co-Trustee or separate Trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 10.08 and no notice to Owner of the appointment of any
Co-Trustee or separate Trustee shall be required under Section 10.09.
Every separate Trustee and Co-Trustee shall, to the extent permitted,
be appointed and act subject to the following provisions and conditions:
(i) 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 (it being understood that such separate Trustee or
Co-Trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the 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 Estate or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate Trustee or Co-Trustee, but solely at
the direction of the Trustee;
(ii) No Co-Trustee hereunder shall be held personally liable
by reason of any act or omission of any other Co-Trustee hereunder; and
(iii) The Servicer, and the Certificate Insurer and the
Trustee acting jointly may at any time accept the resignation of or
remove any separate Trustee or Co-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 Section 10.14. 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 and a copy thereof given to the
Servicer.
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.
The parties hereto acknowledge that the Co-Trustee will act as
co-trustee hereunder pursuant to the Co-Trustee Agreement and shall be entitled
to the same rights and subject to the same standards as the Trustee with respect
to all rights and immunities of the Trustee, including with respect to
indemnification and the obligations and duties of the Servicer to the Trustee
pursuant to Sections 2.05, 8.05, 10.07 and 11.16(a). The Trustee shall pay the
Co-Trustee any compensation to which the Co-Trustee may be entitled from its
own funds.
END OF ARTICLE X
114
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.01 Compliance Certificates and Opinions.
-------------------------------------
Upon any application or request by the Depositor, the Seller, the
Certificate Insurer or the Owners to the Trustee to take any action under any
provision of this Agreement, the Depositor, the Seller, the Certificate Insurer
or the Owners, as the case may be, shall furnish to the Trustee a certificate
stating that all conditions precedent, if any, provided for in this Agreement
relating to the proposed action have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate need be furnished.
Except as otherwise specifically provided herein, each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Agreement (including one furnished pursuant to specific requirements of
this Agreement relating to a particular application or request) shall include:
(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; and
(c) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 11.02 Form of Documents Delivered to the Trustee.
------------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Trustee may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by counsel, unless such Authorized Officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of an Authorized
Officer of the Trustee or any opinion of counsel may be based, insofar as it
relates to factual matter upon a certificate or opinion of, or representations
by, one or more Authorized Officers of the Depositor, the Seller or the
Servicer, stating that the information with respect to such factual matters is
in the possession of the Depositor, the Seller or the Servicer, unless such
Authorized Officer or counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous. Any opinion of counsel may also be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Authorized Officer of the Trustee, stating that the
information with respect to such matters is in the possession of the Trustee,
unless such counsel knows, or in the exercise
115
<PAGE>
of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous. Any opinion of
counsel may be based on the written opinion of other counsel, in which event
such opinion of counsel shall be accompanied by a copy of such other counsel's
opinion and shall include a statement to the effect that such counsel believes
that such counsel and the Trustee may reasonably rely upon the opinion of such
other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 11.03 Acts of Owners.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by the
Owners may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Owners in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee, and, where it is hereby expressly required, to the Seller. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "act" of the Owners signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Agreement and conclusive in favor of the Trustee and the Trust, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Certificates shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Certificate shall bind the Owner of
every Certificate issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Trust in reliance thereon, whether or
not notation of such action is made upon such Certificates.
Section 11.04 Notices, etc. to Trustee.
-------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or act of the Owners or other documents provided or permitted by this Agreement
to be made upon, given or furnished to, or filed with the Trustee by any Owner,
the Certificate Insurer, the Depositor, the Seller shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing to or with and
received by the Trustee at its Corporate Trust Office as set forth in Section
2.02 hereof.
116
<PAGE>
Section 11.05 Notices and Reports to Owners; Waiver of Notices.
------------------------------------------------
Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided. Notwithstanding the foregoing, if the Servicer
is removed or resigned or the Trust is terminated, notice of any such events
shall be made by overnight courier, registered mail or telecopy followed by a
telephone call.
Where this Agreement provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Owners shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Owners when such notice is required to be given
pursuant to any provision of this Agreement, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Agreement provides for notice to any rating agency that
rated any Certificates, failure to give such notice shall not affect any other
rights or obligations created hereunder.
Section 11.06 Rules by Trustee and Seller.
---------------------------
The Trustee may make reasonable rules for any meeting of Owners.
Section 11.07 Successors and Assigns.
-----------------------
All covenants and agreements in this Agreement by any party hereto
shall bind its successors and assigns, whether so expressed or not.
Section 11.08 Severability.
-------------
In case any provision in this Agreement or in the Certificates shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.09 Benefits of Agreement.
----------------------
Nothing in this Agreement or in the Certificates, expressed or implied,
shall give to any Person, other than the Owners, the Certificate Insurer and the
parties hereto and their successors hereunder, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
117
<PAGE>
Section 11.10 Legal Holidays.
---------------
In any case where the date of any Monthly Remittance Date, any Payment
Date, any other date on which any distribution to any Owner is proposed to be
paid, or any date on which a notice is required to be sent to any Person
pursuant to the terms of this Agreement shall not be a Business Day, then
(notwithstanding any other provision of the Certificates or this Agreement)
payment or mailing need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made or mailed on
the nominal date of any such Monthly Remittance Date, such Payment Date, or such
other date for the payment of any distribution to any Owner or the mailing of
such notice, as the case may be, and no interest shall accrue for the period
from and after any such nominal date, provided such payment is made in full on
such next succeeding Business Day.
Section 11.11 Governing Law; Submission to Jurisdiction.
-----------------------------------------
(a) In view of the fact that Owners are expected to reside in many
states and outside the United States and the desire to establish with certainty
that this Agreement will be governed by and construed and interpreted in
accordance with the law of a state having a well-developed body of commercial
and financial law relevant to transactions of the type contemplated herein, this
Agreement and each Certificate shall be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed therein, without giving effect to the conflicts of law
principles thereof.
(b) The parties hereto hereby irrevocably submit to the jurisdiction of
the United States District Court for the Southern District of New York and any
court in the State of New York located in the City and County of New York, and
any appellate court from any thereof, in any action, suit or proceeding brought
against it or in connection with this Agreement or any of the related documents
or the transactions contemplated hereunder or for recognition or enforcement of
any judgment, and the parties hereto hereby irrevocably and unconditionally
agree that all claims in respect of any such action or proceeding may be heard
or determined in such New York State court or, to the extent permitted by law,
in such federal court. The parties hereto agree that a final judgment in any
such action, suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. To
the extent permitted by applicable law, the parties hereto hereby waive and
agree not to assert by way of motion, as a defense or otherwise in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such courts, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that the related documents or the subject matter thereof may not be
litigated in or by such courts.
(c) Each of the Depositor, Seller and Servicer hereby irrevocably
appoints and designates the Trustee as its true and lawful attorney and duly
authorized agent for acceptance of service of legal process with respect to any
action, suit or proceeding set forth in paragraph (b) hereof. Each of the Seller
and Servicer agrees that service of such process upon the Trustee shall
constitute personal service of such process upon it.
(d) Nothing contained in this Agreement shall limit or affect the right
of the Depositor, the Seller, the Servicer or the Certificate Insurer or
third-party beneficiary hereunder, as the case may be, to serve process in any
other manner permitted by law or to start legal proceedings relating to any of
the Home Equity Loans against any Mortgagor in the courts of any jurisdiction.
118
<PAGE>
Section 11.12 Counterparts.
-------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 11.13 Usury.
------
The amount of interest payable or paid on any Certificate under the
terms of this Agreement shall be limited to an amount which shall not exceed the
maximum nonusurious rate of interest allowed by the applicable laws of the State
of New York or any applicable law of the United States permitting a higher
maximum nonusurious rate that preempts such applicable New York laws, which
could lawfully be contracted for, charged or received (the "Highest Lawful
Rate"). In the event any payment of interest on any Certificate exceeds the
Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed
to have been paid to the Owner of such Certificate as a result of an error on
the part of the Trustee acting on behalf of the Trust and the Owner receiving
such excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Trustee on behalf of the Trust, refund the amount of such
excess or, at the option of such Owner, apply the excess to the payment of
principal of such Certificate, if any, remaining unpaid. In addition, all sums
paid or agreed to be paid to the Trustee for the benefit of Owners of
Certificates for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Certificates.
Section 11.14 Amendment.
----------
(a) The Trustee, the Depositor, the Seller and the Servicer, may at any
time and from time to time, with the prior approval of the Certificate Insurer
but without the giving of notice to or the receipt of the consent of the Owners,
amend this Agreement, and the Trustee shall consent to the amendment for the
purposes of (i) if accompanied by an approving opinion of counsel which shall
not be at the expense of the Trustee experienced in federal income tax matters,
removing the restriction against the transfer of a Class R Certificate to a
Disqualified Organization (as such term is defined in the Code), (ii) complying
with the requirements of the Code including any amendments necessary to maintain
REMIC status of either the Base REMIC or the Upper-Tier REMIC, (iii) curing any
ambiguity, (iv) correcting or supplementing any provisions of this Agreement
which are inconsistent with any other provisions of this Agreement or (v) for
any other purpose, provided that in the case of clause (v), (A) the Seller
delivers an opinion of counsel acceptable to the Trustee which shall not be at
the expense of the Trustee that such amendment will not adversely effect in any
material respect the interest of the Owners and (B) such amendment will not
result in a withdrawal or reduction of the rating of the Class A Certificates
without regard to the Certificate Insurance Policy. Notwithstanding anything to
the contrary, no such amendment shall (a) change in any manner the amount of, or
delay the timing of, payments which are required to be distributed to any Owner
without the consent of the Owner of such Certificate, (b) change the percentages
of Percentage Interest which are required to consent to any such amendments,
without the consent of the Owners of all Certificates of the Class or Classes
affected then outstanding or (c) which affects in any manner the terms or
provisions of the Certificate Insurance Policy.
(b) The Certificate Insurer and the Rating Agencies shall be provided
by the Seller with copies of any amendments to this Agreement, together with
copies of any opinions or other documents or instruments executed in connection
therewith.
119
<PAGE>
(c) Notwithstanding any contrary provisions 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 pursuant to the REMIC Provisions or cause the
Base REMIC or the Upper-Tier REMIC to fail to qualify as a REMIC at any time
that any of the Certificates are outstanding.
Section 11.15 Paying Agent; Appointment and Acceptance of Duties.
--------------------------------------------------
The Trustee is hereby appointed Paying Agent. The Seller may, subject
to the eligibility requirements for the Trustee set forth in Section 10.08
hereof, including, without limitation, the written consent of the Certificate
Insurer, appoint one or more other Paying Agents or successor Paying Agents.
Each Paying Agent, immediately upon such appointment, shall signify its
acceptance of the duties and obligations imposed upon it by this Agreement by
written instrument of acceptance deposited with the Trustee.
Each such Paying Agent other than the Trustee shall execute and deliver
to the Trustee an instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of Section 6.02, that such Paying Agent will:
(a) allocate all sums received for distribution to the Owners
of Certificates of each Class for which it is acting as Paying Agent on
each Payment Date among such Owners in the proportion specified by the
Trustee; and
(b) hold all sums held by it for the distribution of amounts
due with respect to the Certificates in trust for the benefit of the
Owners entitled thereto until such sums shall be paid to such Owners or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided.
Any Paying Agent other than the Trustee may at any time resign and be
discharged of the duties and obligations created by this Agreement by giving at
least sixty (60) days written notice to the Trustee. Any such Paying Agent may
be removed at any time by an instrument filed with such Paying Agent and signed
by the Trustee.
In the event of the resignation or removal of any Paying Agent other
than the Trustee such Paying Agent shall pay over, assign and deliver any moneys
held by it as Paying Agent to its successor, or if there be no successor, to the
Trustee.
Upon the appointment, removal or notice of resignation of any Paying
Agent, the Trustee shall notify the Certificate Insurer and the Owners by
mailing notice thereof at their addresses appearing on the Register.
Section 11.16 REMIC Status.
-------------
(a) The parties hereto intend that the Base REMIC and the Upper-Tier
REMIC shall constitute, and that the affairs of the Base REMIC and the
Upper-Tier REMIC shall be conducted so as to qualify each as a REMIC in
accordance with the REMIC Provisions. In furtherance of such intention,
_______________ or such other person designated pursuant to Section 11.18 hereof
shall act as agent for the Trust and as Tax Matters Person for the Trust and
that in such capacity it shall: (i) prepare or cause to be prepared and filed,
at its own expense, in a timely manner, annual tax returns and any other tax
120
<PAGE>
return required to be filed by the Base REMIC and the Upper-Tier REMIC using a
calendar year as the taxable year for the Base REMIC and the Upper-Tier REMIC;
(ii) in the related first such tax return, make (or cause to be made) an
election satisfying the requirements of the REMIC Provisions, on behalf of the
Base REMIC and the Upper-Tier REMIC, for each to be treated as a REMIC; (iii) at
the Tax Matters Person's expense, prepare and forward, or cause to be prepared
and forwarded, to the Owners all information, reports or tax returns required
with respect to the Base REMIC and the Upper-Tier REMIC, including Schedule Q to
Form 1066, as, when and in the form required to be provided to the Owners, and
to the Internal Revenue Service and any other relevant governmental taxing
authority in accordance with the REMIC Provisions and any other applicable
federal, state or local laws, including without limitation information reports
relating to "original issue discount" as defined in the Code based upon the
prepayment assumption and calculated by using the "Issue Price" (within the
meaning of Section 1273 of the Code) of the Certificates of the related Class;
provided that the tax return filed on Schedule Q to Form 1066 shall be prepared
and forwarded to the Owners of the Class R Certificates and to the Owners of the
Base REMIC Residual Class no later than 50 days after the end of the period to
which such tax return related; (iv) not take any action or omit to take any
action that would cause the termination of the REMIC status of the Base REMIC or
the Upper-Tier REMIC, except as provided under this Agreement; (v) represent,
the Trust, the Base REMIC or the Upper-Tier REMIC in any administrative or
judicial proceedings relating to an examination or audit by any governmental
taxing authority, request an administrative adjustment as to a taxable year of
the Trust, the Base REMIC or the Upper-Tier REMIC, enter into settlement
agreements with any governmental taxing agency, extend any statute of
limitations relating to any tax item of the Trust, the Base REMIC or the
Upper-Tier REMIC, and otherwise act on behalf of the Trust, the Base REMIC or
the Upper-Tier REMIC in relation to any tax matter involving the Trust, the Base
REMIC or the Upper-Tier REMIC (the legal expenses and costs of any such action
described in this subsection (v) and any liability resulting therefrom shall
constitute expenses of the Trust and the Trustee shall be entitled to
reimbursement therefor as provided in Section 7.03(c)(i) unless such legal
expenses and costs are incurred by reason of the Trustee's willful misfeasance,
bad faith or negligence); (vi) comply with all statutory or regulatory
requirements with regard to its conduct of activities pursuant to the foregoing
clauses of this Section 11.16, including, without limitation, providing all
notices and other information to the Internal Revenue Service and Owners of
Class R Certificates required of a "tax matters person" pursuant to subtitle F
of the Code and the Treasury Regulations thereunder and the Owners of the Base
REMIC Residual Class; (vii) make available information necessary for the
computation of any tax imposed (A) on transferor of residual interests to
certain Disqualified Organizations or (B) on pass-through entities, any interest
in which is held by a Disqualified Organization; and (viii) acquire and hold the
Tax Matters Person Residual Interest. The obligations of the Trustee or such
other designated Tax Matters Person pursuant to this Section 11.16 shall survive
the termination or discharge of this Agreement.
In addition to the foregoing, the Tax Matters Person shall prepare and
forward, or cause to be prepared and forwarded, to the Seller as long as it is
an Owner of a Class R Certificate or an interest in the Base REMIC Residual
Class, each year, beginning in ________ 199_, on or before the twenty-seventh
day (or if such day is not a business day, on the next succeeding business day)
of the month of (1) April 1 (beginning in 199__), with respect to the period
January 1 to March 31, (2) May, with respect to the period _____ 1 to ___ 31,
(3) August, with respect to the period June 1 to August 31 and (4) December,
with respect to the period September 1 to December 31, an estimate of such
Owner's allocable portion of taxable income or net loss, excess inclusions and
investment expenses for the related period to the extent such amounts are
required to be furnished on Schedule Q to Form 1066. Such estimates shall be
made to the extent of and based upon information provided to the Tax Matters
Person by the Servicer (which information may consist of actual information
related to payments received on the Home Equity Loans, except that the estimate
with respect to any month for which actual information is not available may be
based on the payment history for prior months and an assumption of prepayments
of the Home
121
<PAGE>
Equity Loans as provided by the Servicer). The legal expenses and costs of any
action or proceeding resulting from or relating to the estimates provided by the
Tax Matters Person pursuant to this Section 11.16(a) and any liability resulting
therefrom shall constitute expenses of the Servicer and the Trustee shall be
entitled to reimbursement therefor from the Servicer unless such legal expenses,
costs or liability are incurred by reason of the Trustee willful misfeasance,
bad faith or gross negligence.
(b) The Seller, the Depositor, the Trustee and the Servicer covenant
and agree for the benefit of the Owners and the Certificate Insurer (i) to take
no action which would result in the termination of REMIC status for the Base
REMIC or the Upper-Tier REMIC, (ii) not to engage in any "prohibited
transaction", as such term is defined in Section 860F(a)(2) of the Code, (iii)
not to engage in any other action which may result in the imposition on the
Trust of any other taxes under the Code and (iv) to cause the Servicer not to
take or engage in any such action, to the extent the Seller is aware of any such
proposed action by the Servicer.
(c) The Base REMIC and the Upper-Tier REMIC shall, for federal income
tax purposes, maintain books on a calendar year basis and report income on an
accrual basis.
(d) Except as otherwise permitted by Section 7.05(b), no Eligible
Investment shall be sold prior to its stated maturity (unless sold pursuant to a
plan of liquidation in accordance with Article IX hereof).
(e) Neither the Depositor, the Seller nor the Trustee shall enter into
any arrangement by which the Trustee will receive a fee or other compensation
for services rendered pursuant to this Agreement, other than as expressly
contemplated by this Agreement.
(f) Notwithstanding the foregoing clauses (d) and (e), the Trustee or
the Seller may engage in any of the transactions prohibited by such clauses,
provided that the Trustee shall have received an opinion of counsel experienced
in federal income tax matters acceptable to the Certificate Insurer to the
effect that such transaction does not result in a tax imposed on the Trustee or
cause a termination of REMIC status for the Base REMIC and the Upper-Tier REMIC;
provided, however, that such transaction is otherwise permitted under this
Agreement.
(g) In the event that any tax is imposed on "prohibited transactions"
of the Trust created hereunder as defined in Section 860F(a)(2) of the Code, on
"net income from foreclosure property" of the Trust as defined in Section
860G(c) of the Code, on any contributions to the Trust after the Startup Date
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 if such tax arises out of or results from the
willful misfeasance, bad faith or negligence in performance by the Trustee of
any of its obligations under Article X, (ii) to the Servicer if such tax arises
out of or results from a breach by the Servicer of any of its obligations under
Article VIII or otherwise (iii) against amounts on deposit in the Certificate
Account and shall be paid by withdrawal therefrom.
Section 11.17 Additional Limitation on Action and Imposition of Tax.
-----------------------------------------------------
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained an opinion of counsel experienced in
federal income tax matters acceptable to the Certificate Insurer at the expense
of the party seeking to take such action but in no event at the expense of the
Trust to the effect that such transaction does not result in a tax imposed on
the Trust or any REMIC or cause a termination of REMIC status for the Base REMIC
or the Upper-Tier REMIC, (i) sell any assets in the Trust Estate, (ii) accept
any contribution of assets after the Startup Day (other than
122
<PAGE>
Subsequent Home Equity Loans) or (iii) agree to any modification of this
Agreement. To the extent that sufficient amounts cannot be so retained to pay or
provide for the payment of such tax, the Trustee is hereby authorized to and
shall segregate, into a separate non-interest bearing account, the net income
from any such Prohibited Transactions of the Base REMIC or the Upper-Tier REMIC
and use such income, to the extent necessary, to pay such tax; provided that, to
the extent that any such income is paid to the Internal Revenue Service, the
Trustee shall retain an equal amount from future amounts otherwise distributable
to the Owners of Class R Certificates and shall distribute such retained amounts
to the Owners of Class A Certificates to the extent they are fully reimbursed
and then to the Owners of the Class R Certificates. If any tax, including
interest penalties or assessments, additional amounts or additions to tax, is
imposed on the Trust, such tax shall be charged against amounts otherwise
distributable to the owners of the Class R Certificates on a pro rata basis. The
Trustee is hereby authorized to and shall retain from amounts otherwise
distributable to the Owners of the Class R Certificates sufficient funds to pay
or provide for the payment of, and to actually pay, such tax as is legally owed
by the Trust (but such authorization shall not prevent the Trustee from
contesting any such tax in appropriate proceedings, and withholding payment of
such tax, if permitted by law, pending the outcome of such proceedings).
Section 11.18 Appointment of Tax Matters Person.
---------------------------------
A Tax Matters Person will be appointed for each of the Base REMIC and
the Upper-Tier REMIC for all purposes of the Code and such Tax Matters Person
will perform, or cause to be performed, such duties and take, or cause to be
taken, such actions as are required to be performed or taken by the Tax Matters
Person under the Code. The Tax Matters Person for the Base REMIC and the
Upper-Tier REMIC shall be the Trustee as long as it owns a Class R Certificate.
If the Trustee does not own a Class R Certificate or assigns its interest in the
Base REMIC Residual Class, the Tax Matters Person may be any other entity that
owns a Class R Certificate or is the assignee of such Base REMIC Residual Class
and accepts a designation hereunder as Tax Matters person by delivering an
affidavit in the form of Exhibit I.
Section 11.19 The Certificate Insurer.
------------------------
Any right conferred to the Certificate Insurer hereunder shall be
suspended and shall run to the benefit of the Owners during any period in which
there exists a Certificate Insurer Default; provided, that the right of the
Certificate Insurer to receive the Premium Amount shall not be suspended if such
Certificate Insurer Default was a default other than a default under clause (a)
of the definition thereof. At such time as the Class A Certificates and Class S
Certificates and are no longer Outstanding hereunder and the Certificate Insurer
has received all Reimbursement Amounts, the Certificate Insurer's rights
hereunder shall terminate.
Section 11.20 Maintenance of Security Interest.
---------------------------------
(a) The Owners of the Class R Certificates (except _______________)
shall each execute and file such financing statements and cause to be executed
and filed such continuation statements, all in such manner and in such places as
may be required by law fully to preserve, maintain, and protect the interest of
the Trustee under this Agreement in the Total Monthly Excess Cashflow and in the
proceeds thereof. The Owners of the Class R Certificates shall each deliver (or
cause to be delivered) to the Trustee file- stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.
123
<PAGE>
(b) No Owner of Class R Certificates (except _______________) shall
change its name, identity, address or corporate structure in any manner that
would, could, or might make any financing statement or continuation statements
filed by such Owner in accordance with paragraph (a) above seriously misleading
within the meaning of ss. 9-402(7) of the UCC, unless it shall have theretofore
filed amendments to such statements reflecting such change and shall have given
the Trustee at least 15 days' prior written notice thereof.
(c) The Depositor and each Owner of a Class R Certificate shall
continuously keep an original executed counterpart of this Agreement in its
official records.
Section 11.21 Third Party Rights.
-------------------
The Trustee, the Seller, the Depositor and the Owners agree that the
Certificate Insurer shall be deemed a third-party beneficiary of this Agreement
as if it were a party hereto.
Section 11.22 Notices.
--------
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
The Trustee:
------------
The Depositor:
-------------- IMC Securities, Inc.
3450 Bushwood Park Drive
Tampa, FL 33618
The Seller:
----------- Industry Mortgage Company, L.P.
3450 Bushwood Park Drive
Tampa, FL 33618
(813) 932-2211
(813) 932-8257 - Fax
The Servicer:
------------- Industry Mortgage Company, L.P.
3450 Bushwood Drive
Tampa, FL 33618
(813) 932-2211
(813) 932-8257 - Fax
124
<PAGE>
The Certificate
---------------
Insurer:
--------
The Underwriters
----------------
Moody's:
-------- Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: The Mortgage
Monitoring Department
Tel: (212) 553-0300
Fax: (212) 553-0355
Standard & Poor's:
------------------ Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies
26 Broadway
15th Floor
New York, New York 10004
Attention: Residential Mortgage Group
Tel: (212) 208-8000
Fax: (212) 208-8365
Section 11.23 Rule 144A Information. For so long as any of the Class S
or Class R Certificates are "restricted securities" within the meaning of Rule
144A under the Securities Act, the Servicer agrees to provide to any Class S or
Class R Certificateholder and to any prospective purchaser of Class S or Class R
Certificates designated by such a Certificateholder, upon the request of such
Certificateholder or prospective purchaser, the information specified below
which is intended to satisfy the condition set forth in Rule 144A(d)(4) under
the Securities Act; provided that this Section 11.23 shall require, as to the
Trustee or the Servicer, only that the Servicer provide publicly available
information regarding it or the Trustee in response to any such request; and
provided further that the Servicer shall be obligated to provide only such
basic, material information concerning the structure of the Class S or Class R
Certificates and distributions thereon, the nature, performance and servicing of
the Home Equity Loans supporting the Certificates, and any credit enhancement
mechanism, if any, associated with the Certificates. Any recipient of
information provided pursuant to this Section 11.23 shall agree that such
information shall not be disclosed or used for any purpose other than the
evaluation of the Class S or Class R Certificates by the prospective purchaser.
The Trustee shall have no responsibility for the
125
<PAGE>
sufficiency under Rule 144A of any information so provided by the Servicer to
any Certificateholder or prospective purchaser of Class S or Class R
Certificates.
END OF ARTICLE XI
126
<PAGE>
ARTICLE XII
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
Section 12.01 Trust Estate and Accounts Held for Benefit of the
Certificate Insurer.
--------------------------------------------------
The Trustee shall hold the Trust Estate for the benefit of the related
Owners and the Certificate Insurer and all references in this Agreement and in
the Certificates to the benefit of Owners of the Certificates shall be deemed to
include the Certificate Insurer. The Trustee shall cooperate in all reasonable
respects with any reasonable request by the Certificate Insurer for action to
preserve or enforce the Certificate Insurer's rights or interests under this
Agreement and the Certificates.
The Servicer hereby acknowledges and agrees that it shall service and
administer the Home Equity Loans and any REO Properties, and shall maintain the
Principal and Interest Account, for the benefit of the Owners and for the
benefit of the Certificate Insurer, and all references in this Agreement to the
benefit of or actions on behalf of the Owners shall be deemed to include the
Certificate Insurer. Unless a Certificate Insurer Default exists, the Servicer
shall not terminate any Sub-Servicing Agreements without cause without the prior
consent of the Certificate Insurer.
Section 12.02 Claims Upon the Policy; Policy Payments Account.
-----------------------------------------------
(a) If on the Determination Date, the funds then on deposit
in the Certificate Account, are insufficient to pay the Insured Payments on such
Payment Date, the Trustee shall give notice to the Certificate Insurer by
telephone or telecopy of the amount of such deficiency, confirmed in writing in
the form set forth as Exhibit A to the Endorsement of the Certificate Insurance
Policy, to the Certificate Insurer and the Fiscal Agent (as defined in the
Certificate Insurance Policy), if any, at or before 9:00 a.m., New York City
time, on the second Business Day prior to such Payment Date.
(b) The Trustee shall establish a separate special purpose
trust account for the benefit of the Owners of the Class A Certificates and the
Class S Certificates and the Certificate Insurer referred to herein as the
"Policy Payments Account" over which the Trust shall have exclusive control and
sole right of withdrawal. The Trustee shall deposit any amount paid under the
Certificate Insurance Policy in the Policy Payments Account and distribute such
amount only for purposes of payment to the Owners of the Class S Certificates
and the Class A Certificates of the Insured Payments for which a claim was made
and such amount may not be applied to satisfy any costs, expenses or liabilities
of the Servicer, the Trustee or the Trust. Amounts paid under the Certificate
Insurance Policy shall be transferred to the Certificate Account in accordance
with the next succeeding paragraph and disbursed by the Trustee to Owners of the
Class A Certificates and the Class S Certificates in accordance with Section
7.03. It shall not be necessary for such payments to be made by checks or wire
transfers separate from the checks or wire transfers used to pay the Insured
Payments with other funds available to make such payment. However, the amount of
any payment of principal of or interest on the related Class A Certificates or
Class S Certificates to be paid from funds transferred from the Policy Payments
Account shall be noted as provided in paragraph (c) below in the Register and in
the statement to be furnished to Owners of the Class A Certificates and the
Class S Certificates pursuant to Section 7.08. Funds held in the Policy Payments
Account shall not be invested by the Trustee.
On any Payment Date with respect to which a claim has been
made under the Insurance Policy, the amount of funds received by the Trustee as
a result of any claim under the Insurance Policy, to the extent required to make
the Insured Payment on such Payment Date shall be withdrawn from the Policy
Payments Account and deposited in the Certificate Account and applied by the
Trustee, together
127
<PAGE>
with the other funds to be withdrawn from the Certificate Account, directly to
the payment in full of the Insured Payment due on the related Class of Class A
Certificates, and Class S Certificates. Funds received by the Trustee as a
result of any claim under the Insurance Policy shall be deposited by the Trustee
in the Policy Payments Account and used solely for payment to the Owners of the
Class A Certificates and the Class S Certificates may not be applied to satisfy
any costs, expenses or liabilities of the Servicer, the Trustee or the Trust.
Any funds remaining in the Policy Payments Account on the first Business Day
following a Payment Date shall be remitted to the Certificate Insurer, pursuant
to the instructions of the Certificate Insurer, by the end of such Business Day.
(c) The Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of any Class A Certificate
and Class S Certificate from moneys received under the Certificate Insurance
Policy. The Certificate Insurer shall have the right to inspect such records at
reasonable times during normal business hours upon one Business Day's prior
notice to the Trustee.
(d) The Trustee shall promptly notify the Certificate Insurer
and Fiscal Agent of any proceeding or the institution of any action, of which an
Authorized Officer of the Trustee has actual knowledge, seeking the avoidance as
a preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law (a "Preference Claim") of any distribution made with respect to the
Class A Certificates and Class S Certificates. Each Owner of a Class A
Certificate or Class S Certificate by its purchase of such Certificate, the
Servicer and the Trustee hereby agree that, the Certificate Insurer (so long as
no Certificate Insurer Default exists) may at any time during the continuation
of any proceeding relating to a Preference Claim direct all matters relating to
such Preference Claim, including without limitation, (i) the direction of any
appeal of any order relating to such Preference Claim and (ii) the posting of
any surety, supersedeas or performance bond pending any such appeal. In addition
and without limitation of the foregoing, the Certificate Insurer shall be
subrogated to the rights of the Servicer, the Trustee and Owner of Class A
Certificate or Class S Certificate in the conduct of any such Preference Claim,
including, without limitation, all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with any
such Preference Claim.
Section 12.03 Effect of Payments by the Certificate Insurer;
Subrogation.
-----------------------------------------------
Anything herein to the contrary notwithstanding, any payment
with respect to principal of or interest on any of the Class A Certificates or
Class S Certificates which is made with moneys received pursuant to the terms of
the Certificate Insurance Policy shall not be considered payment of such
Certificates from the Trust and shall not result in the payment of or the
provision for the payment of the principal of or interest on such Certificates
within the meaning of Section 7.03. The Depositor, the Servicer and the Trustee
acknowledge, and each Owner by its acceptance of a Certificate agrees, that
without the need for any further action on the part of the Certificate Insurer,
the Depositor, the Servicer, the Trustee or the Registrar (a) to the extent the
Certificate Insurer makes payments, directly or indirectly, on account of
principal of or interest on any Class A Certificates or Class S Certificates to
the Owners of such Certificates, the Certificate Insurer will be fully
subrogated to the rights of such Holders to receive such principal and interest
from the Trust and (b) the Certificate Insurer shall be paid such principal and
interest but only from the sources and in the manner provided herein for the
payment of such principal and interest.
The Trustee, the Seller, the Depositor and the Servicer shall
cooperate in all respects with any reasonable request by the Certificate Insurer
for action to preserve or enforce the Certificate Insurer's rights or interests
under this Agreement without limiting the rights or affecting the interests of
the Owners as otherwise set forth therein.
128
<PAGE>
Section 12.04 Notices to the Certificate Insurer.
----------------------------------
All notices, statements, reports, certificates or opinions
required by this Agreement to be sent to any other party hereto or to any of the
Owners shall also be sent to the Certificate Insurer.
Section 12.05 Third-Party Beneficiary.
------------------------
The Certificate Insurer shall be a third-party beneficiary of
this Agreement, entitled to enforce the provisions hereof as if a party hereto.
Section 12.06 Rights to the Certificate Insurer To Exercise Rights of
Owners.
-------------------------------------------------------
By accepting its Certificate, each Owner of a Class A
Certificate agrees that unless a Certificate Insurer Default exists, the
Certificate Insurer shall have the right to exercise all rights of the Owners of
the Class A Certificates as specified under this Agreement without any further
consent of the Owners of the Class A Certificates.
END OF ARTICLE XII
129
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Seller, the Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
IMC SECURITIES, INC.
as Depositor
By:
-----------------------------------
Title:
-----------------------------------
INDUSTRY MORTGAGE COMPANY, L.P., as Seller
By: Industry Mortgage Corporation,
as General Partner
By:
-----------------------------------
Title:
-----------------------------------
INDUSTRY MORTGAGE COMPANY, L.P., as Servicer
By: Industry Mortgage Corporation,
as General Partner
By:
-----------------------------------
Title:
-----------------------------------
--------------------------------
as Trustee
By:
-----------------------------------
Title:
-----------------------------------
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ___ day of _____________, 199__, before me personally came
__________________ and ____________ to me known, who, being by me duly sworn,
did each depose and say that he/she resides at ________________,
_____________________________ and __________________, ________________________;
that he/she is a ____________________ and of IMC Securities, Inc., a Delaware
Corporation; and that he signed his name thereto by order of the respective
Boards of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
--------------------
Notary Public
<PAGE>
STATE OF FLORIDA )
: ss.:
COUNTY OF HILLSBOROUGH )
On the ___ day of _____________, 199__, before me personally came
__________________, to me known, who, being by me duly sworn, did depose and say
that he/she resides at ________________, _____________________________; that
he/she is a ____________________ of Industry Mortgage Corporation, a Delaware
corporation, the general partner of Industry Mortgage Company, L.P., a Delaware
limited partnership; and that he signed his name thereto by order of the
respective Boards of Directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
----------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ___ day of _______________, 199__, before me personally came
______________, to me known, who, being by me duly sworn did depose and say that
he/she resides at ____________________; that he/she is a
________________________ of _______________, the New York banking corporation
described in and that executed the above instrument as Trustee; and that he/she
signed his/her name thereto by order of the Board of Directors of said New York
banking corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
-----------------------
Notary Public
<PAGE>
SCHEDULE I-A
SCHEDULE OF ADJUSTABLE RATE GROUP HOME EQUITY LOANS
<PAGE>
SCHEDULE I-B
SCHEDULE OF FIXED RATE GROUP HOME EQUITY LOANS
<PAGE>
Exhibit 5.1
May 30, 1996
IMC Securities, Inc.
3450 Bushwood Park Drive
Tampa, FL 33618
Re: IMC Securities, Inc.
Home Equity Loan Asset-Backed Pass-Through Certificates
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to IMC Securities, Inc. (the "Depositor") in
connection with the preparation and filing of the registration statement on Form
S-3 (such registration statement, the "Registration Statement") being filed
today with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), in respect of Home Equity Loan Asset-Backed
Pass-Through Certificates (the "Certificates") which you plan to offer in
series, each series to be issued under a separate pooling and servicing
agreement (a "Pooling and Servicing Agreement"), in substantially the form set
forth as an exhibit to the Registration Statement, among the Depositor, Industry
Mortgage Company, L.P. (the "Seller" and the "Servicer"), and a trustee (the
"Trustee") to be identified in the prospectus supplement for such series of
Certificates.
We have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such documents and records of
the Depositor and such other instruments and other certificates of public
officials, officers and representatives of the Depositor and such other persons,
and we have made such investigations of law, as we deemed appropriate as a basis
for the opinions expressed below.
The opinions expressed below are subject to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
<PAGE>
We are admitted to the Bar of the State of New York and we express no
opinion as to the laws of any other jurisdiction except as to matters that are
governed by Federal law or the laws of the City of New York. All opinions
expressed herein are based on laws, regulations and policy guidelines currently
in force and may be affected by future regulations.
Based upon the foregoing, we are of the opinion that:
1. When, in respect of a series of Certificates, a Pooling and
Servicing Agreement has been duly authorized by all necessary action and duly
executed and delivered by the Depositor, the Seller, the Servicer and the
Trustee for such series, such Pooling and Servicing Agreement, will be a valid
and legally binding obligation of the Depositor; and
2. When a Pooling and Servicing Agreement for a series of Certificates
has been duly authorized by all necessary action and duly executed and delivered
by the Depositor, the Seller, the Servicer and the Trustee for such series, and
when the Certificates of such series have been duly executed and authenticated
in accordance with the provisions of the Pooling and Servicing Agreement, and
issued and sold as contemplated in the Registration Statement and the
prospectus, as amended or supplemented, delivered pursuant to Section 5 of the
Act in connection therewith, such Certificates will be legally and validly
issued, fully paid and nonassessable, and the holders of such Certificates will
be entitled to the benefits of such Pooling and Servicing Agreement.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and the related prospectus under the heading "Legal Matters".
This opinion is furnished by us as counsel to the company and is solely
for the benefit of the addressee thereof. It may not be relied upon by any other
person or for any other purpose without our prior written consent.
Very truly yours,
/s/ Arter & Hadden
----------------------
Arter & Hadden
<PAGE>
[Letterhead of Arter & Hadden]
Exhibit 8.1
May 30, 1996
Re: IMC Securities Inc.
Home Equity Loan Asset-Backed Pass-Through Certificates
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to IMC Securities Inc. in connection with the
preparation and filing of the registration statement on Form S-3 (such
registration statement, the "Registration Statement") being filed today with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), in respect of Home Equity Loan Asset-Backed Pass-Through
Certificates, (the "Certificates") which you plan to offer in series. Our
opinions formed the basis for the description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax Consequences" in the
prospectus supplement contained in the Registration Statement. Such description
does not purport to discuss all possible federal income tax consequences of an
investment in Certificates but with respect to those tax consequences which are
discussed, it is our opinion that the description is accurate. In addition,
assuming (i) a REMIC election is made, (ii) the Pooling and Servicing Agreement
is fully executed, delivered and enforceable against the parties thereto in
accordance with its terms, (iii) the transaction described in the prospectus
supplement is completed on substantially the terms and conditions set forth
therein and (iv) compliance with the Pooling and Servicing Agreement, it is our
opinion that for federal income tax purposes the Trust Estate (other than
certain specified assets) will be treated as a REMIC, the Class A Certificates
will be treated as "regular interests" in the REMIC and the Class R Certificates
will be the sole "residual interests" in the REMIC.
We hereby consent to the filing of this letter as Exhibit 8.1 to the
Registration Statement and to the reference to this firm in the Registration
Statement and related prospectus supplement under the heading "Certain Federal
Income Consequences."
Very truly yours,
/s/ Arter & Hadden
-------------------
Arter & Hadden
<PAGE>
